SOUTH Africa's savings rate is at a low level of approximately 16% of GDP, almost all of it provided by listed companies and with households and the government actually in a negative savings position, according to Martiens Barnard, head of technical marketing at Discovery Invest.
The situation could be reversed if young professionals began to put money away.
Barnard said the most important determinant of adequate savings is the age at which one starts putting money away.
"Putting money away earlier pays dividends. By way of example if one wants to retire comfortably (to get a pension income of 70% of one's last income) then by starting to save at the age of 20, one can do that by putting 10% of your income aside. By leaving it until the 30 s, 15% of income has to be set aside. By waiting another 10 years and starting at 40 , 26% of income should be put away to enjoy a comfortable retirement."
It is estimated that a mere 6% of South Africans are able to retire financially independent. One of the causes of this precarious position is the lack of preservation of retirement funds. Preservation of accumulated retirement savings is critically important to funding a secure retirement.
A steady trickle of savings is the most common way of ensuring a comfortable retirement.
There are young people who come into lump sums due to inheritances, winning the Lotto or even winning a medal at the Olympics.
According to Nick Battersby, CEO at PPS Investments, young people who get a windfall can use the money to top up their retirement annuities (RAs) to the maximum tax deductible amount before the end of the tax year.
The government, in its 2011 Budget Review, indicated possible changes to the tax treatment of retirement fund contributions that included maintaining the current threshold for total tax deductions at 22.5% (7.5% of retirement funding contributed to a pension fund and 15% of non-retirement funding contributed to a retirement annuity) - but capping these deductions at R200000 a year. This means taxes on retirement funds contributions will not be reduced.
Battersby said: "The tax deductibility of retirement annuity contributions is very attractive. This effectively gives you the opportunity to save more towards your retirement without any additional outlay, enhancing your total retirement capital when your investment matures.
"This is especially true for higher-earning individuals with greater marginal tax rates, as the government has indicated its intention to restrict tax deductions on retirement fund contributions to a maximum nominal amount in addition to a maximum percentage amount."
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