Despite a pushback from labour unions on retirement reform, the majority of respondents in a new survey like the idea of participating in either a government or employer-sponsored pension fund.
While labour unions are concerned about the impact of compulsory preservation on the financial vulnerability of their members, the majority of participants like the idea of a compulsory fund. However, many have also highlighted the need for flexibility and the option to opt out.
Reform in the retirement industry seeks to ensure more South Africans can support themselves adequately during retirement. Estimates suggest up to half of formally employed South Africans may not be saving for retirement in any form. While some regulatory changes will be introduced early next year, no final decisions have been made around auto enrolment or compulsory retirement funds.
Speaking at the release of Old Mutual Corporate’s Auto Enrolment Research Report, which gauged South Africans’ view on compulsory retirement funds, Craig Aitchison, general manager of corporate customer solutions at Old Mutual Corporate, said three different approaches have been debated, although it was unclear if any were being pursued actively.
The first is auto enrolment, which means employers are compelled to enrol their employees in a retirement fund.
The system can either be mandatory or employees could be allowed to opt out if they so choose.
Another option is “retirement exchange” where, if the employer does not have a retirement fund, government creates a simple fund structure and retirement product providers can decide if they want to offer it or not – something similar to the Mzansi bank accounts.
The third option is for some kind of national pension fund, where employees make a contribution and receive a pension from government in retirement.
According to the research report, which surveyed 809 South Africans between the ages of 18 and 64 who did not own a pension or provident fund, 69% of respondents said they were completely likely or very likely to choose to be part of a government-sponsored pension fund if it was introduced.
But participants were divided when asked if a government-sponsored pension fund should be compulsory.
Aitchison said many customers believe they should have the right to choose if they want to be part of the fund. There was also some concern about whether they would be able to keep up with contributions due to inadequate monthly income.
Sixty-seven percent of respondents liked the idea of their current employer implementing an employer-sponsored pension fund.
Where respondents were offered a choice between the two funds, they seemed to prefer an employer-sponsored fund (49%) to a government-sponsored fund (15%). But 19% said they’d like to join both; 13% were indifferent and 5% were unsure.
One third of respondents believed they should be contributing more than 15% of their salary to a pension fund, but only 10% said they were able to do so.