Retirement planning in a pandemic

Almost half of the South Africans surveyed (49%)

in the recent 10X Retirement Reality Report 2020 (RRR20) admitted they didn’t have a retirement plan. Only 6% said they had a plan they were sticking to. These numbers explain why 10X talked of a ‘retirement crisis’ when they started their research in 2018.

South Africans are, however, not blind to the consequences of having inadequate retirement plans and savings in place. In fact, 76% of those with a household income (HHI) between R20 000 and R50 000 expressed concern about it, as did nearly three quarters (72%) of those whose HHI was more than R50 000 per month.

“This indicates that a broad range of people are feeling anxious about their retirement and it highlights the important role advisers can play in

building more positive futures. Apart from helping customers to understand their options and draw up a solid financial plan, qualifiedadvisers can recommend solutions that support the plan and are appropriate for their life stage,” says Jaco van der Merwe, Executive General Manager for Personal Finance at Old Mutual.

What should advisers/planners be saying to their clients?

Nobody could have predicted the COVID-19 pandemic and its economic fallout, which has worsened the problem, preventing many people from earning an income and pushing them into debt unless they had access to an emergency fund.

The lessons learnt were painful, but may mean that many more South Africans will now take steps to strengthen their long-term finances, reassess what’s important, scale back and plan properly for the future.

What should advisers/planners be saying to their customers?

1. Take advantage of tax breaks

South African taxpayers are allowed an annual tax deduction of up to 27.5% of the higher of their taxable income or remuneration, but limited to a maximum amount of R350 000, in respect of contributions to retirement funds.

Make use of this concession to reduce your tax bill by increasing your contributions to your current employersponsored retirement fund or a retirement annuity fund.

You can also take advantage of a tax-free savings account, which allows you to save up to R36 000 a year (or R500 000 in total over your lifetime) without paying tax on the income or growth of your investment.

2. Consider all the available retirement options

Look into all options for investing capital for an income at retirement, such as living annuities and the various types of guaranteed annuities. Remind customers of the wisdom of a sufficiently diversified portfolio, which spreads risks while seeking optimal returns.

At Personal Financial Advice (PFA), our advice model makes it easier for advisers to make the right recommendations for appropriate action backed by Old Mutual, a 175-year-old leader in the financial services industry.

Our market-leading solution recommendation tools and propositions, together with the integrated wealthplanning platform and the practice management support, give advisers a competitive edge in the market.

For more information on the adviser value proposition offered by PFA, email Vusi Zingitwa, Provincial General Manager, Personal Finance at Old Mutual at VZingitwa@oldmutual.com

Jaco van der Merwe, Executive General Manager: Personal Finance, Old Mutual