‘Trust in financial institutions waning’
Trust in financial services institutions and confidence in South Africa’s future is waning, with many people believing the country’s challenges will not be solved in their lifetime, according to a new study by Sanlam.
The Sanlam 2024 Benchmark Survey, titled “Addressing the twin peaks of poverty alleviation”, which evaluated more than 1,300 of the company’s clients, found that 66% of its participants either felt vulnerable about their finances or believed they were financially exploited.
Speaking at the launch of the report on Thursday, Nzwa Shoniwa, Sanlam Umbrella Solutions managing executive, said confidence in financial institutions had been eroded significantly over the years.
“‘Exploited’ implies deceit, underhandedness, coercion or abuse. This is a strong choice of words. These concerns highlight the importance of reliable and trustworthy financial institutions to provide security,” he said.
When clients chose financial products to save money outside options presented by their employers, the study found that 21% of the participants preferred saving through stokvels, instead of insurance-linked investments or buying shares.
“That’s about 40% of the adult population, which makes stokvels a primary source of savings in a country with a poor savings culture,” said Shoniwa.
Sanlam found there was a lack of trust in the country’s political leaders, which cascaded down to financial institutions, authorities governing the private sector and legislation promulgated.
According to the study, public sentiment towards political leadership was overwhelmingly negative, with calls for honesty, transparency and effective governance.
Shoniwa said that for Sanlam’s pensioners there was deep-seated concern about the security and management of their retirement funds, worsened by controversial policy reforms and inadequate transparency. Among the policy reforms was the signing into law of the Revenue Laws Amendment Bill of 2023, which establishes a two-pot system that gives members of retirement fund schemes access to their savings without having to resign or cash out their entire pension fund. This system is expected to take effect in September.
The study said the economic outlook remained bleak for many South Africans, with little hope of substantial improvement in the near future. However, it found the declining confidence was not just in financial institutions but in the future of the country as well. It said the trust deficit stemmed from economic, political, social and systemic challenges.
“South Africa’s economy is being hampered by sluggish growth, high unemployment rates and widespread poverty. The impact of the Covid-19 pandemic has further worsened these issues. Political instability is another significant driver of waning confidence,” Shoniwa said.
Another factor in the declining trust in financial services institutions was cybercrime and the threat it posed to clients’ assets and personal information. The finance and insurance industries were rated No 1 when it came to cyberattacks.
Sanlam’s chief information officer, Ashley Singh, said the survey found that seven out of 10 of its participants said they believed cyberattacks were an imminent threat. He added that the industry needed to do more to strengthen its systems and educate clients about how they could protect themselves.
Shoniwa said rebuilding trust and confidence in the future required a concerted effort from both the government and the financial services industry. “Addressing these problems requires a holistic approach that prioritises transparency, accountability and inclusive growth. Moreover, working to build our members’ confidence in their own abilities via communication, education and financial literacy is key.”