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Sanlam calls for sea change in South African pension industry

Sanlam Employee Benefits is calling for a sea change in the pensions industry.

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SEB made the call following the completion of its 2011 Benchmark survey. Now in its 31st year, SEB describes the research as a “comprehensive annual review of South Africa’s retirement industry.”

This year the company surveyed over 1300 retirement fund trustees, principal officers, retirement fund members and pensioners and said one of the key findings was that changes made in the 1990s to shift the risk and responsibility of retirement savings from the employer to the employee, have left many employees worse off. In technical terms this was a shift away from defined benefits to defined contributions.

Dawie de Villiers, CEO of Sanlam Structured Solutions, a division of SEB, said: “While we do not challenge the rationale behind the move away from the defined benefits system, the research shows that members are still not accepting responsibility for their own retirement savings – and many members are not actually aware that they carry the risk.”

The research indicates that of the one in five respondents who resigned or switched jobs over the past year, more than 70 percent cashed in their retirement funds, and only 18 percent actually preserved their funds.

De Villiers said, while some retirement fund members thrive on the freedom to align their retirement contributions with their own specific financial circumstances, many find the range of options bewildering.

“Instead of looking for help, most members push the responsibility of saving for their post work years to the bottom of their priority list until about five years before retirement when the uncertainty of their future is more imminent,” he added.
Other stand-out findings include:

  • South Africans are fairly well educated about the risks they face by not saving adequately for retirement, but even so, are not taking responsibility for their retirement provision.
  • 53 percent of respondents interviewed in 2011 believe that they are on track for retirement, yet nearly one third do not know how their retirement savings have been invested and 29 percent of respondents don’t know that they have a choice in how they are invested.
  • Of those who opted for a default fund, 56 percent trust that trustees will make sound investment decisions on their behalf. However two thirds of members cannot name a single trustee whom they are entrusting with their savings.
  • Of the one in five members who have switched jobs, 70 percent cashed in their retirement fund and only 18 percent preserved their retirement saving. In most cases the savings are used to settle short-term debt.
  • 84 percent of trustees are concerned about how members use their retirement benefits, yet only 22 percent want any further involvement once the member has cashed in their funds or retired.
  • The average fund value per member declined significantly during the sub-prime crisis of 2007 and 2008, and has only now recovered to their pre-crisis levels. Members have lost out on four years worth of compounding of returns on their savings, and with global markets currently in turmoil again, this risk is set to continue.
  • More than 14 percent of standalone retirement fund principal officers expect their members to move into umbrella funds, in line with Government’s drive to consolidate the industry.

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