Nearly 50% of South Africans lack a retirement plan, FNB survey

Source: Supplied. Lytania Johnson, chief executive officer of FNB Personal Segment.

In its second year, the in-depth research reveals persistent challenges around retirement in South Africa and highlights emerging opportunities that could significantly shape the future of retirement preparedness in the country.

The 2024 survey, which sampled a broad South African demographic, informed by FNB’s diverse client base, indicates a consistent theme from 2023, which is that the vast majority of South Africans are inadequately prepared for retirement, primarily due to economic pressures and a lack of financial literacy.

Data from the survey shows that close to 50% of respondents are not planning for retirement, with economic challenges, high immediate financial obligations, and a resulting inability to save being some of the biggest barriers. The findings highlight a critical gap between the imperative for financial survival and the importance of long-term financial planning.

Lytania Johnson, chief executive officer of FNB Personal Segment says, “this year's study validates the ongoing financial and knowledge barriers that South Africans face, which impede effective retirement planning.

"However, the responses also show a greater awareness of the importance of education in overcoming those challenges. Despite a landscape fraught with economic instability and rising living costs, there is a growing awareness of the need for structured financial education and more accessible planning services.”

Psychological financial barriers

Sizwe Nxedlana, chief executive officer of FNB Private Segment echoes this sentiment and adds that this year’s findings reveal a heightened focus on the psychological aspects of financial decisions, which play a crucial role in how people manage their retirement planning.

For many South Africans, these psychological constraints pose as much of a challenge as financial barriers, and that the tendency to prioritise short-term needs over long-term security hampers retirement planning across most income groups.

“The findings reflect the deep economic divisions that continue to affect retirement outcomes across different income groups. While higher-income individuals generally report better preparedness for retirement, the reality for most South Africans is that a significant number of them struggle with savings and investment due to the harsh economic conditions,” he adds.

Advisers warn of tax risks of early withdrawals under new two-pot retirement system

26 Jun 2024

Retirement is a deeply emotional issue filled with anxiety and uncertainty for many, hence urgent supportive measures are needed to address both the financial and emotional aspects to improve outcomes.

“The gap between retirement expectations and reality is also concerning, with many respondents anticipating maintaining their living standards despite inadequate provisioning, particularly among younger respondents. This false sense of security highlights the importance of financial education tailored to specific age groups and financial literacy levels,” says Johnson.

A focus on pre- and post-retirees

Despite these lingering challenges, the research also revealed several positive aspects regarding retirement planning and preparedness for pre-and post- retirees. Notable trends among individuals who have not yet retired or reached retirement age (pre-retirees) are underscored by responses that point to a broad consensus on the value of having multiple sources of income and taking a disciplined approach to financial management, which should, in turn, lead to greater confidence and control over retirement futures.

This positive shift may already be taking place, with approximately 75% of respondents who have a retirement plan in place, feeling that they are on track for a good retirement.

On the other hand, there is a belief among an increasing number of pre-retirees that they will need to continue working after retirement age. Around 50% of respondents plan to supplement their retirement income with full- or part-time work saying they intend to continue working full-time.

The relatively high proportion of respondents who intend to continue working indicates that retirement is increasingly being seen as a transition phase rather than a complete withdrawal from the workforce.

Shift in mindsets

There appears to be a shift across most pre-retiree groups towards recognising the importance of diversified income streams and financial discipline.

The survey also delivered some valuable insights regarding those who have retired or reached retirement age (post-retirees):

Post-retirement responses revealed shifting mindsets regarding retirement, notably an increasing desire for greater control over financial matters once retired. A growing portion of affluent retirees are opting for living annuities to manage their retirement income.

The survey also found that only around 10% of respondents that fall into either FNB’s emerging affluent or affluent & wealth segments purchased a living annuity with 100% of their retirement benefit when retiring.

Juta Webinar: Demystifying South Africa's two-pot retirement system

Juta and Company  9 Jul 2024

In contrast, one in five retirees in these segments withdrew the permitted one third of their retirement savings in cash when they retired and only invested the remaining two thirds. Not only does this mean lower retirement income for the remainder of their lives, but if the one third cash withdrawal amount was higher than the R500,000 tax-free withdrawal allowance, their tax liability could have significantly lowered the amount they received.

Survey responses revealed a disparity in the sources of advice between income groups, with wealthier individuals more likely to engage with professional financial planners, while those from lower-income groups often relying on less formal sources of advice, which may not always provide the necessary depth and breadth of information required for effective planning.

Johnson says, “it’s clear that financial services providers need to take a more inclusive approach to retirement planning and investment advice, because the income groups that are most in need of our guidance and support are still accessing their advice from other, often less-reliable sources.”

The overarching message of the 2024 Retirement Insights Survey remains clear - more comprehensive solutions and targeted interventions are essential to bridge the retirement planning gap.

"By deepening our understanding and expanding access to resources, we can empower more South Africans to secure their financial futures and it’s crucial that financial institutions consider these insights and apply them to foster a more inclusive and supportive retirement-planning environment that is accessible to all South Africans, " concludes Nxedlana.