Member CommunicationCost of Poor Member Decisions

COST OF MEMBER DECISIONS

3

• Meet Joe Bloggs

– Age 35; salary R5,000; accumulated credit R100,000; NRA 65

• Conservative Investment Strategy (CPI + 2%)

– Replacement Ratio: 44%

– R2,199 per month in today’s money

• Moderate/Aggressive Investment Strategy (CPI + 5%)

– Replacement Ratio: 78%

– R3,904 per month in today’s money

Impact of Poor Choices

4

• Meet Joe Bloggs

– Age 35; salary R5,000; accumulated credit R100,000; NRA 65

• Keep the assumption of 5% real return

– Replacement Ratio: 78%

– R3,904 per month in today’s money

• What if his accumulated credit was 0 at age 35?

– Replacement Ratio: 57%

– R2,857 per month in today’s money

Impact of Poor Choices

Retirement Destruction

What is the going Replacement Ratio in the industry?

AverageFund

80%

Reality

28%

65%

SURVEY KEY FINDINGS

Survey overview • Objective: To understand changes in the retirement fund market, to

evaluate retirement fund investments and examine attitudes and perceptions among members and non-members on all issues relating to retirement.

• Field work conducted last quarter of 2010 – Cape Town, Durban, Johannesburg

• 1 005 face-to-face interviews– Full-time metropolitan dwellers between 18 - 64 years of age– Demographically representative sample – Split approx. half members of retirement funds– Statistically relevant sample

Key findings• Many South Africans are struggling and are prioritising other

obligations such as children’s education ahead of retirement• Many South Africans don’t see themselves living long into

retirement, thus they don’t identify with the need for retirement savings

• General satisfaction levels with the individual’s current state of retirement provision remains low

• Contribution levels remain too low to create sufficient retirement funding

• People are unlikely to preserve unless there is some form of compulsion

• People remain uninformed and uneducated about their retirement funds; current fund communication efforts fall short of improving this

Member of a pension/provident fund?

Of whom: 30% (42%) also have a Private RA.

3% (7%) also have funds in a Preservation Fund from a previous

employer.

Of whom: 1% have funds

in a Preservation Fund from a

previous employer

Of whom: 17% (25%)

have RAs

16% (10%) work foran employer who does

in fact offer a retirement fund*

* Of those whose employers do not offer a retirement fund option, 58% (50%) would

definitely participate if it was on offer (80% (76%) Definitely + Probably)

Of whom: 56% (45%)

Pension Fund43% (47%)

Provident Fund2% (8%) Don’t know/hybrid

vs. 57% in 2010

(Last year’s results in brackets)

• Being a member of a retirement fund increases the likelihood of other savings: members of retirement funds hold significantly broader basket of savings and investment policies

Satisfaction with current state of retirement provision Younger respondents less satisfied with current state of retirement

provision Satisfaction increases with income

Age that want to retire vs. age will be able to retire

Average desired retirement age is 60

Average perceived actual retirement age

is 64

Despite low levels of awareness fund members report being fairly satisfied with fund communication

Effectiveness of retirement fund communication

Influences on perceived effectiveness of retirement fund communication

Fund communication is most effective for higher income people, more educated people and those more comfortable with English

Methods of communication

• Schemes favour printed material when communicating with members• However, the most desired forms of communication among members

are email, telephonic, cellphone and face-to-face. Provision of these forms of communication remains low.

Only 31% of members read the member guide thoroughly on joining

One third find communication

difficult to understand

Content of communication

• Content of communication does not inform members of the value of savings and underlying investments, general retirement information, and information that allows them to make informed choices

• In spite of frequency of communication, very low levels of informedness prevail among members

• Focus of communication not in line with member needs

The information gap

• Current fund communication focuses on factual information and does not enable members to make good decisions

• Members need to receive more information around adequacy of retirement provision and planning, risk benefits, rules and underlying investments

5

15

19

20

22

25

38

49

57

66

0 20 40 60 80 100

NONE

Info that allows me to make educated choices as to what/where my fund invests

Info on underlying investments, what these are

Info that allows me to make educated choices as to what to do with my retirement savings when I retire

Info on my retirement needs vs. what I have saved

Costs involved in administration & management

Current value of your savings in the fund

Risk benefits offered by fund e.g. death & disability

Fund rules generally

Basic info, name of fund, contact info etc

%

Confidence in trustees, retirement fund adequacy and administration

• High levels of trust and confidence in trustees despite members’ lack of involvement

• Confidence levels across all attributes increases with income

 

7

7.3

7.5

7.6

7.6

7.3

7.4

7.6

7.6

7.7

7.7

1 3 5 7 9

Will take care of me if I resign/amretrenched

Will take care of me if I am unable towork due to ill health or injury

Costs of admin and management are wellcontrolled and reasonable*

Administration of find is done properly

Invests my money to give me the bestbenefit/return

Will provide adequately for me when I retire

%

2010 2011

COMMUNICATION GOVERNANCE

Working after formal retirement

• 58% expect to work for pay after formal retirement• Of those who expect to work for pay after formal retirement:

78% say that this is due to financial reasons 27% say that this is because they enjoy working and want to

remain engaged and stimulated

58% expect to work for pay after formal retirement. Bias:

White, non-members

42% don’t expect to work. Bias: Indian and current fund members

How long will your retirement savings need to last?

43% do not see themselves living long

after retirement

Retirement provisions need to last for an

average of 14.2 years

Anticipated reliance on state pension

• Growing anticipated reliance on a state pension and/or post-retirement employment

• Reliance on state pension and proportion of retirement income that will be provided by state pension is significantly higher among lower income group (earning < R3 000)

– 48% who earn less than R3 000 think they will rely on a state pension– 23% who earn R3 000 – R11 999 think they will rely on a state pension– 10% who earn R12 000 – 19 999 think they will rely on state pension– Respondents earning < R3 000 say state pension will provide 28% of

retirement income– Respondents earning R3 000 – R 11 999 say state pension will provide

8% of retirement income

Salary contributions

• 88% report contributions below 10% of salary, whilst on average most people should target 15% of salary

• 97% have never made any additional contributions into their retirement funds

% of Salary Contributed % of RespondentsUp to 5 % 18

6 - 10% 70

11 - 15% 11

16 - 20% 1

More than 20% 1

70% contributions ‘about right’

15% contributing

too little

12% not sure

3% contributing too much

73% have a good idea of % contribution

27% don’t know/unsure of % contribution

Awareness of members

• Only 23% of respondents knew approx. value of their retirement fund

• 64% of respondents don’t know who manages the investments in their fund

• 67% don’t know where these funds are invested

Member level investment choice• Individuals remain uninformed about investment choices and tend to

remain in the default investment option

51% (50% in 2010) don’t know or are unsure

whether their fund offers member level investment

choice

13% (18% in 2010) have memberlevel investment choice

36% (32% in 2010) not offered

Of whom: 63% (58%) very confident exercising that

choice35% (35%) fairly confident2% (6%) not very confident

None (1%) not at all confident

Of whom: 62% (66% in 2010) selected the default option (49%

(41%) because they really thought it was the right option and 13% (25%) because they did not know what else to

choose)9% (11%) made a different choice

29% (22%) can’t remember

Awareness of pension reforms

• Low awareness of pension reform across the board; 76% do not know what the pension reforms are

• Amongst those who do have some awareness, attitudes towards reforms are mixed

• Awareness of pension reforms increases with income• Fund members more aware of pension reforms than non-fund members

Aware of key issues

Heard a bit about it

Little or no awareness at all

Pensioner Survey

• Pensioners mildly satisfied with retirement provision (6.5 out of 10)

• Strong evidence that pension adequacy is under pressure

• Nearly half do not think they have sufficient funds to last them through retirement

• Majority of pensioners displaying a drop in living standards after retirement

• When re-investing cash portion, most favour conservative savings vehicles

• 56% received no pre-retirement advice or counselling

Summary

• Members are disengaged from their funds• Current communication not effective• Retirement benefits diminishing to a fraction of

their potential• Financial security weak

Effective Communication and Education programs will reduce the cost!

THANK YOU