Would you buy a house you haven’t seen? What if your boss said you should?

Few people would buy a house without so much as a quick walk-through and a good look at the numbers, yet an astonishing number of people take an even bigger leap of faith with their retirement fund – for many of them, the biggest investment they will make in their lifetimes.

10X Investments’ Retirement Reality Report (RRR20), which was released in late October, found that 60% of those South Africans who had at some time belonged to a corporate retirement fund knew little or nothing about it.

The asset manager’s third annual report on the state of retirement saving in South Africa is based on the 2020 Brand Atlas Survey, which tracks and measures the lifestyles of 15.1 million economically active South Africans. 

Around 11% of those who had been members of a corporate fund, or still were, readily admitted they were simply not interested – as though this was a matter of little importance to their future prospects.    

Another matter of serious concern is that half of those survey respondents who had a retirement savings plan were unaware of the fees they paid.

Numerous studies have shown that high fees confiscate a disproportionate share of the saver’s pension. 

Being ignorant of this reality also makes savers vulnerable to exploitation.    

This lack of the most basic knowledge about such a key investment for workers begs a few questions, including:

  • Whose responsibility is it to engage and inform corporate fund members?
  • What is the employer’s role?
  • What is the employee/member’s role?

The employer’s role, together with their fund provider is to educate fund members about what membership entails and to keep them up to date about their fund’s benefits.

Anxiety about fund complexity and their own lack of understanding is one of the reasons fund members switch off and avoid the topic. Regular, clear communication from the employer and/or the fund manager is important and can alleviate a lot of the concerns experienced by members. 

Also, there can be resentment among corporate fund members because they believe that they do not have much control over the fund because the employer makes the big decisions on their behalf.

Another reason for disengagement is that members often presume the employer has done due diligence, so they need not bother.

Instead, members should be encouraged to ask questions. They should start by asking their Human Resources manager, who should be able to point them in the right direction if they can’t answer the questions themselves.

There is no stupid question when the alternative is making poor choices with your retirement savings.

Questions that fund members might want to ask include:

  • Do I have access to a retirement plan that I can track my progress against?
  • Do I have specific, achievable goals that I can understand (i.e. a lump sum or an income replacement goal)?
  • What risk benefits, such as unemployment, death or disability cover, do I have?
  • Can I make top-ups or additional voluntary contributions?
  • How much of my savings are being paid away in fees every year?

Corporate fund membership can be such a great benefit, but it can also be disastrous when that fund is a poor performer and costs members an arm and a leg or, in this case, many years of retirement funding.

Unfortunately, this is a truth that many South Africans discover only when it is too late. Often, by the time people realise they have lost up to half of what they might have accumulated ¬they have retired, and it is difficult to make up the shortfall.

There are various benefits to membership of a corporate retirement savings fund beyond the obvious ones, such as having money deducted from your salary and invested on your behalf before you can get your hands on it, and having tax refunds built in monthly.

These funds might also include group risk benefits, such as cover for disability as well as death benefits for loved ones, which can be very valuable.

Corporate funds also tend to negotiate fee discounts. They should offer counselling and guidance to help people get the best out of their fund and avoid making classic retirement saving mistakes, such as cashing out all their savings when they change jobs.

Retirement counselling should start early in a worker’s career rather than in the months before retirement. Building up a pot of money that allows you to preserve your lifestyle for 20, 30 or more years in retirement is not something that can be done in a few short months, or without your intentional involvement.

Mica Townsend is Employee Benefits Consultant and Business Development Manager at 10X Investments.

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