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Expressing hope that Finance Minister Enoch Godongwana outlines progress on retirement reform in his Medium-Term Budget Policy Speech in Parliament on Thursday, 10X CEO Tobie van Heerden said: “There could hardly be a better time to strengthen our policies on forward-planning than now, just as South Africa starts to recover and rebuild after the pandemic.”

Van Heerden added: “We hope the Finance Minister will indicate that some of the planning and discussion of the last 10 years will soon be turned into clear policy action to tackle South Africa’s retirement savings crisis.”

He said the 10X Investments Retirement Reality Report 2021, which was released last month, had provided National Treasury with plenty of evidence to support decisive action on policies to encourage, or even compel, retirement saving and preservation among workers.

While noting that many South Africans were not able to save at all, the RRR21 makes it abundantly clear that a major cause of SA’s “ticking retirement timebomb” is lack of engagement by many of those who are able to save. 

“Many people will happily admit that they just don’t care, that this is a problem for another time,” says Van Heerden. “They will care when they find themselves unable to put food on the table in retirement.”

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Instead of enacting legislation to force individuals to save, and to preserve those savings, the National Treasury has in the past chosen to nudge people to make decisions in their own long-term interests. “It’s clear that most South Africans won’t be nudged, they need a good shove,” says Van Heerden. “It seems that better outcomes must be legislated.”

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He adds that he hopes the newly appointed Godongwana will use his first Budget speech to Parliament to write his name in the history books as the finance minister who presided over the implementation of policies that changed the way elderly South Africans lived. 

“Policies that would compel workers to save for retirement and force them to preserve those savings would have an outsized effect on future generations. Enforcing early saving would take a lot of the pain out of the process. It would also significantly improve outcomes because of the magnifying effect of compound growth on money invested over the years in a high-performing, low-cost fund.”

Currently, retirement saving is limited to a minority of South Africans, those whose employers offer a corporate retirement fund and those who save privately into a retirement annuity. The RRR21, 10X’s fourth annual report on retirement readiness in the country, found that 71% of respondents in a national survey had no retirement savings plan at all, or just a vague idea of one. 

The RRR21 also pointed to an alarmingly high number of people cashing out their retirement savings when given an opportunity to do so (one can access 100% of savings in a corporate pension fund on leaving a job). 

The RRR21 also talked about how the Covid-19 pandemic had highlighted how few South Africans have an emergency fund of any sort. 

“When people lost their jobs during the pandemic and lockdowns, pension savings were often the only savings families had. Of those who were given the opportunity to cash in their savings, 60% took it, a choice that really should be a last resort,” said Van Heerden.

He explained that cashing out savings sets any retirement saving plan back to zero and robs people of the accumulated gains and growth on those savings over time, which usually makes up the lion’s share of a final pension savings pot.

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Former Finance Minister Tito Mboweni revived interest in the idea of accessing retirement savings in times of distress in July this year during a Treasury briefing on the economic support package launched in the wake of Covid-19 restrictions and the public unrest in KwaZulu-Natal and Gauteng.

Calling for workers to be allowed to access a percentage of their retirement savings in times of difficulty, Mboweni said: “It is a matter that has been discussed at Nedlac ad nauseum and I am now determined more than ever before, to ensure that the officials in the National Treasury and other relevant officials speed up this matter”.

Clarifying the proposal after Mboweni’s comments led to calls from distressed retirement fund members for immediate access to their savings, Treasury deputy director-general Ismail Momoniat added that the proposal to allow access to a portion of savings was tied to mandatory preservation of the rest. 

“It will allow some form of withdrawal but then you will not be able to take out the rest of it before retirement.”

Van Heerden welcomes this proposal. “The so-called two-bucket system, where one bucket is preserved until retirement and the second bucket allows for access in emergencies or extraordinary circumstances, balances short-term and long-term needs.”

Momoniat was also quoted at the time as saying that the Treasury wanted to make it compulsory for everyone who works to contribute to retirement savings “including people such as Uber drivers and contract workers”. 

“Treasury is considering a variety of proposals on retirement reform, including a number of points that would strengthen retirement savings in South Africa,” said Van Heerden. “We really hope to hear on Thursday that this has been progressed and that we will soon start seeing positive action on retirement saving.”

He added: “There could not be a better time to strengthen our policies on forward-planning than now, just as South Africa starts to recover and rebuild after a tough couple of years.”

Download the full Retirement Reality Report

10X Investments is offering anyone who signs up for a new 10X retirement or living annuity product in November six fee-free months. New retirement annuity, living annuity or preservation fund members, including those who are transferring an existing product to 10X from another provider, will not pay a management fee for six months. After six free months they will start paying 10X’s famously low fee. DM/BM

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