Blue Chip Issue 81

RETIREMENT
The South
African outlook
Making sense of today’s retirement landscape. Part 3
In this series, we have explored how two rapidly advancing
phenomena, longevity and the Fourth Industrial Revolution,
are colliding with an age-old retirement savings conundrum.
As this global metamorphosis occurs it is compelling a radical
paradigm shift when it comes to achieving financial freedom,
throughout one’s life.
Firstly, machines are becoming very smart. As they quickly
take over many of the tasks previously performed by people, the
unfolding workplace revolution is creating incredible efficiencies.
But it is also threatening to worsen
inequality as the work that provides
for the incomes generated by large
parts of society becomes less secure.
For many, it is becoming essential to
continually reskill and relearn.
Secondly, people the world over
are living much longer. Catalysed
by the near exponential advance of medical technologies and
the science of wellness, the ageing revolution is undoubtedly a
cause for celebration. But it also creating immense challenges for
societies and individuals, who need to support the many more
years they have “after work”, as compared to the years spent
working. For most of us alive today, it is becoming essential to
save significantly more.
Whatever you don’t save
for retirement will cost your
children 6.7 times more
once you are in retirement.
These trends clearly create an urgent need for new solutions
from the global retirement savings industry. In South Africa, they
are interweaving with a complex, continually evolving socioeconomic
dynamic, with various idiosyncrasies that create unique
local challenges.
When global trends meet a local dilemma
South Africa’s retirement savings shortfall is both well-documented,
and alarming. The average replacement ratio for South Africa’s
retirement industry is estimated at
just 25% to 30%. This implies that,
on average, people with some form
of retirement savings can expect to
receive the equivalent of just over a
quarter of their income at retirement as
a post-retirement income. People tend
to seriously underestimate the impact
that this implies in terms of their quality of life after work.
Reducing this shortfall is not only essential to alleviate the
burden experienced by state and society – which need to step
in to support those who do not have enough savings to support
themselves in retirement – but it is essential to grow the economy.
However, as machines disrupt our workplaces, this problem is
clearly not going to resolve itself.
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