Covid-19 magnifies retirement savings crisis
Situation is worse for women, survey finds
LOOKING at some popular global and local market indices for the 12 months to the end of the third quarter, you would never conclude that 2020 has probably been the most traumatic year for financial markets since 1929. Other indices, however, reflect the full extent of the pandemic-triggered crisis.
The MSCI World Index, which constitutes about 1 600 stocks of companies throughout the world, was up 19.82% for the year in rand terms and up 10% in US dollars.
The Nasdaq Composite Index, which represents US tech and industrial stocks, was up 40% in US dollars over the 12 months.
The FTSE/JSE All Share Index was – surprise, surprise – up 2.01%. Not exactly hitting the lights out, but not negative, as you may have expected. And the FTSE/
JSE Industrial Index, which measures the performance of the local industrial sector, managed 4.31%.
The best-performing companies on the JSE were the miners: the FTSE/JSE Resources 10 Index was up 27.40%, much of that, no doubt, on the back of a weaker rand, which, in the period under review, dropped more than 9% against the US dollar.
But now, ouch – the sectors that have suffered. The FTSE/JSE Mid Cap Index, representing smaller and mid-size companies, and a fair reflection of our stumbling economy, was down 14.96% at the end of September. The FTSE/JSE Financial Index, which tracks the share prices of banks, insurers and other financial services companies, was a negative 30.91%. Worst of all was the listed property sector, which was in the doldrums before Covid-19 delivered its crippling blow: the FTSE/JSE SA Listed Property Index was down 46.07% for the year.
UNIT TRUST PERFORMANCE
Unit trust funds that performed well for the year to the end of September were those invested in global equity markets, and the big tech stocks in particular, and, locally, those invested in mining stocks.
According to data supplied by Profiledata, the five top-performing locally domiciled unit trust funds were: IP Global Momentum Equity Fund (94%). Naviga BCI Worldwide Flexible Fund (90.09%), Old Mutual Gold Fund (88.66%), Anchor BCI Global Equity Feeder Fund (81.25%) and Sygnia FAANG Plus Equity Fund (74.06%).
Returns from the large and popular
South African general equity sub-category, comprising 169 funds, ranged from 20.65% to -30.64%, with an average of -3.5%. Only 44 funds (about a quarter) equalled or outperformed the Alsi. Looking at the equally popular South African multi-asset high equity sub-category, housing 189 “balanced” funds, the one-year returns ranged from 24.44% to -21.81%, with an average of a meagre 1.93%. These funds can invest up to 75% in equities but can switch into safer assets if conditions demand it.
Funds invested in cash and short-term instruments were characteristically stable: money market funds averaged 6.46%, with little deviation, and short-term interestbearing funds delivered 6.62%, on average. However, variable-term interest bearing funds, holding longer-term bonds, averaged only 1.95%, with high deviation from the mean: the top-performer returned 9.06% and the worst performer -9.75%.
Against all these figures, year-on-year Consumer Price Index inflation to the end of August was 3.1%.
PLEXCROWN RATINGS
The Plexcrown rating system rates unit trust funds according to risk-adjusted returns over periods up to five years. Funds receive from one to five Plexcrowns, with five Plexcrowns representing the best risk-adjusted performance within a fund subcategory.
Unit trust managers are accorded an overall Plexcrown rating based on the individual ratings of their funds.
The top five domestic managers at the end of September were: Ninety One (4.295 Plexcrowns), Mi-plan (4.012 Plexcrowns), H4 Collective Investments. (3.576 Plexcrowns), Coronation (3.505 Plexcrowns), and Alexander Forbes (3.418 Plexcrowns). The top three offshore managers were T Rowe
Price (4.225 Plexcrowns), Marriott (4.000 Plexcrowns) and Foord 3.500 (Plexcrowns).
THIS IS a reality check for South Africans: only 6% will retire comfortably. The rest will either have to continue working – if they’re able to – or rely on family or the state to support them in their latter years.
The third annual Retirement Reality Report by investment firm 10X indicates a long-term retirement crisis, which has been magnified by the pandemic – and women are most vulnerable. The report is based on a Brand Atlas survey of the lifestyles of 15.1 million South Africans with an income of more than R8 000 a month. The findings are corroborated by National
Treasury figures.
The company said a key issue that has cropped up “time and again” in the reports was that people felt they could not afford to save for retirement, but they “really cannot afford not to save for retirement”.
Before the pandemic, many were already treating retirement savings as a “nice-to-have”. Covid-19 has magnified the crisis: in the 2020 report, which was conducted during the early part of the pandemic, almost half (49%) of respondents said they had no retirement plan, compared with 46% last year.
“Forty percent believe they can save for retirement in less than 25
UNIT TRUST PRICES: As a result of space constraints, we are unable to publish the unit trust prices. The performance data can be found at www. fundsdata.co.za/navs years, but they fail to understand that the first 15 years of employment are really important in guaranteeing a successful retirement outcome,” 10X’s head of investments, Chris Eddy says. “People aren’t saving enough. It’s not just about having a plan – that alone won’t solve the problem; it’s about understanding the drivers.”
Worse is the fact that more than 60% of South Africans cash in their pension savings when they leave a company.
Eddy says the report shows that people want to preserve their lifestyle but have not thought through the implications of not saving: 75% worry they don’t have enough to retire and 77% say they will need to continue working in retirement – and yet almost 70% expect to enjoy the same standard of living in retirement.
“The 49% who have no plan say they don’t earn enough money to save, but, in fact, they are prioritising their current lifestyle at the expense of their future self. A 5% to 10% drop in lifestyle now will make a
50% to 90% change in retirement.
“Eighteen percent say they don’t save because they don’t plan to retire – but given South Africa’s population dynamics, the flood of younger people entering the workforce – it makes it more difficult to defend that position in the long term.”
Mica Townsend, 10X’s business development manager, says few respondents can say their plan is well thought-through and executed: 20% have a plan, but it’s “a bit vague”.
WOMEN ARE WORSE OFF
The situation is worse for women: often their careers are interrupted by pregnancy and childcare, and the latest Statistics SA data says women earn about 30% less than men (a 7% increase on last year’s data).
“Fifty-three percent of women have no plan, versus 45% of men. Twenty-seven percent of men have a pretty good idea of their plan, but only 22% of women (can say the same),” Townsend says.
“What makes the problem worse is that those women who are saving tend to do so in cash investments. They are conservative in nature.”
More women identify as savers (32%) than men (28%), while 13% of women identify as investors as opposed to a much higher percentage of men (22%).
“We know that simply saving your money is not enough: cash is not going to grow fast enough to give you a nest egg that you can survive on and won’t keep pace with inflation,” she says.
“What you really need is a highequity or a well-balanced diversified portfolio. You simply can’t just put that money in the bank. Women, typically, are not investing the assets that they need in order to grow their retirement savings.”
Traditionally, women leave these decisions to a partner instead of making financial preparations for themselves. “Once that person who you delegated those decisions to is no longer around, how are you going to manage?”
The pandemic, Eddy says, fast-forwarded South Africans to a potential future where they no longer have an income and littleto-no savings to fall back on.
But lessons can be learnt from how a crisis can cause a dramatic lifestyle downgrade.
“If there is to be a positive from our state of economic and financial disaster, perhaps it is the increased awareness of our vulnerability to life’s unexpected broadsides,” he says. “In giving a glimpse into the future, of what it feels like to be suddenly living off a low income and the strain of great financial insecurity, it may finally convince people that they cannot afford to ignore planning for retirement.”