Facing the facts: retirement savings in South Africa

Old Mutual Savings and Investment Monitor.

“We already know that 44% of working South Africans have no formal retirement savings: they contribute to neither a pension or provident fund, nor to a retirement annuity.” This is one of the cautions sounded at the media briefing held in Johannesburg today (Monday, 23 July) at which the results of the Old Mutual Savings & Investment Monitor were released. For those who attended (including this COVERling), the presentation was a sobering reminder of the urgent need for South Africans to start saving, especially in the context of global economic trends.

In his introduction, Mohale Ralebitso, Head of Old Mutual’s Marketing, Corporate Affairs and Communications Division, said it was the responsibility of all roleplayers – companies, financial planners and the media – to encourage saving in South Africa, with its positive effect on our economy, and empowerment of individuals being an essential motivation. He also stressed the importance of financial advisors and the need for their expertise, expressing his support for measures to uplift the standard of advice.


Lynette Nicolson presented the findings of the sixth edition of the monitor. It is a tracking study, looking at a thousand working metro households, via face-to-face interviews. The focus area of the survey this time was women. Discussion points included: an update on tracking measures, vehicles used for saving and investing, savings and investment objectives, property as a retirement nest egg, dependency, debt, the sandwich generation, financial education, women and finance.

Savings and investment, in the context of the Monitor, is defined as putting money away into savings accounts, policies, investments, and holding back on spending to pay off debt faster. A brief glimpse of the year to date shows: the Consumer Confidence Index has been flat; interest rates have remained stable (with recent 0,5% drop); no significant change in the demand for residential property; the South African CPI was 5,5% in June 2012; financial turmoil in Europe and the US persists.

According to the survey, overall savings behaviour indicates that 37% people are saving less than a year ago. In contrast to July 2011 (5,7 out of 10), there has been an improvement in consumers being satisfied with their overall financial situation (6,3). Lynette attributes this to the panic that consumers felt in the wake of the global economic meltdown, not knowing whether they would regain financial equilibrium. While their situations may not have improved substantially, they are feeling more confident, having put some plans in place to face the challenge.

Effects of the recession and resultant behaviour

85% of those surveyed say they are still feeling the effects of the recession. What effects? Affordability pressure, expense control (has soared from 38% in July 2011, to 62% in July 2012), and a saving and investment mindset, realizing that they need to be aware of what investments they have. So, what are consumers doing? Debt counseling, consolidating debt, increasing knowledge of investments, selling furniture, visiting a financial planner more frequently, moving a child to a cheaper school, doing their own gardening. Thus, consumers have gone from panicked in July 2011, to managing better in November 2011, to a holding position in July 2012.

Vehicles used for saving and investing

These included funeral policies, pension or provident funds, banked cash, informal savings, retirement annuities, education policies, and unit trusts. There has been a substantial change in investment in informal savings from 38% last year to 51% currently: stokvels (20% increase in stokvel investment than a year ago), grocery schemes, burial societies, money under the bed.

Participants in the survey were asked what they would be drawing on for their retirement funds. An interesting development is that many more identified post-retirement employment as a source of funding for retirement years: 3% in 2010 to 14% in 2012.

Objectives for saving and investing

39 % of respondents are saving for emergencies/a rainy day; 35% for retirement or old age; 33% for children’s education (though this increased to 50% for those with children). Saving for a holiday all but disappeared except for the top-earning bracket (R40k). Medical expenses and lobola savings have increased. 54% of respondents felts that saving for education was more important than saving for retirement. This figure is comprised of the following demographics:

Black 66%

White 23%

Generation Y (born 1980 and after): 56%

Generation X (born 1965-1979): 57%

Baby Boomers (born prior to 1965): 44%

Property as retirement nest-egg

To what extent are you relying on value of your primary residence to fund retirement? 14% respondents will rely heavily; to some extent, 40%; not at all, 43%; don’t know, 13%. Is this realistic? Lynette priced an average house (three bedroom, two bathroom) in Alberton, the asking price being R950 000, the selling price being R920; estate agent fees are 7,5%. This leaves the owners with R850 000. A unit in a retirement village in Alberton costs, at the very least, R780 000, and, while 68% of baby boomers own property, 40% are still paying off home loan.


40% of South Africans believe their children will take care of them when they are old (up from 35% in November 2011). 40% are planning to support their parents or other family members. 38% of South Africans believe the government will take care of them if they are unable to take care of themselves (up from 29% in November 2011).



Incidence of having at least one credit card

Incidence of having at least one store card

Incidence of having a personal loan from a financial institution

July 2011




November 2011




July 2012




Overdrafts and vehicle loans have increased, as has the payment pattern of paying just the minimum.

Sandwich generation monitor

This indicates those people who find themselves caught between financing their parents as well as their children; this figure has returned to to 23% in July 2012 as in it was November 2010 (UK at 15%).

Financial education

What is your primary source of financial information?


July 2012

Financial Advisor/Broker


Word of Mouth








37% of respondents indicated that they had never spoken to a financial advisor; 85% want to learn more about how to save. Lynette commented that the phrase “want to be educated” evoked a negative response and was its use was avoided in the survey.

Focus on women

56% of working metro mothers are single moms. In single mom households, only about one in two fathers make a financial contribution for their children (21% of those paying do so regularly). Single moms are saving for: education, informal savings (grocery schemes), funeral policies. They are sacrificing life assurance, retirement annuities, pension and provident funds. 14% of women in a partnership/marriage have a store of emergency funds of which their partner is not aware, BUT … 20% of men do!


Why savings need urgent attention

Rian le Roux, Chief Economist, OMIGSA

South Africans save far too little and make poor investment decisions; so, they are ill-equipped for retirement, without knowing it. It will be very difficult to rectify this situation: the ability to save is inhibited by various factors; investment returns will be lower; a large percentage of people are already “far behind”.

Consumers must bear in mind that, in retirement, they need a growing income. Wise words to abide by are: the biggest present you can give your children is never to become dependent on them, so make provision for your retirement; the biggest present you can give yourself is to make your children independent of you, ensuring they have a quality education.

So, what can consumers do?

  • Fully understand your retirement provisioning (Defined Benefit, Defined Contribution funds, or self-provided
  • Fully understand your future liabilities (retirement, big asset replacements, health costs, children’s studies, caring for parents/children, inflation)
  • Fully consider all the risks you face (do not fool yourself)
  • Get a consultant to advise you as to how much you must save

Why save? Households must save for big expenses and retirement; companies to finance replacement and expansion; government to finance physical and social infrastructure; as a nation not to be reliant on foreigners for financing investment. The gap is closing in South Africa’s national investment and savings, but from the wrong direction – foreigners now own 40% plus of government bonds. You can’t rely on foreigners to fill that gap forever – we need savings. Only 16% of total income in South Africa goes to savings, whereas in emerging economies, it is over 35%. Our economy will struggle to grow if our savings do not increase dramatically.

People confuse the ability to save (sufficient income) and willingness to save (income available, choose to save or not). We need more taxpayers and fewer grant receivers (our current situation is not sustainable). This implies growth-friendly macro reforms – labour is becoming too expensive in South Africa.