IT WILL take more than a JSE index high to improve the plight of the 90% of pensioners in South Africa who retire with inadequate income.
While the latest salary replacement study from an Alexander Forbes study for the June quarter offer a faint glimmer of hope — they rose eight points from the previous quarter for all the age groups — the overall trend over one, three, five and 10 years remains negative.
Experts say concerted action from savers and regulators is necessary to plug the savings gaps and correct poor pension outcomes, where nine out of 10 pensioners in South Africa retire with inadequate money to maintain their lifestyles.
For a saver born in 1952 and who is now 61 years old, the latest pensions index shows he is on track to receive a salary replacement ratio of 59.8% — this is up from just 52.2% in the prior quarter.
But the index is still well below the 75% target needed for a comfortable retirement.
The head of best practice at Alexander Forbes, Michael Prinsloo, says things improved in this last quarter as bond yields rose, mainly driven by news from the US that the printing of money would ease off.
"Future expected returns are better, and as they rose the cost of annuities became slightly cheaper. This resulted in improved replacement ratios," he said on Thursday.
However, Mr Prinsloo said while higher salaries had been received since 2002, pensions had not benefited from the bull market as not enough was going towards saving.
"Preservation statistics in South Africa are shocking, with less than 10% of benefits preserved when people change jobs," he said.
Instead, savers should look to increase contributions, for example, or extend retirement. "Increasing retirement age by one or two years makes quite a big difference in terms of replacement ratios.
"There are ways for people to improve replacement ratios to get to a realistic number — this is where the value of financial advice comes in," he said.
Financial Planning Institute CEO Godfrey Nti said on Thursday his concern was proposed new regulations — which are in the throes of a consultation phase before possible implementation from 2015 — neglect the financial planning side of the equation at the expense of focusing on regulating products.
He said this could result in a "tick-box exercise".
"It is depressing for financial planners when they get into the industry and then have to sell as many products as they can to survive. Then the industry loses out on good skill sets — we are losing people every day."
He said plans must mirror expectations and life goals. "We need financial planning as a basis for the products people buy. The problem is in the last decade or so regulations neglected planning. You don’t want to tick boxes on advice, just to sell products. Rather let products be informed by a meticulous plan."
The pensions index gives a value which indicates how the income a typical person is expected to receive in retirement has changed since January 2002. It tracks three savers, born on January 1 1972, January 1 1962 and January 1 1952.
In January 2002, they were 30, 40 and 50 years old respectively and all were on track to receive an expected pension equal to 75% of their pre-tax salaries when they retired at age 65. So, for each of the savers, their index value was 75 in January 2002.
According to the survey, the decline in index values over time can be largely attributed to the fact that bond yields have fallen sharply since January 2002. "This has led to reduced expected future investment returns on the main asset classes and increased annuity costs," the survey report said.
The JSE rallied to a record on Monday as a surge in the gold price lifted resources, while improving industrial production in China and speculation the US may continue with its stimulus raised the hopes of market players.
The JSE proceeded to test new highs for two more days, but some profit taking set in on Thursday.
The annual Global Venture Capital Confidence Survey from professional services firm Deloitte and the US National Venture Capital Association, released on Thursday, said South Africa’s private equity fund managers were more confident than their global peers about investing in their home market.
Private equity is seen as a key vehicle for growing business across Africa, and can now make up 10% of pension portfolios in South Africa, but pension funds are underweight — less than 1% of their funds are invested in this asset class.
The ninth annual survey gauged confidence levels of more than 400 venture capital, private equity and growth equity investors in the Americas, Europe, Asia Pacific, Israel and South Africa. Confidence levels were measured on a scale of one to five, with a score of five being the most confident.
South African private equity fund managers registered 3.7 compared with the global survey average of 2.8.
Their views on the economic environment were neutral (3.03) and their assessment of the global economy measured 2.67.
Michael Prinsloo, head of best practice at Alexander Forbes. Picture: FINANCIAL MAIL
IT WILL take more than a JSE index high to improve the plight of the 90% of pensioners in South Africa who retire with inadequate income.
While the latest salary replacement study from an Alexander Forbes study for the June quarter offer a faint glimmer of hope — they rose eight points from the previous quarter for all the age groups — the overall trend over one, three, five and 10 years remains negative.
Experts say concerted action from savers and regulators is necessary to plug the savings gaps and correct poor pension outcomes, where nine out of 10 pensioners in South Africa retire with inadequate money to maintain their lifestyles.
For a saver born in 1952 and who is now 61 years old, the latest pensions index shows he is on track to receive a salary replacement ratio of 59.8% — this is up from just 52.2% in the prior quarter.
But the index is still well below the 75% target needed for a comfortable retirement.
The head of best practice at Alexander Forbes, Michael Prinsloo, says things improved in this last quarter as bond yields rose, mainly driven by news from the US that the printing of money would ease off.
"Future expected returns are better, and as they rose the cost of annuities became slightly cheaper. This resulted in improved replacement ratios," he said on Thursday.
However, Mr Prinsloo said while higher salaries had been received since 2002, pensions had not benefited from the bull market as not enough was going towards saving.
"Preservation statistics in South Africa are shocking, with less than 10% of benefits preserved when people change jobs," he said.
Instead, savers should look to increase contributions, for example, or extend retirement. "Increasing retirement age by one or two years makes quite a big difference in terms of replacement ratios.
"There are ways for people to improve replacement ratios to get to a realistic number — this is where the value of financial advice comes in," he said.
Financial Planning Institute CEO Godfrey Nti said on Thursday his concern was proposed new regulations — which are in the throes of a consultation phase before possible implementation from 2015 — neglect the financial planning side of the equation at the expense of focusing on regulating products.
He said this could result in a "tick-box exercise".
"It is depressing for financial planners when they get into the industry and then have to sell as many products as they can to survive. Then the industry loses out on good skill sets — we are losing people every day."
He said plans must mirror expectations and life goals. "We need financial planning as a basis for the products people buy. The problem is in the last decade or so regulations neglected planning. You don’t want to tick boxes on advice, just to sell products. Rather let products be informed by a meticulous plan."
The pensions index gives a value which indicates how the income a typical person is expected to receive in retirement has changed since January 2002. It tracks three savers, born on January 1 1972, January 1 1962 and January 1 1952.
In January 2002, they were 30, 40 and 50 years old respectively and all were on track to receive an expected pension equal to 75% of their pre-tax salaries when they retired at age 65. So, for each of the savers, their index value was 75 in January 2002.
According to the survey, the decline in index values over time can be largely attributed to the fact that bond yields have fallen sharply since January 2002. "This has led to reduced expected future investment returns on the main asset classes and increased annuity costs," the survey report said.
The JSE rallied to a record on Monday as a surge in the gold price lifted resources, while improving industrial production in China and speculation the US may continue with its stimulus raised the hopes of market players.
The JSE proceeded to test new highs for two more days, but some profit taking set in on Thursday.
The annual Global Venture Capital Confidence Survey from professional services firm Deloitte and the US National Venture Capital Association, released on Thursday, said South Africa’s private equity fund managers were more confident than their global peers about investing in their home market.
Private equity is seen as a key vehicle for growing business across Africa, and can now make up 10% of pension portfolios in South Africa, but pension funds are underweight — less than 1% of their funds are invested in this asset class.
The ninth annual survey gauged confidence levels of more than 400 venture capital, private equity and growth equity investors in the Americas, Europe, Asia Pacific, Israel and South Africa. Confidence levels were measured on a scale of one to five, with a score of five being the most confident.
South African private equity fund managers registered 3.7 compared with the global survey average of 2.8.
Their views on the economic environment were neutral (3.03) and their assessment of the global economy measured 2.67.
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