Anxiety about money is a topic that keeps South Africans awake at night. This, and other insights, were revealed in a survey conducted earlier this year by one of the country’s largest financial services providers. Among others, the survey indicated that only 36% of South Africans currently have a retirement fund. Furthermore, studies show that many South Africans will have to rely on social grants as part of their retirement to maintain their current lifestyle.
The reality is that most South Africans are not planning for retirement financially. For low-income workers, the situation is even more challenging as limited disposable income provides little room for savings, let alone saving for long-term goals such as retirement.
Thian De Beer, Chief Executive Officer (CEO) of the Picsa Group, gives some perspective on the current state of retirement specifically for low-income workers and shares how starting small with Picsa can make responsible saving and retiring possible for all South Africans.
Why should people save for their retirement?
Some studies show that less than 10% of South Africans will retire comfortably, while the rest will be dependent on their families, government and/or other sources of income. We are also seeing a steady increase in the so-called sandwich-generation - middle-aged adults who are not only responsible for taking care of their children but also their ageing parents.
What does retirement look like for low-income workers in South Africa?
At Picsa, we have found that the culture among our clients is that they look after each other. They look to government grants as a form of income and to make up for the shortfall, they take care of each other. However, this practice puts a lot of pressure on the community. The idea is to move out of the poverty cycle and mindset of “I am not able to empower and lift myself out of these circumstances as I must look after my children, my family, and others in my community.” This mindset needs to shift to allow room for ambition to grow as opposed to following in the poverty steps of previous generations. Unfortunately, our clients are so used to family and the government caring for them and suffering when they retire. They are not accustomed to retiring with a backup fund and as such, must continue working to be able to survive.
Describe what happens to people in this market who don't have savings for retirement.
In South Africa, we unfortunately have a very limited savings pool among our lower-income citizens, which means a very high reliance on government grants (SASSA) and/or financial support from family members. In many cases, low-income retirees need to continue working on an informal basis (usually temporary or part-time) just to make ends meet.
Do you have some best practices to highlight when it comes to retirement savings?
Planning for retirement can be very overwhelming. Phrases like pension funds, provident funds, retirement annuities, tax-free savings accounts, diversification, tax implications, etc - are all terms that the average South African has probably heard of but doesn't necessarily fully understand. Some basic key factors that I'd like to highlight when it comes to saving for retirement include:
Firstly, start as early as possible. Even if you put money away in a separate bank account when you start working, you'll still give yourself a head start that could prove crucial later in life.
Secondly, ask a professional to help you set up a savings plan to suit your own personal risk profile and needs, and then review it periodically. This is important - every person has different needs and there's no one-size-fits-all approach that works for everyone.
And lastly, make sure that you build up an emergency fund that can be accessed in times of need (instead of taking out expensive debt).
“Aside from the moral considerations, there are also several tangible and intangible benefits that employers can potentially get from offering retirement savings to their workforce. ”
Why should businesses offer retirement savings as a benefit for their workers?
Aside from the moral considerations, there are also several tangible and intangible benefits that employers can potentially get from offering retirement savings to their workforce. This includes tax benefits (for both the employee and the employer), attracting and retaining talent, improved productivity from workers and increased employee loyalty.
What does Picsa offer in the form of retirement savings?
Picsa has helped more than 10,000 low-income workers start saving for long-term financial goals, including retirement. We currently offer three savings vehicles, namely emergency savings, short-term investments, and long-term investments. With emergency savings, we want to help our clients build up an emergency fund to make room for life’s unexpected curveballs. Short-term investments are designed to allow clients to save for a specific goal i.e., weddings, matric farewells, school fees, Christmas etc. And then lastly, long-term investments allow clients to put funds aside for their retirement each time that they are paid.
“Picsa has helped more than 10,000 low-income workers start saving for long-term financial goals, including retirement.”
Retirement planning doesn't have to be daunting or expensive. By starting small and utilising solutions such as Picsa, low-income workers in South Africa can build up their savings gradually, ensuring a more secure financial future.
To find out more about how to help your low-income workers set and achieve financial goals starting from as little as R1 per day, please visit our website at www.picsa.com or email us at info@picsa.com.