Johannesburg - At current pension fund contribution rates, South Africans will have to survive on only 30% of their final monthly salary when they retire.

This is far lower than the generally accepted norm of 75% and also less than the 59% average from compulsory savings products and 68% from voluntary savings products in the member states of the Organisation for Economic Co-Operation and Development (OECD).

This worrying figure comes from the latest Benchmark Survey on retirement provision from Sanlam Employee Benefits.

Although employers and employees' contributions have again risen slightly this year to averages of 9.9% and 5.9% of their salaries, respectively, only 11.3% is saved for retirement. The rest is used to provide for death and disability benefits (3.2%) as well as administrative fees (on average 1.3%).

But it's essential to save the whole 15.8% to ensure that people can draw a monthly income of 75% of their final salary after retirement, says Dawie de Villiers, chief executive of Sanlam Structured Solutions.

The total savings rate this year matches that of 2007, and is far less than in 2002, when 12.4% of salaries were being saved.

De Villiers notes that from the slight rise in the contribution rate it appears that people are actually saving more despite the economic downturn, and he believes this has been brought about by people becoming wiser about providing for retirement.

De Villiers reckons the 4%-odd of the pension fund contribution that is deducted for fees and other benefits can ultimately make a big difference to the amount available for retirement.

"If this 4% is not deducted from contributions, the amount available for retirement after 35 years will last for eight more years," he suggests.

Or, put another way, for each 1% per year increase to the contribution rate, enough will be saved to continue receiving payments for another two years.

De Villiers believes that an administration fee of less than 0.5% of one's salary is acceptable, but 70% of pension funds charge more.

Most of the larger pension funds restrict administration fees to under 0.5%, but the smaller pension funds can charge administration fees of up to 5% of the contribution.

He holds that in the restructuring of the pension fund industry lower administration fees for smaller pension funds must receive attention. "Consolidation among pension funds is one way to keep prices down."

Another concerning issue is the fact that the 3.2% portion of the contribution to pension funds allocated to death and disability cover is insufficient. This proportion, he points out, provides death cover of only 3.5 times a member's annual salary.

Only 38% of the pension funds participating in the survey offered disability cover.

In recent years there has been an increase in claims for disability. This is characteristic of tighter economic conditions, but it exerts pressure on pension funds.

- Sake24