Assessing factors that influence saving through retirement funds

Abstract

Retirement planning is an important savings mechanism that requires a collaborative and strategic approach from all the key stakeholders, mainly, the employer and employees, underpinned by a sound state policy framework. The need for this strategic alliance is direr in developing countries where social security programmes are virtually non-existent. The unpredictability of financial markets which retirement funds are exposed to, adds further complexity to an already sophisticated process laden with numerous unknown and often undefined variables. A positive savings culture is a non-negotiable and integral core ingredient to a robust social security framework. This research seeks to assess factors that are accepted as key influencers of savings for retirement for member of the retirement funds in South Africa. A cross sectional survey was used to collect the required data. Therefore, the general population of this study comprised of members of retirement funds who are aged 55 years and above, whose occupation retirement fund is a client of Alexander Forbes. The study aimed to obtain at least 150 questionnaire respondents via an online survey platform called Qualtrics by distributing the link to the identified respondents. After gathering cross sectional data, regression and descriptive statistics approach were used, where a sample of 130 responses out of a population of 150 members of retirement funds was used. The research established that a correlation existed between saving for retirement and the following factors; uncertainty about one’s health, education, age, salary range and the level of education. Correspondingly, the research recommends that employers, through financial literacy programmes, can assist to enhance a culture of saving by empowering the less educated employees to appreciate the benefits of long-term saving through retirement funds. Obvious benefits like tax savings and compound interest might not be apparent or completely misunderstood by employees of lower literacy levels. A key recommendation for the retirement fund industry, the employers and the government as interrelated stakeholders, is that financial awareness which is more than just financial literacy should be prioritised across iii all the sectors of society. Basics of financial planning, like the cost of credit, budgeting, taxation and pensions should perhaps be incorporated into the schooling syllabus to ensure functional or operational understanding of these concepts. To further entrench a culture of saving for retirement, the retirement fund industry is challenged to design bespoke products to talk separately to each sector of the market, to understand the differentiate the needs of the high net individuals from those of the lower LSM (living standard measure). It is suggested meaningful efforts in this regard, coupled with similar efforts in the health sector, where the state sponsored healthcare system is acutely overburdened, would result in upward surge of the key indicators of saving for retirement.