RETIREMENT: From 1960 to 2030: Hindsight and Foresight in SA’s Retirement Industry
Recent Western Cape Business News
WHEN Sanlam’s former chairman Desmond Smith joined the group in the 1960s, the working world could not have been more different. Back then you had to earn more than R100 a month before the company would permit you to marry. And you had to earn R120 a month before you could own a car!
This paternalistic approach to employment would never fly with today’s young workforce – millenials are an independent and free spirited generation who look for instant gratification and who tend to change jobs frequently. They work collaboratively and they need to be equipped and empowered to run their own financial show through digital means.
For 37 years, the Sanlam BENCHMARK Symposium has provided authoritative retirement research to South Africans. It offers a comprehensive annual look at every aspect of South Africa’s employee benefits’ space. It has delivered more than 30 years of hindsight, giving context to what we are seeing today and giving us a level of foresight into the future.
In his keynote address at the 2017 symposium event in Durban, Smith reminded the audience that retirement, back in the pre-defined contributions day, was largely the responsibility of the company. Retirement benefits were linked to income at retirement. The employer coughed up a sizeable portion of the retirement savings of each employee and, since in those days most people stayed with one company for most of their lives, the cost of paying for employees’ retirements was a hefty burden. So when the concept of ‘defined contributions’ became the trend in the 1980s, many employers jumped at the chance to transfer the burden of savings for retirement to employees.
Smith believes the introduction of DC was in certain respects unfortunate. People tend to lean towards short-termism, often due to immediate needs rather than taking a long-term view. So saving a significant portion of one’s income now for retirement seems to go against a lot of South Africans’ nature. Or they simply aren’t communicated with properly so are never really sure what do to or what the consequences of not doing enough may be.
Smith feels that hindsight – while always important – will be less important going forward due to the sheer pace and size of change in financial services. Fintech is changing everything and employee benefits and retirement, while behind areas like banking and unit trusts – are due for some epic changes very soon.
According to a PWC report, millennials only preserve their retirement savings, on average, once out of every eight to nine job changes. Our current crop of retirees are already really struggling – most don’t make ends meet each month. Many are indebted. Many are highly dependent on their families to survive. And if the millennials, who already make up the biggest part of today’s workforce aren’t saving enough for retirement, the issue of insufficient funds in retirement will snowball.
The reasons for these low levels of savings are complex and myriad. Poor economic conditions, unemployment, easy access to credit, poor financial education all play a role. But this doesn’t make adequate retirement savings any less important in the complex web of factors which will contribute to a more prosperous future for South Africans and South Africa.
During the 2017 BENCHMARK event, David Gluckman did some future gazing. What, he was asked, would retirement look like in 2030? Gluckman has been involved in the benchmark research since 2008 and has worked closely with government to help map out retirement reform for the country. His views haven’t changed since 2008 as to what a successful retirement model would look like.
Consolidation in the umbrella funds industry will be a huge movement. This will reduce inefficiencies and improve economies of scale. He further believes that in 2030, governance will be higher across the industry, technology will allow for far greater scalability and significant improvements in administration and service delivery. There’ll be a blurring of the institutional and retail world, the member will become the customer. There’ll be a greater focus on delivering value than on costs.
Retirement reform proposals are currently at the Nedlac negotiation stage but it will be a long and involved process, often forced into the background as more immediate needs take precedence. He believes, for instance, that a mandatory and contributory National Social Security will be problematic and is so highly complex it is likely not to be in place by 2030. That does not mean, however, that there isn’t room for a lot of improvement in our retirement system that can be well and truly in place by 2030.
Gluckman called on industry to work together to improve the state of employee benefits in South Africa believing how well we succeed as an industry into the future is entirely up to us!
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