WITH retirement reforms in South Africa only due in 2014, a new study has found that only 14% of 40- to 60-year-olds feel confident they will be financially secure in retirement.
Salary replacement ratios in South Africa are so low that only 6% of the country is able to retire comfortably, according to industry surveys. But a new study by the deVere Group has found "not having enough income” was the biggest concern about retiring for 100% of all the 40- to 50-year-olds.
Half of all those participating aged 50 to 60 feared "becoming dependent on others” in their golden years. In addition, 78% of 40- to 50-year-olds and a third of the 50 to 60 age group felt that inflation would be most likely to affect their pension schemes.
The changes to South Africa’s retirement system to encourage savings are viewed as being long overdue, as the country only has a 16% national savings rate.
Tax-free deductions for individuals will be set at 22.5% and 27.5% for those below 45 and above 45 years old respectively, based on the higher of employment or taxable income.
Annual deductions will be limited to R250000 and R300000 for taxpayers below 45 and above 45 respectively.
The other benefits to come are "tax-preferred savings and investment accounts”. Returns generated within these savings and investment vehicles (including interest, capital gains and dividends) and withdrawals would be tax exempt. Aggregate annual contributions could be limited to R30000 per taxpayer per year with a lifetime limit of R500000 to ensure that high net worth individuals did not benefit disproportionately.
While these changes will improve awareness about saving for retirement, the position right now is one of "a shocking lack of awareness and planning”, according to Craig Featherby, head of the deVere Group, South Africa.
"Burying your head in the sand is, financially, the worst thing you can do,” he said.
"Some of the respondents have started planning and they are the ones more likely to benefit from a wealthy retirement.
However, far too many are still assuming the state will provide or simply have a lack of knowledge on retirement incomes.
"Over the last few years, the world has changed and with an ageing population and declining state and occupational pensions, it’s vital that people take responsibility for securing their own financial freedom.”
Featherby urges people to be more proactive, especially in these economically turbulent times. "With the markets behaving in such a volatile manner, it is even more important that you review your pension provisions on a regular basis. By failing to do so, you could be condemning yourself to a poverty-stricken retirement.” – I-Net Bridge