South African individual retirement savings: An analysis of the social factors

• Published date: 01 September 2019
• Author: Gizelle Demarie Willows
• DOI: http://doi.org/10.1111/rmir.12130
• Date: 01 September 2019

© 2019 The American Risk and Insurance Association

Risk Management and Insurance Review. 2019;22:303–328. wileyonlinelibrary.com/journal/rmir

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303

Received: 21 June 2018

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Accepted: 3 June 2019

DOI: 10.1111/rmir.12130

FEATURE ARTICLE

South African individual retirement savings:

An analysis of the social factors

Gizelle Demarie Willows

College of Accounting, University of

Cape Town, Rondebosch, South Africa

Correspondence

Gizelle Demarie Willows, College of

Accounting, University of Cape Town,

Leslie Commerce Building, Rondebosch

7000, South Africa.

Email: gizelle.willows@uct.ac.za

Funding information

National Research Foundation of South

Africa, Grant/Award Number: 94145

Abstract

This study’s primary aim is to determine whether members

of a South African tertiary institution’s retirement fund are

en route to have sufficient retirement savings. Secondly, the

results are analysed between different social factors namely:

age, gender, race, education level, marital status, and cost of

employment. Survey data and information received directly

from the retirement fund were used as inputs in a

customised model. This method was unique to this study,

that is, it was able to consider broader circumstances other

than the member’s retirement savings within the fund only.

Among the sample of 753 respondents, one‐third of

respondents will have insufficient retirement savings and

<10% will have enough. Single, younger and male

respondents are most likely to have sufficient retirement

savings and this is suggested to be as a result of

advantageous annuity rates upon retirement. Black/African

respondents were least likely to have sufficient retirement

savings. Notwithstanding the racial population divide

following apartheid, societal and cultural explanations

speak to a culture of increased spending coupled with high

financial dependency relationships. Thus, the findings

provide rich information which necessitates policies which

address leakage from retirement savings, appropriate

defaults, and the availability of innovative and affordable

savings vehicles.

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INTRODUCTION

This study’s primary aim is to determine whether members of a South African tertiary

institution’s retirement fund are en route to have sufficient retirement savings when they retire.

Secondly, the results will be analysed between different social factors namely: age, gender, race,

education, marital status, and cost of employment.

Previous research has mostly been limited to what information was housed within the

fund which was hosting the research. The results were not able to draw conclusions on the

individuals net wealth. This study succeeds in not only sourcing data from the retirement

fund which the individual is a member of, but it also draws out additional information by

means of a survey. Such information includes details of other designated retirement

savings outside the retirement fund and societal information such as whether the

individual has dependents to support or whether they are supported by a spouse and so

forth. Furthermore, behavioural considerations such as fund selection and contribution

rates are also considered.

The strength of this study lies in the socioeconomic information available for each

participant. Detailed descriptive statistics allows for better insight into retirement savings

decisions and associated differential outcomes in retirement savings sufficiency for different

participants. A customised model is run to achieve this.

The social and broader macroeconomic context within South Africa is such that individuals

are unable to only rely on the state and/or their employer for financial security in retirement.

Furthermore, South Africa is a country with large income inequality and unemployment rates

(Statistics South Africa, 2018a). Many citizens have no formal retirement savings provision in

place at all (Old Mutual, 2015). While South Africa continually strives for economic freedom

after apartheid, the material welfare of South Africans continues to decline, particularly for the

poorest in the country (Fourie, 2017). And the racially exclusionist education policies

implemented during the apartheid years has contributed to a slower increased trajectory of

learning outcomes for the poorest in the country (Spaull, 2015). The proximate causes for the

increased income inequality are shown to be this unequal education system, persistent

unemployment and an inefficient social security system (Seekings, 2007). Added to this, the

statistical life expectancy of South Africans is increasing (Pallares‐Miralles, Romero, and

Whitehouse, 2012) necessitating a higher quantum of savings required after retirement.

Therefore, an understanding of the proportion of the population potentially at risk and

understanding why they are potentially at risk is necessitated. Following that, further research

can be proposed off the back of findings that corroborate the outcome.

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LITERATURE REVIEW

The section begins by describing the current savings culture in South Africa with a specific

focus on the lack of preservation of retirement savings. Following that the social factors that

shape preparedness for retirement are discussed.

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Current savings culture in South Africa

In 2013, Old Mutual (an international investment, savings, insurance and banking group, based

in South Africa) held face‐to‐face interviews with 1,180 fund members to examine retirement

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WILLOWS