If you are under the impression that it is only South Africans who are
worried about their retirement, think again.
Although some of the factors shaping the future of many potential retirees
are unique to this country, like affirmative action and political
uncertainty, most of the factors shaping the future for an ageing
population are global.
Recently, Time magazine devoted several pages to this issue, referred to as
the pensions time bomb. The social security systems in place in most
countries in western Europe will increasingly come under strain as older
members live longer and not young enough ones join the schemes to maintain
the pay-as-you-go funding required.
The magazine illustrated its point by using photographs of couples aged 70
and 80 plus riding around on their roller blades. The message was clear:
people are ageing in a very different manner from previous generations.
Due to improved medical science, the absence of large-scale wars and
increased nutrition, people are not only living longer, they are also
living far healthier and better lives. But this costs money; more than most
people are likely to have.
Calls are now being made to increase the compulsory retirement age by a
number of years, even to as much as 70 in some instances.
Without drastic changes to the social security systems now, experts feel
these schemes could become a massive drain on the next generation of
taxpayers.
The BBC this week ran a programme on its Panorama programme which dealt
with a similar issue, something that has been happening right here in this
country: the change-over of pension funds from defined benefit to defined
contribution funds.
The same factors forcing the change-over in the UK are also at work in
South Africa; with pensioners living longer, companies are increasingly
finding that they cannot afford to maintain the very generous benefits
offered by defined benefit funds,hence the need to change.
Quoting statistics from the UK, the BBC says more than a third of British
companies have already closed their final salary (defined benefit) schemes
while another quarter will do the same in the next five years.
I do not have local statistics at hand, but from personal experience I am
fairly certain that a great number of companies are looking at ways of
changing their existing, often very generous funds, to funds where the
liability transfers from the company to the individual.
Money purchase schemes, where the investors takes his or her money and
invests it anywhere they choose, often not only pay out less but have more
risks attached to them.
Particularly ominous was what John Quarrell, a former head of the
Association of Pension Lawyers, had to say: ``If final salary schemes go -
and the trend is certainly heading that way - there will be economic
Armageddon for our pensioners in the future``.
Chilling words indeed and ones that will no doubt find a resonance with
many people in this country who are faced with a similar decision.
Yet most South Africans who are offered the choice elect to take the money
purchase option, the one that puts them in control of their investments,
rather than leaving it with their old-style funds.
Sometimes employees have to be cajoled into making the change, often with
enhanced transfer values, but they take it. In one large company I am aware
of, more than 90 percent of the employees who were offered this choice,
took it.
It`s fine for young people who have many years to go to retirement to take
this option, but for many people close to retirement this could be the
worst possible decision.
Many people will find that they will not have enough money for retirement
and in order to prevent a sharp drop in their living standards, will have
to find after-retirement work, something totally different to what they
were anticipating.
Only the very rich will be able to afford the idyllic retirement of a house
at the sea, with lots of golf/fishing or whatever with an annual trip
overseas. For most people, retirement is going to be very different.
My message to people who are still complacent about retirement is the
following; wake up and start planning.
Nobody is going to look after you when you retire. Also, you are unlikely
to retire in the manner and custom previous generations used to retire.
If you don`t believe me, read the final words that the BBC had to say on
this issue: `I think we are going to see more pensioners stacking shelves
in supermarkets just to make ends meet because the state will not be able
to provide a big enough pension and nor will they have a large enough
private scheme`.