A somewhat grey and gloomy reality faces most of us as future-retirees in South Africa. High fees, declining returns, and insufficient contribution and saving rates are frequent topics of discussion. As a generation of baby boomers reaches retirement, there’s another important question that’s been getting more attention globally: What is the right age to retire? Should SA’s aging workforce be working – and contributing – for longer?
Retirement reforms in some countries have seen the retirement age increase, at times sparking the ire of would-be pensioners. Brazilian authorities faced widespread public opposition, as did the Italians. This cohort of 50-something workers wants to retire at 55 or 60 years old. But, there is also a flipside, particularly in countries where pension provisions are inadequate.
Picture a 64-year old engineer who is a year away from being pensioned off. He’s grateful to have his health and perhaps looks forward to a touch of leisure. Yet, mostly, he’s concerned because he knows he only has one year of his working life to accumulate enough for a comfortable retirement. This seems unattainable due to a combination of factors:
Past mistakes: For example, cashing out his retirement savings when he changed jobs 20 years ago, and opting for the lowest contribution rate;
Present circumstances: For example, not being offered an in-fund annuity by his employer and not receiving financial education on saving for retirement;
Future prospects: With advances in medicine, he believes his retirement years will last far longer than he'd foreseen 20 years ago.
Unfortunately, there isn’t much he can do to change any of those factors. But, one thing he could do to improve his financial situation is to keep working – and contributing to his retirement savings. Company policy, however, doesn't necessarily allow him to. It may impose mandatory retirement, with normal retirement age at 65.
In many respects, this engineer believes he’s a more valuable employee now than ever before. He has a lifetime of knowledge, learning, and experience. He’s the first one in the office in the morning, and the last to leave, since his kids are grown up and there are fewer responsibilities for him at home.
He is only one of thousands of highly-skilled employees being unwillingly forced into retirement every year to face a financially uncertain future. There is a whole generation of people who believe they are still fully capable of making a meaningful contribution to society – but the current employment system seems to underestimate the value they can add. And, in a country with soaring youth unemployment rates, they know that finding gainful employment elsewhere is highly unlikely.
Statistics SA’s Q3 Quarterly Labour Force survey released in October 2018 has few positives to report. Compared to last year, the expanded unemployment rate increased by 0.5 percentage points for the country as a whole. The proportion of young persons aged 15 to 24 who were not in employment, education or training (NEET) increased by 0.7% over the same period. At a rate of 39%, this means that almost four in every ten young persons are not employed, or in education or training to become employed. Within this context, the prospects for people of pensionable age are dim.
There are no simple solutions, but the retirement industry and government policymakers should take into account that policies and regulation should encourage trustees and investment consultants to help ensure that:
a) members receive sufficient financial education throughout their working careers;
b) funding models are appropriate (life stage models and asset-liability matching);
c) members are provided with appropriate savings-options at retirement (annuities/in-fund annuities).
Government may need to reconsider how it uses the longer-lived grey workforce. An added emphasis on skills transfer programmes would be laudable – not only in terms of making efficient use of valuable human capital, but also in addressing some of the concerns about youth NEET. Educated and experienced elderly instructors could work in training colleges, even if only on a temporary and substitute basis. Mentorship programmes can also add to the socio-economic impact of such initiatives. And, if such work were to be compensated (potentially partly by revisions to the old age grant system), all the better.
Deciding which interventions are feasible, needs more attention. But, at the very least, it is clear that a generation of unwilling pensioners and a growing grey workforce should not be left in the cold.