Most Read

  • Telkom CEO Sipho Maseko to step down
    Telkom has announced that its CEO and executive director Sipho Maseko will step down on 30 June 2022. The telecoms company said the process to appoint a successor is well underway and a designated group CEO will be announced in the not too distant future.
  • How cooking oil brought a moment of joy during a dreadful week
    It is possible that cooking oil prevented more looting in South Africa in the last week than the president, the ANC, the intelligence community, the army and the police combined. This, without question, says something about the versatility of the product. It says even more about the state of the state. When you are shown up by canola, you might want to revisit your strategy. By Howard Feldman
  • Park Advertising launches digital performance unit, Lucid Media
    Performance Media across Search, Social and Programmatic platforms is the single fastest growing area of digital media in South Africa. Combine that with the detailed analysis of campaign management, tagging and ad operations, and it becomes apparent that these highly specialist functions require a highly specialised unit.
  • Transnet hit by cyberattack - Operations disrupted nationwide
    The Transnet Port Terminals website has been hacked, implying that all companies under Transnet have been affected. All Transnet websites were down at the time when reporting was done for this SA Trucker article. The publication cited sources who requested to remain anonymous because they are not allowed to speak to the media.
  • #BehindtheBrandManager: Meet Tamsin Darroch of Kellogg's South Africa
    Few food brands have the historical connection with consumers around the world as Kellogg's does, having held meaning at the breakfast table for over a century. By Lauren Hartzenberg
  • Business unusual for small enterprises on the road to recovery
    The Covid-19 pandemic has hit South Africa's small business sector hard and there are grim statistics to bear this out. Those statistics will not be repeated here. After all, if you are a small business owner setting out on the road to recovery, the last thing you probably want is more details of the toll the pandemic has taken on small enterprises. Far more useful would be some good, solid tips on how to build back better after any business setbacks. By Ameen Hassen
Show more
Advertise on Bizcommunity

Subscribe to industry newsletters

A preservation 'revival' will supercharge South Africa's retirement outcomes

South Africa's retirement outcomes will improve radically if all retirement funding contributions are kept invested when fund members change jobs. Other quick wins include increasing the minimum government pension; delaying the government retirement age beyond 60 years; and refocusing the industry from saving a lump sum at retirement to providing a sustainable income in retirement.
These observations were made by Dr David Knox, the lead author of the Mercer CFA Institute Global Pension Index (GPI), during a keynote address to the inaugural Allan Gray Retirement Benefits Conference.

“An ideal retirement income system should not be solely focused on the provision of a lump sum at retirement; but rather on providing adequate and sustainable income and benefits throughout retirement,” said Knox, as he unpacked the 2020 GPI report.

The GPI ranks the retirement income systems in 39 countries. Overall rankings are based on three sub-category scores for the adequacy, sustainability and integrity of the system. South Africa, which was 27th out of 39 countries, can learn valuable lessons from top performers like Denmark and the Netherlands.

Too much leakage


Adequacy measures the level of income and benefits that citizens receive from a country’s retirement income system at retirement. South Africa performed poorly on this measure due to low minimum pensions; the small proportion of the country’s working age population in formal pension schemes; and too much leakage from retirement savings during working years.

“The lack of preservation, or our inability to retain retirement contributions within the system, is a long-standing concern for South Africa,” said Saleem Sonday, head of group savings and investments at Allan Gray, commenting on the report. “However, often the reality is that people access their retirement savings as they have no other option.”

Notwithstanding this, a mindset shift among local savers is needed to change the preservation impasse, to encourage preservation wherever practically possible.

“Government provides a level of taxation support to encourage pension savings; the quid-pro-quo is that this money is specifically for retirement,” Knox said.

He further observed that there is a natural tension or trade-off between the adequacy and sustainability measures used in calculating the GPI. South Africa could, for example, improve its adequacy score by doubling the government old age pension; but this would render the country’s social security network unsustainable.

Improving performance


Knox touched on four areas that could improve a country’s performance on the GPI. First, they should focus on broadening their retirement system coverage to include the self-employed and workers in the gig economy. Second, they should think about increasing the government pension or retirement age.

“Countries need to manage the system as more of their population lives longer; otherwise they end up with more retirees and fewer workers,” said Knox, who emphasised the fine balance between pre- and post-retirement populations. Third, countries must reduce leakage from their retirement funding processes. And fourth, they must reduce fees systemwide, without negatively impacting on retirement outcomes.

Alleviating poverty


Most retirement income systems acknowledge the benefit in scale; but there are risks in driving fees too low. “We must bring costs down to lowest sustainable level and take care not to limit retirement funds’ access to private equity and infrastructure investment opportunities,” said Knox. This is important in a South African context, where the allocation of pension fund assets to infrastructure/impact investment opportunities is a hot topic.

The overarching goals of a retirement income system include alleviating poverty among the aged and enabling retirees to maintain an acceptable standard of living through retirement.

“The Covid-19 pandemic has, more than ever, spotlighted the need for savings, as well as the fact that very few people are prepared to weather the storm in the face of a crisis. The same can be said for retirement; it always seems like something very far in the future, but it is the action we take now that will give us a better chance of achieving the goal of retiring comfortably," he said.
Comment

Let's do Biz