When asked what your retirement might look like if you haven't saved (or started saving) for it, if you are one of the consumers represented by the respondents of a recent SA bank's survey, your answer varies among the below:
- I'll have to keep working – even if it means I start a new career altogether
- I'll start a smallanyana business
- I'm hoping my children or grandchildren will take care of me
- I will have to sell some of my assets and/or do a lifestyle downgrade
- I will depend on government social grants
These are some of the responses integrated financial services provider (FSP) First National Bank (FNB) got to its FNB Retirement Insights Survey which sought to understand how prepared SA consumers in different income groups and different age groups (pre- and post-retirement) are for their golden years.
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At least 8 out of 10 surveyed South Africans plan to continue working past retirement age due to lack of retirement savings, according to FNB.
Moreover, of those without a retirement plan, at least four out of 10 will rely on selling assets or government social grants.
"The findings highlight the need for South Africa to place retirement planning firmly on the national agenda," said FNB Private Segment CEO Sizwe Nxedlana at the 21 June 2023 release of the inaugural survey, which FNB says is the first retirement research of its kind conducted by an integrated financial services provider in South Africa, in Fairland, the FNB head office in SA.
“While our country continues to implement structural reforms to improve access to retirement savings and prevent potential abuse of retirement funds, there is an urgent need to provide consumers with accessible solutions and education to help them better plan for retirement," Sizwe added.
The fact that the rate of at which interest rates are rising is exceeding the inflation rate in South Africa, is a plus for those who save or want to start saving for retirement, said FNB economist Sphamandla Mkhwanazi. This means the interest you earn on your investments is better than it would be in a lower interest rate environment. It also means that the South African Reserve Bank (SARB), has less room to keep hiking the repo rate.
This is why, the economist says, it's important to see your retirement investments as part of your asset portfolio. You can use them as collateral to secure loans in order to acquire more assets; the taxman also rewards you for saving for retirement.
"Money that you put into a retirement annuity (RA) is deducted from your taxable income," explains Cape Town-based 10X Investments.
"So, for example, if you earn R500,000 a year, and contribute R50,000 to an RA during the year, you’re only taxed on R450,000. This is to illustrate the principle only – in reality, your tax calculation will probably include other tax deductions."
Moreover, "returns on your RA investment are tax free", add the investment managers. "You don’t pay tax on RA investment returns, such as interest income, dividends and capital gains."
A total of 45% of FNB Retirement Insights Survey respondents said they have a retirement annuity, the integrated FSP revealed.
"Despite this, the findings show that respondents in the entry-level, middle-income, and emerging affluent categories are highly unlikely to maintain their current lifestyle in retirement.
"In addition, it also established that the respondents who are of retirement age only started saving for retirement at an average age that is above 30 years, arguably late by industry benchmarks."
