Lack of savings bite deep into Retirement Funds.

Jul 25, 2019

South Africans are known as notoriously bad savers and for living above their means. Conventional financial wisdom advocates one should save around 10% of your monthly income to provide a contingency for life’s little emergencies; as well as a nest egg for the future. But the combinations of a stagnant local economy and the continued bad spending habits of consumers, plus paltry savings set aside by SA’s populace, paint a gloomy picture.

According to Gerald Mwandiambira, acting chief executive of the South African Savings Institute (SASI), the ratio of household savings to disposable income hovers below 1% whereas household debt sits at about 74%.

“But at least we are now back in positive territory. Again, it’s a result of a lot of people realising that either they don’t qualify for debt any more, and they are starting to save, or, we believe, through wider knowledge around the need to save and invest.”

July is Savings Month in South Africa, and this year, SASI, with support from ABSA and regular sponsor, the IDC, have a strategy to engage SA’s youth with their #crazywaystosave theme. SASI and its partners hope their wacky slogan will raise awareness of the benefits of saving from a young age and spark a national conversation on how all South Africans can save in difficult times.

Arguably worse than not saving, though, is dipping into your retirement fund when you change companies and have the opportunity to cash-out — even though your capital will be significantly eroded by tax — on many years of retirement contributions.

“For most South Africans, retirement funds are the only savings they have,” says Radesh Maharaj, Principal Officer at Motor Industry Retirement Funds (MIRF), “and when employees tamper with the capital in these funds when switching companies, as they often do, it means wiping out years of hard-earned savings which they can’t get back and increases their risk of retiring with far less than they need.”

 “MIRF also supports National Treasury’s efforts to preserve retirement savings and our members are aware they have the option of leaving their withdrawal benefit in their fund after their employment is terminated; or to transfer it to another retirement fund. The last thing a member should do is to cash-out a withdrawal benefit,” adds Maharaj. 

Rather than seeing additional savings products as competition for pension fund resources, MIRF actively encourages its 250 000 members to save in addition to their pension fund contributions.

“If our members have set aside additional funds for a rainy day, they are then far less likely to bite into their pension funds when changing jobs and this will ensure that they are better looked after when they retire one day,” concludes Maharaj.

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