Re­ces­sion takes its toll on pool of re­tire­ment sav­ings

If you have been re­trenched due to the global eco­nomic down­turn, news that the mar­kets are re­cov­er­ing prob­a­bly of­fers lit­tle com­fort. A long-term con­se­quence of the re­ces­sion is that both hard-hit em­ploy­ers and the newly un­em­ployed are putting pres­sure on

Weekend Argus (Saturday Edition) - - GOODWINES -

The re­tire­ment sav­ings pool is fac­ing rapid evap­o­ra­tion un­der the hot glare of the in­ter­na­tional re­ces­sion, which saw more than one mil­lion South Africans los­ing their jobs last year.

Most of those who have lost their jobs have taken their re­tire­ment sav­ings and are us­ing them for fi­nan­cial sur­vival, par­tic­u­larly as they face a slim chance of find­ing new em­ploy­ment in the short term. Old Mu­tual, for ex­am­ple, recorded 17 272 with­drawals from its um­brella re­tire­ment funds last year. In only 83 of th­ese cases did mem­bers pre­serve their sav­ings by trans­fer­ring them to an­other re­tire­ment sav­ings ve­hi­cle.

While re­tire­ment sav­ings lost value as a re­sult of the in­ter­na­tional mar­ket melt­down, with the South African eq­uity mar­ket at one stage los­ing al­most 45 per­cent of its value, the long-term im­pact will come from job losses – par­tic­u­larly where com­pa­nies have closed down – rather than from in­vest­ment val­ues.

Mar­kets are un­der­go­ing a still­frag­ile re­cov­ery, with the JSE All Share in­dex hav­ing bro­ken through the 28 000 mark, re­cov­er­ing from a low of about 17 000.

How­ever, jobs are still be­ing lost as a re­sult of com­pa­nies clos­ing down and con­tin­u­ing wide­spread re­trench­ments. And, to keep their busi­nesses afloat, strug­gling em­ploy­ers are seek­ing other ways to save costs, in­clud­ing stop­ping or re­duc­ing con­tri­bu­tions to re­tire­ment ben­e­fits (See “Ways em­bat­tled em­ploy­ers can tar­get your con­tri­bu­tions and ben­e­fits” be­low) and group risk as­sur­ance.

This can have a dou­ble whammy ef­fect on em­ploy­ees, as they face an in­creased prospect of not hav­ing a fi­nan­cially se­cure re­tire­ment; and if you die or are dis­abled be­fore re­tire­ment, you or your de­pen­dants could face im­me­di­ate penury if al­ter­na­tive risk as­sur­ance ar­range­ments are not made.

John An­der­son, the head of na­tional con­sult­ing strat­egy at re­tire­ment fund ad­min­is­tra­tor Alexan­der Forbes, says other ways em­ploy­ers could seek to cut costs that will af­fect re­tire­ment sav­ings and risk ben­e­fits in­clude:

Re­duc­ing staff work­ing hours (short time), thus pay­ing pro­por­tion­ately less and au­to­mat­i­cally re­duc­ing your re­tire­ment fund ben­e­fits;

Re­duc­ing ben­e­fits pro­vided by funds or poli­cies; and

Freez­ing ben­e­fits. An­der­son warns that be­fore em­ploy­ers take any of th­ese mea­sures they should weigh up the long-term im­pli­ca­tions. Re­search shows that “wellde­signed ben­e­fit pro­grammes can as­sist in at­tract­ing the best skills and im­prove pro­duc­tiv­ity, which im­prove com­pet­i­tive­ness. Short­term so­lu­tions will have long-term con­se­quences.”

He says a grow­ing prob­lem is that em­ploy­ers are mak­ing late pay­ments to re­tire­ment funds. Em­ploy­ers are sup­posed to pay their share of con­tri­bu­tions and the con­tri­bu­tions de­ducted from the pay of em­ploy­ees within seven days of the end of each month.

If pay­ments are not made within one or two months, one of the im­me­di­ate ef­fects is that mem­bers could lose group risk life and dis­abil­ity cover.


There is no pre­cise data yet on how many re­tire­ment funds were closed last year, and a rough sur­vey con­ducted by Per­sonal Fi­nance among some of the ma­jor um­brella re­tire­ment fund ad­min­is­tra­tors was in­con­clu­sive.

With­drawals due to re­trench­ments and with­drawals with re­tire­ment sav­ings not be­ing pre­served, rather than fund clo­sures, are cur­rently the main con­se­quences of the re­ces­sion.

Alexan­der Forbes, Lib­erty, Metropoli­tan, Mo­men­tum and San­lam have recorded up­ward trends (mainly slight) in the liq­ui­da­tion of funds, but Old Mu­tual has not de­tected a dis­cern­able trend.

San­lam says it has had nu­mer­ous in­quiries from em­ploy­ers about clos­ing funds, cut­ting con­tri­bu­tions or lim­it­ing ben­e­fits.

But spokes­men for the com­pa­nies warn that the po­si­tion could still get worse as the coun­try fights its way out of the re­ces­sion.

There were, how­ever, two bright lights over the past year. Th­ese were:

An in­creas­ing num­ber of em­ploy­ers of­fer­ing re­tire­ment fund ar­range­ments to em­ploy­ees for the first time; and

A de­cline in the num­ber of peo­ple re­sign­ing from their jobs to get their hands on their re­tire­ment sav­ings. The rea­son, An­der­son says, is that the de­mand for labour has fallen, cre­at­ing the fear of not find­ing a new job.

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