No quick fixes
New minimum standard should encourage better savings mindset
THE IMPLEMENTATION OF new minimum early termination standards represents an important turning point for the life industry and could well serve as a stimulus to better savings levels in South Africa.
Lizé Lambrechts, CEO of Sanlam Personal Finance and LOA chairperson, believes the more regulated environment and heightened consumer confidence in its range of products should actively encourage a better long-term savings mindset.
According to the SA Savings Institute, an organisation founded with the aim of fostering national savings, the national savings rate is sitting at 13% of GDP, a dismal level compared to international averages of closer to 20%. At the same time household debt as a percentage of disposable income stands at its highest levels ever. Given Government’s ambitious capital expenditure blueprint and the need to raise the investment ratio to achieve the target 6% growth rate, a declining national savings rate raises serious concerns.
Lambrechts says that the life industry has long played an important role in housing the nation’s savings, and in this respect
remains its largest custodian through contractual investment and assurance products with more than R1 trillion under management. “Simply put, the primary role of the industry is to encourage an improved long-term savings environment offering, through fairer charges and greater product transparency,” she says.
Lambrechts also suggests that the industry as a whole would look favourably on any retirement fund reform that included a compulsory savings element, thereby broadening coverage of the retirement fund system to the informal and contract sector of the employed, and even reducing dependence on State oldage pensions.
In the latter instance, there are approximately 2m people drawing State pensions in SA, and Finance Minister Trevor Manuel has indicated that it would be preferable to get those who were in a position to contribute to their own retirement to do so. Proposals for a compulsory social security scheme have also been motivated by a practical need to improve savings and equity.
Lambrechts says that however it’s structured, both savings and investments need to be looked at from a long-term perspective: “A life assurance investment represents a long-term contract, and policyholders are effectively bound to paying a predetermined amount that will remain invested for a fixed period. If the contract is terminated early, policy values are likely to be reduced so it’s important to buy into an affordable and easily managed product.”