A generation of unwilling pensioners

By FRAN TROSKIE Investment Research Analyst at RisCura

A somewhat grey and gloomy reality faces most of us as future retirees in South Africa. High fees, declining returns, and insufficient contribution and saving rates are frequent topics of discussion. As a generation of Baby Boomers retires, there’s another important question that’s been getting more attention globally: What is the right age to retire? Should South Africa’s ageing workforce be working – and contributing – for longer?

Retirement reforms in some countries have seen the retirement age increase, at times sparking the ire of would be pensioners. Brazilian authorities faced widespread public opposition, as did the Italians. This cohort of 50-something workers wants to retire at 55 or 60 years old. But there is also a flipside, particularly in countries where pension provisions are inadequate or, as in South Africa, where some critical skills are in short supply.

Picture a 64-year-old university lecturer who is a year away from being pensioned off. She’s grateful to have her health and perhaps looks forward to a touch of leisure. Yet, mostly, she’s concerned because she knows she only has one year of her working life to accumulate enough for a comfortable retirement. This seems unattainable and rather overwhelming due to a combination of factors:

• Past mistakes: For example, she cashed out her retirement savings when she changed jobs twenty years ago and subsequently chose the lowest contribution rate

• Present circumstances: For example, not being offered an in-fund annuity by her employer and not receiving financial education on saving for retirement

• Future prospects: With advances in medicine, she realises that her retirement years will last far longer than she’d foreseen 20 years ago.

Unfortunately, there isn’t much she can do about these factors, but one thing she can do is to keep working and keep contributing to her pension pot. Some industries and/or professions, however, impose mandatory retirement ages and this choice is effectively off the table. The mandatory retirement age for public servants and educators in South Africa is still 65 years.

In many respects, the teacher believes she’s a more valuable employee now than ever before. She has a lifetime of knowledge, learning and experience. She’s the first one to pull into the school parking lot in the morning and the last to leave, since her kids are grown up and there are fewer responsibilities for her at home.

She is one of thousands of highly-skilled employees being unwillingly forced into retirement every year to face a financially uncertain future. There is a whole generation of people who believe they are still fully capable of making a meaningful contribution to society – but the current employment system seems to underestimate the value they can add.

As recently as March 2020, the KwaZulu-Natal Department of Education was encouraging its workforce to take early retirement. The Department of Public Service allows employees above the age of 55 to take early retirement without losing their benefits. The idea behind ‘pushing’ teachers into retirement was that it would reduce pressure on the fiscus by cutting the Department’s substantial wage bill (estimated to be about R49bn at the time). It was also suggested that vacant positions would be filled by young, then-unemployed individuals. This would, on paper at least, reduce the province’s unemployment rate as retirees are generally no longer considered to be part of the workforce. The reality, however, is a different story.

The reality is that in South Africa, many retirees have not received sufficient education (even if they were in the business of education) about their options upon retirement. They are therefore unlikely to have put measures in place that will allow them to retire comfortably, and their pensions are simply not enough to sustain them through the remainder of their lives. The other stark reality is that ageing employees, irrespective of their skills, are unlikely to obtain work. The country faces an ever-increasing unemployment rate. The latest data for the third quarter of 2021 shows that unemployment is at its highest level since comparable records began in 2008. The official unemployment rate hit a whopping 34.9%. In addition, the impact of Covid-19 has left the fiscus in a position where it is largely unable to provide a sufficient social safety net.

While there are no simple solutions, there are considerations that policymakers need to take into account when ‘forcing’ members of the workforce into retirement:

• Policies and regulations should encourage trustees and investment consultants to educate the workforce about their options at retirement

• Funding models need to be appropriately tailored to suit the demographic profile of the country and any profession. This means that life-stage models and asset-liability matching form a critical part of the retirement system

• Skills shortages, likely to be exacerbated by the socalled ‘brain-drain’, need to be addressed

• Gaps in the social safety net need to be addressed, lest unwilling pensioners face destitution.

The South African government may need to reconsider how it uses the longer-lived grey workforce. An added emphasis on skills transfer programmes would be laudable, with educated, healthy individuals encouraged to act as mentors. This is likely to have positive socioeconomic spill-overs, including a sense of belonging in both mentees and mentors.

Deciding which interventions are feasible needs more attention. But, at the very least, it is clear that a generation of unwilling pensioners and a growing grey workforce should not be left in the cold.