What pensioners actually do with their pension

The 2015 Sanlam Benchmark Survey, a comprehensive annual review of South Africa’s retirement industry, highlighted that 57% of pensioners withdrew money from their pensions to help reduce debt.

“The reality is, today’s retirees are faced with a range of challenges, all impacting their ability to save for retirement and sustain the same standard of living they were able to uphold prior to retirement,” said Viresh Maharaj, chief marketing actuary at Sanlam Employee Benefits. 

Mayuri Reddy, marketing strategist at Sanlam Employee Benefits, said that one of the key takeouts from this year’s results is the disconnect between the perceived reality and the actual reality.

This is because the survey found that 87.7% of members believe that they have their debt under control, but that the numbers clearly state the opposite.

“Both members and pensioners perceive hurdles such as debt and withdrawal as a small, short-term decision with a small impact, however, it is this misperception that hampers them in the long run,” said Reddy.

Lifestyles at retirement

South African retirees admitted that they are not able to maintain their standard of living in retirement.

The survey highlighted that 62% of retirees confessed that they experienced a reduction in income at retirement, thus having to change their lifestyle.

The survey identified several factors which were diminishing the retiree’s funds. The largest factor (at 66%) was having dependents after retirement, which they still had to financially support.

Of the percentage of retirees who still have dependents, 54% are supporting a spouse and 30% a child or other dependent, it was found.

The next problem was that retirees’ income was not keeping up with the increase in inflation. Inflation is affected by market downturns and this also has an impact on retirement savings.  

However, from the major problem comes when retirees spend any lump sum that they can access to  pay off debts that they accumulated before retirement.
 
“With debt being easy to acquire in South Africa, people are taking advantage of the option to have extra cash at hand, unfortunately they don’t realise the true cost of the debt they undertake,” said Reddy.

No interest in retirement

The survey also highlighted that 72% of members said they have never gone back to revisit their original retirement planning decisions.

However, it seems the urgency to seek advice regarding retirement savings was also lost on the youth with only 5% of members admitting to seeking financial advice 20 plus years before retirement.  

The survey went on to show that 49% will seek advice within 10 years of retirement, and 20% of the respondents first received advice at their retirement date.

“Thirty percent of members stated that they aren’t particularly interested in the details, and that they are simply happy to receive the benefit and 26% admit not having enough knowledge or experience of investments to be able to make alternative choices,” said the survey.

Preservation is a problem

The survey highlighted that the lack of preservation as a major threat to retirement outcomes for savers.

“Employees do not understand the consequences of cashing out their retirement funds while, employers are not doing enough to educate them about the implications,” said Maharaj.
Maharaj added that failure to reinvest retirement savings will have a material impact on the quality of life in retirement.

“Assuming that you change jobs every five years you could end up with as much as 16 times more capital upon retirement by simply preserving your savings rather than withdrawing the cash each time,” said Maharaj.