Empower yourself on your retirement savings

See if expectations match reality

Almost seven out of every 10 South Africans have no retirement plan in place or have only a vague idea about their retirement finances, a survey shows.

It takes many years to save for a comfortable retirement.. Picture: 123RF/HONGQI ZHANG
It takes many years to save for a comfortable retirement.. Picture: 123RF/HONGQI ZHANG

Almost seven out of every 10 South Africans have no retirement plan in place or have only a vague idea about their retirement finances, the latest South African Retirement Reality Report reveals.

The report shows more than a third of South Africans believe that a comfortable retirement can be achieved through saving for 24 years or less. The reality, however, is that you need to save for most, if not all, of your working life to achieve this goal.

So, if you have not yet done so, the best time to take stock of your retirement plan or to put one in place is now, Saleem Sonday, head of Group Savings and Investments at Allan Gray, says. He advises that you promptly meet with a financial adviser.

Many employees know very little about their group savings scheme through their employer, such as a pension, provident or umbrella fund, passively saving the minimum required amount in the default investment option. 

If you are an employee of a small- or medium-sized business, you may be a member of an umbrella fund which is a type of group retirement savings fund. 

To get the most of your group savings scheme and ensure that you take control of your own retirement savings, ask these questions of your employer or retirement fund provider: 

  • What income will my savings give me in retirement?

It is not enough to know how much money you have in your retirement fund. Only if you understand how much retirement income your current savings is expected to provide, will you know if your expectations of income in retirement match reality. 

  • How much does it cost to be a member? 

Retirement funds should be transparent and have easy-to-understand fee structures. And cost efficiencies should be passed onto you, Sonday says. But some funds have opaque and confusing fee structures. Ask your employer or fund provider to explain the cost structure of your fund.

  • What level of service can I expect?

A good group savings scheme will regularly report information that helps you understand whether your retirement savings are on track to provide the retirement income you need. 

It may also allow you to amend info, like your beneficiaries, online. 

Some retirement funds give you electronic access to your account and offer you the ability to switch between underlying investment funds at no additional cost, Sonday says.

This may help you if you need to find investments better suited to your needs, Sonday says, but it isn’t helpful if you will be tempted to make poor decisions based on market sentiment or the advice of friends, Michael Prinsloo, managing executive research & product development at Alexander Forbes cautions.

  • Understand what happens to your savings if you change jobs

Regulations make it compulsory for all retirement funds to automatically preserve your savings, unless you instruct otherwise. The aim is to encourage you to maintain and build your retirement savings rather than taking the money and splurging it.

You may request a withdrawal or transfer your savings to your new employer’s fund or a different product provider if you no longer feel that your ex-employer’s scheme is suitable for you. 

It’s important to realise that withdrawing when you change jobs may negatively affect your lifestyle in retirement, Sonday warns. Not only do you have to start saving from scratch, you also miss out on the magic of compound interest, he says.

Before you withdraw, check what a withdrawal will do to your retirement income and what you will lose to tax. 

  • Is the default option in the retirement fund best for me?

The trustees of retirement funds, including group retirement funds, are required to approve suitable default investments in which your savings will be invested unless you choose a different portfolio. 

Prinsloo advises that the average fund member is better off in a fund’s default portfolio which usually invests your savings according to how long you have until retirement.

You can, however, opt out of this default and make your own choice – for example, if you know you are going to need to work beyond your retirement date in order to save enough and you would prefer to delay a move to a lower equity exposure that comes with many default options.

  • Use the advice services

Employers sometimes engage an external consultant or independent adviser to provide you with advice on their retirement savings schemes. Ask your employer if you can make an appointment or if the adviser may be available, for example, at the company’s offices a day each month.

All funds are obliged to at least provide retirement benefit counselling, which may be written, telephonic or in person. Although counsellors cannot give you advice, they can provide you with information about your retirement choices. 

While your employer may provide you with a good group retirement savings option, providing for your retirement remains your responsibility. Ensure that you’re informed and suitably equipped to make the necessary decisions, Sonday says.

* Want to keep tabs on your purse? Follow Tiso Money on Facebook and Twitter.