SA pension savings shocker

This comes as the government seeks to increase national savings through a proposed framework of mandatory individual contributions.

The annual retirement survey reveals a need to institute an SA savings culture and the need for more communication about retirement funding.

In the past year, the amount of employee and employer contributions to pension funds has declined by almost a full 1% per annum with the total provision for retirement now at only 11.3% per annum, the study reveals.

While the industry transition from defined benefit to defined contribution retirement schemes has resulted in expanded member choice among funding options, it has also led to an alarming reduction in the total average contribution to retirement.

Negative savings trend

"The expectation is that the government's multi-faceted social security reform will do much to address South Africa's negative savings trend," said Elias Masilela, survey co-author and chief strategist for financial sector developments with SEB.

"However, as the country's retirement landscape expands, further collaboration among industry, labour and government will be essential to ensure members understand the value and process of saving for retirement."

"In the current environment, long-term retirement planning has given way to short-term consumption," said Deon Booysen, survey co-author and executive head of client solutions at SEB. "It seems that employees are opting for more take-home pay rather than maximising their contributions to retirement provision."

Released as part of the annual SEB symposium the retirement fund industry's most comprehensive annual survey offers some other revealing statistics, including that 54% of funds now offer members life-stage solutions (up from just 5% in 2004).

As the cost of living increases, more retirement fund members are maximising their exposure to real growth assets to improve their chance of retiring comfortably.

Socially responsible investing not priority

Only 10.5% of retirement funds have a formal investment policy to invest a proportion of assets in socially responsible investment (SRI) portfolios.

Almost 60% of funds are considering paying for financial education of members to address the perceived lack of understanding of the information provided to members.

Masilela said: "Given the social and economic structural backlogs in South Africa's economy, the level and participation of retirement funds in SRIs remain woefully low.

"The expectation is that with the government's envisioned national fund there will be the requisite asset base and influence to invest in crucial infrastructure projects in order to drive further economic development and job creation."

According to Booysen: "Although the majority of funds (93%) provide an annual benefit statement, more resources need to be devoted to educate general staff so that they are able to make responsible investment decisions and better understand all of the benefits available to them and their families.

Online tools are proving increasingly popular though with more than 65% of funds now using an internet/intranet facility to provide members with portfolio information and other fund details."

The 2007 Sanlam Survey was conducted by the independent market research agency BDRC, by means of face-to-face interviews among 200 principal officers of retirement funds.