Johannesburg – Savings levels of working South Africans are still low at 15%, while the gross rate of savings for the entire population is at a shocking 3%, said Old Mutual Investment Group strategist, Rian le Roux.
Le Roux spoke to Fin24 following the launch of the Old Mutual Savings and Investment Monitor at the JSE on Wednesday.
The survey looks at the saving and investment behaviour and attitudes of working South Africans who live in metros, and consists of face-to-face interviews with 1 000 South Africans.
The survey revealed that South Africans allocate 15% of their income towards savings; this has been consistent since 2015.
Le Roux said that this low savings rate, coupled with lower expected investment returns, is not enough for people to settle down with at retirement. “You will still experience a drop in your standard of living when you retire.”
READ: SA's slow growth will make it harder to save, warns economist
But Le Roux added that people are struggling to save more because they are under financial pressure. “Over the last year or two, inflation has been rising, interest rates have been rising, taxes have been rising.” After-tax income is not growing fast enough, he explained.
Further, the prevalence of the sandwich generation, where the middle-aged population has to take care of adult children as well as elderly parents, adds financial pressure. Consumers are also “squeezed” by the economy and taxes.
Le Roux commented that the fact that people still manage to save is a “surprisingly good” outcome, given the poor economic environment.
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People should make use of tax breaks that come from saving towards retirement through pension funds and retirement annuities, explained Le Roux. Government introduced this a few years ago.
Another thing that will take the “squeeze” off is if the economy grows faster. This will create jobs and make young people less dependent on their financially stressed parents and government, he said.
“The focus goes back to the economy, and to grow the economy faster.”
Le Roux said a faster growing economy will mean there are more taxpayers, and government won’t have to raise rates to finance expenditure.
The financial pressures consumers face are among the main findings of the survey, said Lynette Nicholson, research manager at Old Mutual. “South Africans are still very stressed financially. We saw it a few years ago, and we still see it.”
But South Africans have been resilient and have made efforts to cut back on expenses and repay debt quickly, which has been a recurring theme, said Nicholson.
Low income households however still spend more on consumption and living expenses, according to the report. About 46% of metro working households said they are saving less than they did a year ago. This is an improvement from perceptions in 2016, but not at the same levels of 2015.
The survey showed that 16% of income is allocated to servicing debt, and consumption spend has dropped one percentage point from the previous year to 62%. This is lower than the 68% allocated to consumption in 2015. About 7% of income is allocated towards medical aid and insurance, up from 6% reported in 2016 and 5% reported in 2015.
Public sector employees save more than those in the private sector, which is expected, said Nicholson. Contributions to pension funds in the public sector is compulsory, she explained.
Respondents in the public sector allocate 17% of their income to saving, compared to 15% by the private sector. Public sector employees also spend less (57%) on their consumption and living expenses compared to the private sector (65%).
Public sector employees allocate 19% of their income to service debt, while private sector employees allocate only 14% of their income to debt servicing.
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