TOBIE VAN HEERDEN: Treasury may now have facts it needs to rally support for retirement reform

The 10X Investments Retirement Reality Report 2021 could well give the National Treasury the evidence it needs to garner political support to act decisively on reforms it has been considering for years.

According to the Retirement Reality Report 2021, the fourth annual report on the retirement savings crisis in SA, 71% of respondents in a national survey have no retirement savings plan or else just a vague idea of one.

10X Investments’ report is based on the results of the Brand Atlas survey, which tracks the lifestyles of the 15-million economically active South Africans in households earning more than R8,000 a month. The data is weighted to reflect the profile of this universe as defined by Unisa’s Bureau of Marketing Research in their 2019 Household Income and Expenditure report.

Even among respondents with some sort of savings plan, 79% fear they won’t have enough to live on, or feel unsure, and only 7% are confident about a comfortable retirement.

The Treasury first proposed reform of SA’s retirement saving regulation 10 years ago. The need was self-evident: most people weren’t saving enough and only half the country’s workers belonged to retirement funds. “Only about 10% of South Africans are able to maintain their preretirement level of consumption after they stop working.”

The reforms were intended to address the root problem of inadequate lifetime saving and low preservation rates, and also to make households more resilient to income and expenditure shocks.

Despite these efforts, little changed. That is the bottom line of the latest Retirement Reality Report, with even fewer people now expecting decent pensions.

The Retirement Reality Report 21 shows how the pandemic exposed society’s fault lines and magnified its vulnerabilities. It highlights the lack of a safety net for those about us just hanging on by a thread.

“Even before the pandemic turned our lives and economy upside down, many South Africans were in financial distress, symptomatic of the huge challenges facing our country,” said the 2021 report. “Millions are unemployed, but even for many of those who are working, the money coming in does not cover their immediate needs, let alone their retirement funding requirements.”

The report confirms that economic hardship is real and widespread, with workers across all age groups and demographics saying they are barely making ends meet and cannot afford to save at all.

Our retirement saving crisis has been magnified dramatically by the global pandemic and containment measures. Financial hardship is no longer a risk most people fear experiencing in their old age but a clear and present danger that lies just one or two missed pay cheques away.

More financial education will help, but it won’t change the status quo for people who are in such a financial crunch — with children to feed and rent to pay — that they will leave a job to get their hands on their retirement savings.

Nor will education necessarily  address behavioural issues that result from denying there is a problem and refusing to engage with it. Many South Africans will continue to tap into their retirement savings when they leave a job because they can rather than because they need to.

The Treasury wanted to legislate against such “systematic irrationality”, but in the end chose “to nudge, rather than force” individuals to make decisions in their long-run interests.

It’s clear, though, that most South Africans won’t be nudged; they need a good shove. Better outcomes will have to be legislated, it seems.

The Treasury’s recent proposal to let savers access a portion of their fund in times of financial distress provided they save the balance towards their retirement is not new. It was one of the five preservation options put forward in 2012.

In the end, the Treasury went with another option: to monitor the response to the new default preservation rule for three to five years, and to revisit the issue if there is no improvement. That’s where we are now.

The partial withdrawal option is the most pragmatic, as it merely accelerates access to the portion retirees can (and frequently do) take as a lump sum.

By preserving the rest, it guarantees some savings at retirement and is a win-win proposal that balances short- and long-term needs. It also reduces the state’s burden at both points.

Other ideas, from levying an additional penalty tax on withdrawals to full preservation, will be difficult to push through politically. 

The Treasury’s reform proposals also envisaged a “fair and sustainable social security system” that would encompass compulsory retirement saving for all employees.

Such a step is necessary, but not in the form of a defined benefit scheme that usurps the current system, as put forward by the department of social development. That won’t be fair or sustainable.

Nor can we afford to spend another 10 years in the design and consultation phase. We require an immediate and practical solution. The basis for this could be a pre-qualified shortlist of the simple, low-cost, defined contribution auto-enrolment schemes now available. 

• Van Heerden is 10X CEO.