Need for savings culture
High inflation and poor economy have resulted in a decline in the culture of saving
SA has a terrible savings record, one of the major challenges the longterm savings industry and government face is finding ways of inculcating a savings culture across the nation.
Investec Asset Management SA head of institutional Natalie Phillips says the need is significant and identifying ways of improving savings outcomes must be a priority.
“However, as we seek to address this challenge, we are also constrained by the economic environment in which we are all operating.
“We have high inflation, relatively high interest rates, and comparatively low economic growth, so we have to consider how to ensure better pension outcomes in this situation” Phillips says.
She says there is a lot of work that can be done on the governance side of the longterm savings industry and the proposals on the table for retirement fund reform will prove beneficial for the industry and consumers.
The intent behind the reforms is to encourage better pension outcomes. Greater transparency is likely to prove an important pillar supporting this policy approach.
“There will be greater transparency in terms of the fees that trustees and members of pension funds are paying to their service providers.
“This openness extends to the performance that is being delivered and the outcomes members are getting,” Phillips says.
She says there is a lot of work that remains to be done to build an appropriate outcomes-based attitude.
At the forefront is education, so that members understand the risk profile strategies in which they have invested and the implications for their pension outcomes.
“A moderate risk strategy, for example, may mean losing money over the long term as investors do not receive the growth that may result from investing in riskier but higher growth assets.
“Therefore, an emphasis on education directed at ensuring members are fully aware of the implications of the options they choose will result in people making betterinformed decisions and receiving better outcomes, particularly in the defined contributions environment that we have in SA,” Phillips says.
She says investment decisions are often complex, but these have to be made so that people can plan for their retirement.
“There have been so many disappointments with the outcomes people have received,” Phillips says, adding that education cannot be a one-off exercise.
“It is up to the industry bodies such as the Institute of Retirement Funds Africa (IRFA) and the asset management and life insurance industries as well as financial advisers to engage with clients and help to educate them so that individual investors understand what they are buying and the implications of the level of risk they are assuming.”
In other words, the education process needs to take place on an ongoing basis so that it not only ensures people remember the issues they need to consider but also so that they are made aware of the changes that occur in markets.
“Markets are dynamic and they are very volatile at the moment. The blowout in the rand last year and its recovery this year serve to illustrate that volatility and emphasise the need to keep people informed,” Phillips says.
FedGroup Life CEO Walter van der Merwe says everyone is responsible for saving for their retirement and the need for everyone to save is emphasised by the low savings rate in SA and the fact that so many people will not be financially independent when they retire.
In fact, most people will be dependent on family and the state to make up the often significant shortfall in their savings.
‘‘ WE HAVE TO CONSIDER HOW TO ENSURE BETTER PENSION OUTCOMES IN THIS ENVIRONMENT NATALIE PHILLIPS
“The people who can do the least about what they have done in the past are those who have reached the age of 40 and over. To make up shortfalls at that stage requires some sacrifices and people really need to focus on spending less and saving a lot more,” he says.
“At the same time, older savers are well positioned to do the most for the younger generations, their children and grandchildren.
“Though many parents have been a bad example by spending too much, building up debt and indulging in instant gratification, there is a lot that people can do to reinforce