Sanlam’s 2020 Benchmark Survey shows that 16% of retirement funds have members who requested access to funds during lockdown in South Africa.
With the state of retirement savings in South Africa directly impacting the economy and prosperity of citizens, trends and findings from the research have been instrumental in driving seminal and urgently needed change in retirement regulation over the past four decades, said Viresh Maharaj, managing executive: Sanlam Corporate Distribution.
Key findings included a marked rise in requests for funds and suspension of contributions over the past few months as well as sharp rise in queries around investment performance.
Retirement funds have not been insulated from the impact of the lockdown on livelihoods and the subsequent drive by members to survive, said Maharaj.
Over the course of the lockdown:
- Over 25% of retirement funds have members who queried or complained about their investment performance or fund values;
- 16% have members who requested access to their retirement funds;
- 8% have members who requested financial advice; and about
- 5% have members who implemented investment switches, among other activities.
Suspension of retirement fund contributions
Maharaj noted that around a quarter (26%) of employers/funds indicated that they had suspended retirement fund contributions to help alleviate Covid-19 related burden, and 91% of consultants had at least one client who had already done so.
“We anticipate that these figures would have increased since the survey was conducted,” Maharaj said.
A three-month suspension was the most popular period, followed by six or more months, which is indicative of the uncertainty of the return to normal. “We expect many of these suspensions to be rolled over.”
On average, these suspensions provide net cashflow relief to individuals of R1,500 per month, contingent on contribution levels and tax brackets.
“The long-term impact of the suspension on outcomes is also limited and our calculations indicate a 1 to 3% impact on final fund values, based on a six-month suspension and conservative assumptions.
“In the context of meeting immediate needs, it seems that the suspensions are a relevant way to provide immediate relief without materially affecting long-term prospects,” said Maharaj.
Impact on group insurance
With the subsequent dual shocks of the healthcare impact of the pandemic and the contraction in the economy, claims and insurance premiums are most likely going to increase soon, adding further pressure to already constrained fund members, said Sanlam.
Such increases are likely to be felt most acutely in the arena of disability income protection, which has been one of the product categories most aligned to the economic experience of the country.
“We anticipate that steep increases may well catalyse many employers to reconsider benefit structures, with a change from flat benefit structures to income tax scaled structures, noted as the most popular option.
“Alignment with the tax scales helps to control for the longevity of claims and will impact on controlling the costs of providing these benefits. Encouragingly, almost no respondents indicated that they would terminate their benefits due to price increases, demonstrating the critical role that such coverage plays in the lives of employees,” said Maharaj.