Words on Wealth: Retiring comfortably: a luxury for the few?

The financial services industry needs a fresh approach to building wealth and, where possible, needs to retire the word “retirement”. PHOTO: Pexels.com

The financial services industry needs a fresh approach to building wealth and, where possible, needs to retire the word “retirement”. PHOTO: Pexels.com

Published Jul 2, 2023


A new retirement survey, the inaugural FNB Retirement Insights Survey, released last week, underlines once again the fact that the vast majority of South Africans will not be able to afford to retire comfortably when they reach retirement age.

These surveys in the past have come from retirement fund administrators or asset managers, such as AlexForbes, Old Mutual, Sanlam and 10X.

This survey, to the best of my knowledge, is the first one from a bank. That’s notable, because banks are on the front line when it comes to the finances of everyday consumers and can actively engage with them through cellphone banking apps, which are increasingly the banking method of choice across all sectors of the population.

These apps, which are becoming increasingly user-intuitive, are an ideal platform for tools to help consumers manage their money and save for retirement, and FNB, to their credit, are at the forefront in this regard.

I am sure the motives are not entirely altruistic, as one would expect from any profit-driven company. For years now, the lines between the financial sectors of banking, insurance, asset management, and retirement fund administration have become increasingly blurred, with most big players now having fingers in all these pies. So FNB is probably looking at cornering a larger piece of the retirement funding market which, despite widespread concern about South Africa’s dismal savings rate, is huge. According to the report “Retirement Funding in South Africa 2022” by Research and Markets, South Africa’s retirement industry has assets in excess of R4.6 trillion, representing one of the highest assets-to-GDP ratios in the world.

The Research and Markets report also notes that only 7 to 10 million individuals have retirement savings products, out of an employed labour force of about 15 million. But even among people with retirement savings products (a retirement annuity if you’re self-employed or typically an occupational retirement fund if you work for an employer) only a relatively small proportion are on course to have saved enough to retire comfortably by the time they reach that watershed age of 65.

This is backed up by some statistics to come out of the FNB survey. The research employed a mix of quantitative online surveys and face-to-face interviews with 1 069 banking customers. The data was collected between January 13 and February 23.

Respondents were categorised according to age and personal income, with a relatively even distribution across the four age categories (18-35 years, 36-54 years, 55-60 years, and 60+ years) and six income categories (Entry Wallet, Entry Banking, Middle Market, Emerging Affluent, Affluent, and Wealth).

Household expenditure across the six income categories differed the most in the areas of saving for retirement (8% of expenditure among the Entry Wallet respondents versus 17% among the Wealth respondents) and spending on groceries (25% for Entry Wallet versus 14% for Wealth). Servicing debt was highest in the Emerging Affluent category at 15% of expenditure – this would exclude spending on accommodation, which presumably covers mortgage bond repayments. Even so, this figure seemed low to me in the context of media reports of our alarmingly high consumer debt rates.

Digging into some of the more interesting retirement statistics:

  • 26% of respondents under 60 years did not have a retirement plan of any sort.
  • Only 21% of respondents over 60 were fully retired.
  • 36% of retired respondents over 60 relied on a living annuity for a pension income, 35% relied on a life annuity; 27% on a government pension; and 18% on a state old-age grant.
  • 44% of respondents in the Entry Wallet anticipated continuing to work after retirement age, while a significant percentage of middle-income and affluent participants, 64% and 59% respectively, expected to continue working either full-time or on reduced hours.
  • The age for starting retirement savings appeared to advance as individuals advanced in age: 18-25-year-olds planned to start saving at 31, while 26-35-year-olds aimed to start at 36.
  • Entry Wallet and Middle Market respondents expected to earn the same income in retirement, while Emerging Affluent, Affluent, and Wealth respondents expected a decrease in income in retirement.

The report indicates low levels of financial education, especially among younger earners, around what it takes to save for retirement – you can’t expect to earn the same income post-retirement as pre-retirement but postpone the starting date for saving.

The fact that most respondents below 60 expect to continue working in retirement (it’s not clear whether they want to carry on or expect to be forced to) underlines an issue I have returned to a number of times: the financial services industry needs a fresh approach to building wealth and, where possible, needs to retire the word “retirement”. With the world of work changing as I write, the existing concept of retirement is quickly becoming anachronistic. I’m not saying that people won’t reach a point where they’ll have to retire physically, but the work-life continuum is becoming increasingly fluid, and financial institutions must begin acknowledging that in their product development and marketing.

* Hesse is the former editor of Personal Finance