On average, South Africans are retiring with savings able to generate a pension of just 26% of their final salaries, according to the annual Member Watch research published by Alexander Forbes recently.

If the retirement fund industry were to be marked for its performance, that would surely earn it an F.

Alexander Forbes, SA's largest asset manager whose research covers more than 1-million members, found that on average, members should have saved about 12 times their annual salary by the time they reached retirement. The actual figure is less than four times.

Members blame high fees charged by the asset management industry, poor returns and the tax paid when leaving a fund.

We should address those issues, but it is no use being silent about the elephant in the room - when changing jobs, only 8.8% of members preserve their savings.

Alexander Forbes says this is the biggest single reason so many members fail to achieve a decent pension at retirement.

Typically, your contribution levels and investments are designed to target a pension that is between 60% and 75% of your final salary - as long as you save throughout a 40-year working life. If you withdraw your money at age 30 and hope to retire at 60, you shorten your savings period to 30 years with dramatic implications for the pension you can hope to achieve.

A graph in the Member Watch research demonstrates this clearly.

If you start at a contribution rate of 17% of your income at age 25 and keep saving until age 65, you are most likely to get the savings you need to be able to generate a pension equal to 75% of your savings. This is known as your replacement ratio.

But if you withdraw your savings and start again at age 30, your replacement rate drops to just over 60%. If you pull your savings out at age 40, you are really in trouble as your replacement ratio drops to below 40%.

To get it back to 60% or 70% will require saving a much higher percentage of your salary or working much longer.

If you are retrenched and struggle to find a new source of income you may be forced to spend some of your retirement savings, but there is a difference between spending the money to stay solvent until you find a new
income and spending the money on things you want just because you can.

Alexander Forbes's research shows 61% of members are drawing their savings when their savings are low - below R25,000 - because they think the amount is so small that it makes no difference.

This shows how little we understand about compound interest and about how small amounts grow over time into larger ones if we just leave them invested.

Sanlam's Benchmark research revealed that members of 25% of funds have queried their retirement fund levels following decisions by employers to suspend contributions and the recent market falls.

Brigitte van Zyl, chief client officer at Sanlam, says the impact of the financial relief from suspending contributions will be 1%-3% of members' final values if the suspension continues for six months and conservative assumptions on growth are made.

Put in perspective, it is a much smaller impact than any withdrawal of savings is likely to have, but few members ask about that.

Alexander Forbes says in addition to preservation, these factors will affect the pension you receive:

• How much you contribute. On average Alexander Forbes found that after administration and group life and disability costs, just 12.3% of employer and employee contributions are used for retirement savings. Some trustees have set contribution levels to target a pension of only 60% of the members' final salary;

• Expenses. There is a major focus on high fees. But saving fees alone is not enough - you also have to preserve and save enough;

• Investment returns. After fees your returns need to beat inflation;

• The progression of your salary. If your earnings increase after a long period of contributing from a lower salary, check your savings are on track to provide a pension that adequately replaces most of your new higher income; and

• How much you use for your pension. Pension and retirement annuity fund members can withdraw up to one-third at retirement, which leaves less to provide a pension.

Keep your focus on all of these factors, but never lose sight of what has the biggest impact - saving enough for long enough.

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