Findings of Retirement Benchmark Survey analysed

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Focusing on the pension space, a core group of 250 participants took part in this year's survey. An additional booster sample of 50 pensioners, representing the affluent sector of the market, was also interviewed. An affluent retired individual is defined as having income in retirement in excess of R25,000 per month. This enabled, for the first time, a thorough analysis of the retirement needs of affluent individuals.

Comparing this year's results of the pensioner benchmark survey against 2013, the consensus feedback remains that members should start planning and investing for retirement from an earlier age.

In light of National Treasury's retirement reform imperatives and the possible introduction of a default pension product, pensioners were asked what retirement options they would have preferred at retirement age. 63.3% of respondents in the core group indicated that they would have preferred complete freedom of choice, with no restrictions from trustees and the rest indicated they would have preferred some level of interaction with, or recommendations from, trustees. The opposite can be seen in the booster sample, with 38% of affluent pensioners preferring freedom of choice and 62% showing confidence in considering input from trustees.

Growing concern

The percentage of pensioners who believe that they have not saved enough capital to last them during retirement remained fairly consistent at 52.4% in 2014 - slightly down from 53.4% in 2013 but still relatively high when compared with 2011 which, at that stage represented 31.0% of respondents. Evidently, only 24% of the affluent group reported not having saved enough, with 66% believing they have enough capital saved to last them through retirement.

What is a growing concern is the percentage of average pensioners with a shortfall between their monthly income and expenses that continues to rise (59.2% in 2014, 51.0% in 2013 and 33.3% in 2011). When asked how this shortfall was dealt with, the pensioners in the core sample mentioned reducing non-essential expenses and cancelling their private medical aid to rely on the state healthcare. On the other hand, affluent individuals seemed less inclined to cut back on expenditure and opted to continue working to supplement their income, with a few dipping into additional savings or investments.

The survey results also show that the core group's retirement age increased slightly from 59 in 2013 to 60 in 2014, whereas the average period of contribution lasted 29.8 years in the 2014 survey compared with 28.5 years in the 2013 survey. This positive trend shows that individuals had saved longer towards retirement but clearly not enough when compared with the booster sample which shows approximately 33.2 years of long-term contributions.

However, based on the survey results formal employment begins at age 22 for the core group of pensioners, This leaves a period of eight years' contributions unaccounted for, which is consistent with last year's results. The same trend is seen in the booster sample as formal employment began at an earlier age of 20.8 years, leaving approximately 6.96 years of contributions unaccounted for.

Stopping retirement contributions

There is evidence during formal working employment that some individuals stopped their retirement contributions through withdrawal at either resignation or retrenchment with 20.8% of respondents in 2014 replying "Yes" to this question as compared with 17.1% in 2013. Of the individuals who made a withdrawal, 63.5% withdrew their full benefit in cash as opposed to 48.8% taking the benefit in cash in 2013. The cash was used to pay for the rising living expenses for 52.4% of respondents in 2014 compared with 29.4% in 2013.

This trend is very different among affluent retirees as only 12% of respondents indicated that they withdrew from their retirement savings at resignation or retrenchment. From those that withdrew, 50% preserved part of their benefit or purchased a retirement annuity and the other 50% opted to withdraw their full benefit in cash. Only 20% of these individuals used the cash to pay for living expenses with 80% either saving or investing in investment instruments or business ventures or settling/reducing their mortgage bonds.

Keeping in mind the importance of financial advice, the prevalence of general pensioners receiving financial advice before retirement has dropped slightly from 60% in 2013 to 57.6% in 2014. On average, these pensioners received financial advice 11 years before retirement, whereas, ideally, active members should receive financial advice from much earlier on in their working career. The proportion of general pensioners who did receive financial advice from their company's HR office continues to rise.

If we look at the source of financial advice, we see that 72% of affluent retirees seek financial advice from professional financial advisers as opposed to only 34% of the general pensioners who look mainly towards human resources departments, fund trustees or fund administrators for guidance.

Lump sum at retirement

Pensioners, who opt for a lump sum at retirement, are encouraged to stay within the tax-free limit and the lump sum should ideally be used to repay debt. Based on the survey results, the proportion of general pensioners spending the lump sum on living expenses is still relatively high. There is a bit of concern as it was noted that the proportion of general pensioners who reported they had not yet depleted their lump sums reduced to 58.0% in 2014 from 65.7% in 2013. However, savings is top of pensioners' minds as indicated by the results which show an increase in savings accounts and annuities purchased. When compared with the booster sample, 72% of respondents have not depleted their lump sum at all.

As far as post-retirement vehicles are concerned, the market appears to have shifted away from level guaranteed life annuities (23.9% in 2013 as opposed to 20.4% in 2014) towards guaranteed life annuities escalating at a specified rate, with the percentage of pensioners purchasing these annuities increasing from 19.1% in 2013 to 29.2% in 2014.

The 2014 Pensioner Benchmark Survey has once again demonstrated the tough financial circumstances faced by South African retirees today. The introduction of an affluent pensioner booster sample allowed for very insightful conclusions to be drawn that are applicable specifically to affluent pensioners. The results of the 2014 pensioner benchmark survey highlighted the importance of obtaining quality financial advice and the benefits of starting to save early for your retirement years. With these two building blocks in place, retirees are able to look forward to making their retirement years the best years of their life.