Pension Expectations in South Africa vs. Reality

A significant number of South Africans believe that they will continue to work for the rest of their lives without even wanting to retire.

This emerges from the latest bond report from 10X Investments, which is based on the results of the Brand Atlas 2021 survey. Brand Atlas tracks and measures the lifestyles of 15 million working South Africans – who live in households with monthly incomes in excess of R 8,000 – through online surveys.

Of those surveyed who retired, 70% said they retired when they wanted to, while 29% were forced to retire early. Only 2% said they had to work longer than planned.

“Due to a relatively small percentage of those surveyed who have retired (around 3%), the numbers tend to fluctuate from year to year,” said 10X Investments.

“However, the trend over the years suggests that around a third of retirees will have to retire earlier than expected, a double punch for any retirement plan as more retirement years have to be funded with fewer contribution years and compound interest. For those formally employed and not planning to retire, some may find that their employer has other plans. “

The data, which focuses on when South Africans want to retire, paint an even bleak picture, with younger South Africans only having a hazy idea of ​​when to retire while older South Africans indicate they plan to be over 70 to work out or not to retire at all.

“It is noticeable that 35% of those under 35 believe that retirement under 60 is possible, but only 4% of those over 50 think it is realistic,” said 10X Investments.

“In the same vein, while in the younger cohort (between 25 and 49 years) on average only 46% expect to work beyond the age of 64, many more (71%) have coped with the 50-year-olds and older their pension reality and expect to retire beyond the age of 64 or not at all. Both expectations seem unrealistic in a country like ours. “

Almost half of those surveyed believe they will be able to save for retirement in less than 30 years. The fact that most people think they could leave it late (i.e., up to the last 20 or 30 years of work) is a fundamental problem, 10X said.

What is the difference between 30 and 40 years of saving? As part of a consistent savings plan with a real net return of 5% (after fees and inflation), saving over 40 instead of 30 years leads to an 83% higher pension income. Or to put it another way: If you only save for 30 instead of 40 years, you have to make do with a pension income that is almost 50% lower, according to the financial services group.

Most respondents (74% versus 77% last year) believe that they need to generate some income after they retire. Another 19% are not entirely sure, so only 7% of respondents are confident they are on their way to an increasingly outdated notion of retirement based on complete financial independence.

Nothing to clear away

The data increasingly show that for the majority it is not about hubris or ignorance, but about economic hardship: 64% of those surveyed stated that they simply could not afford to save because there was nothing left at the end of the month.

According to Stats SA’s quarterly labor force survey for the second quarter of 2021, the unemployment rate in South Africa was 34.4%. Young people (aged 15-24 and 25-34 years) had the highest unemployment rates at 64.4% and 42.9%, respectively.

In a new economic update on South Africa released in July 2021, the World Bank found that the coronavirus pandemic has “exposed structural weaknesses in the labor market among young people, particularly given the acute unemployment rate, with an incidence twice that of older age groups” . .

According to the World Bank report, 63% of 15 to 24 year olds are unemployed and looking for work, and 41% of 25 to 34 year olds. If discouraged workers are taken into account, the unemployment rate for 15 to 24 year olds is 74% and for 25 to 34 year olds 51%.

“That means many thousands of people are entering the job market as more and more people of retirement age try to keep their jobs because they just can’t afford to retire,” said 10X Investments.

“This personal misery for many naturally fuels the smoldering social conflict. The number of people who say that old-age provision is simply not a priority in this phase of life is still high, but falling: 22% of those surveyed – compared to 29% in the previous year and 36% in the previous year – were more likely to opt for this option Answer.”

That could mean they lost the “luxury” of allocating their discretionary spending because they now lack that discretionary spending, 10X Investments said. It could also mean a shift in attitudes towards retirement planning based on their own recent experiences.

“Either way, it’s a rigorous reality check. Hopefully, when the economy picks up and people have to make choices again, they will remember what it was like to have no money and limited choice and take steps to avoid that situation happening again in the future. “

Read: South Africans struggle to pay their bills – that’s how much we owe on our credit cards.

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