Most South Africans are financially not ready to leave the world of work at the traditional retirement age of 60 or 65, and many embark on a ‘second career’ – either working longer in their current job, or starting their own business, the 2014 Sanlam BENCHMARK Survey has found.
“Of the 300 pensioners surveyed this year, one in five indicated that they supplement their retirement income with part-time work. In most instances, this is out of pure financial necessity. People are living longer, and it has therefore become much more expensive to retire,” says Kobus Hanekom, head of strategy, governance and compliance at Simeka Consultants and Actuaries.
“The problem is that you are currently compelled to retire and buy an annuity regardless of whether or not you intend to continue working. You then lose out on the benefits of compound interest that works in your favour over the last few years and have less time to save for a longer and more expensive retirement.”
Hanekom says the world of work is changing, and tax laws need to ‘catch up’ to enable phased retirement, which will make it possible for individuals to continue working – either in their jobs or doing another type of work – and keep their money growing in a pension fund. “This means that when you retire from your first career at age 60, you will be allowed to remain in the system and continue to contribute to a retirement fund during a second career. This will allow you to increase your retirement savings, benefit from the applicable tax advantages, and retire more comfortably at a later stage.”
He says delaying retirement by six years can double one’s capital upon retirement, while retiring six years earlier will leave you with half the capital to last an extended time period.
“Encouraging employers to reconsider the normal retirement age within their retirement funding arrangements is not an easy task – in fact, the retirement age of many corporate employers has decreased and is now closer to 60 than 65. There are many reasons why employers prefer an earlier retirement date – such as the need to remain BEE compliant – and these strategies are not likely to change. This is why phased retirement is such an attractive option – even though you have officially ‘retired’, you can park your pension benefits in a tax-neutral vehicle where they can continue to grow, and preferably where additional contributions can be made.”
Hanekom says another option would be to allow people to transfer retirement benefits to a retirement annuity fund where they can make further contributions depending on their circumstances (no compulsion) and are allowed to retire and annuitise when they choose (from 55 onwards).
“What is clear is that the concept of reaching retirement only to sit on the stoep, travel the world or play endless games of golf, no longer resonates with many retirement fund members. Whether you want to continue working for financial reasons, or because you enjoy remaining active, the introduction of phased retirement will make it possible for individuals to postpone their retirement to the day when they actually stop working.”
Hanekom encourages retirement fund members to take ownership of their own retirement planning. “With the assistance of a qualified financial adviser, you should do the math to determine your projected pension. If you do decide you will need to embark on a second career, it is a good idea to find out whether your current employer is likely to retain your services, or whether you may need to reskill yourself to start your own venture or a career in a different field. Planning for your retirement years should not be pushed to the bottom of your priority list until you are close to retirement – you need to use your power now to decide your own future to ensure you have the best possible financial security in retirement,” he concludes.
About Sanlam Employee Benefits (SEB)
Part of the Sanlam Group, SEB specialises in the provision of risk, investment and administration services to institutions and retirement funds. Focused on meeting the unique needs of its diverse clients, SEB assists companies to create and deliver customised employee benefits solutions, including the collection of premiums and communication to fund members. For more information, visit www.seb.co.za.