PROBLEM STATEMENT

Empirical evidence indicates that most individuals do not plan well for retirement (Brucker & Leppel 2013:2-3). In South Africa, research conducted in 2010 revealed that only 26% of retirement fund members have adequate funds at retirement. The remaining 74% experience a shortfall at retirement age. In 2011, 80% of retired individuals had not achieved their pre-determined retirement goals. Only 54% of individuals who are employed on a full-time basis and who are 10 years or less away from retirement age are actually saving for their retirement. (Old Mutual Retirement Monitor 2011a:1).

When discussing the concept of retirement, it is important to define the concept of “age”. Although there are many definitions of “old age”, the World Health Organisation (2015) states that, in most developed countries, the chronological age of 65 years is accepted as the definition of “elderly” or an old person. In contrast, Erikson (1950 IN Al-srour 2009:2) explains that a young adult is an individual between the ages of 20 and 39 years, while an individual in middle adulthood is between the ages of 40 and 65 years. The definitions provided by the World Health Organisation (2015) and Erikson (1950 IN Al-srour 2009) will be followed for the purposes of this study. Thus, 65 years will be regarded as a person’s retirement age.

Davies and Cartwright (2011:251) state that the tradition of saving money is passed on from generation to generation, making the habit of saving money a cultural value. With regard to the saving behaviour of South Africans, almost 90% of South Africans spend more money than they earn, thus growing their debt and making little provision for savings, investments, and retirement (Stanlib 2012). Young working South Africans are reported to prefer the acquisition of assets such as motor vehicles and houses instead of increasing their retirement savings (Stanlib 2012).

As individuals move through the transition from being younger workers into being middle-aged workers, paying for their children’s education takes precedence over making provision for retirement savings. As would be expected, Stanlib (2012) states that retirement savings only becomes a top priority when individuals start heading into the older age brackets. However, by then the time remaining is short and the ability to accumulate enough savings is diminished. (Stanlib 2012).

Another possible reason that individuals tend not to plan well for retirement is that the payoff or reward for retirement saving is uncertain and distant. In addition, the cost of retirement saving is sacrificed to instant consumption. Thus, the failure to save for retirement yields instant gain and gratification. Furthermore, there is no immediate reward for “doing the right thing” – such as making provisions for retirement – and also no immediate “penalty” for not doing it. (Selnow 2004:4-5).

According to Stanlib (2012), South Africans underestimate how long they will live post- retirement. Nearly 43% of employed individuals do not expect to live longer than 10 years past retirement age. However, medical advancements have extended life spans,

and individuals are living longer. Data from the South African Annuitant Standard Mortality table from the Stanlib (2012) survey shows that more than 50% of men who survive to age 65 will survive past age 80, and that more than 50% of women who survive to age 65 will survive past age 85. In other words, those who plan on retiring at age 65 need to plan for at least 20 years of retirement income, and perhaps even longer. This may partially explain why nearly half of the retired individuals surveyed by Stanlib (2012) believe that they do not have sufficient funds to last them through retirement. Individuals can no longer rely on the income from their employers’ retirement fund as the only source of retirement savings. Individuals need to be able to manage their own retirement savings, whether it is through employers or through private retirement policies with the aid of experienced, knowledgeable financial advisors. (Stanlib 2012).

In addition to longer retirement years, changes in how families operate also increase the need for better retirement planning. According to Stanlib (2012), in the past it was not only acceptable for children and grandchildren to look after their parents, but even expected. This trend has changed. While a number of individuals rely on financial assistance from their children or other family members, a significant fraction of retired individuals are primary breadwinners: 58% of retirees have dependants, and in many cases support both adult and minor dependants. (Stanlib 2012). High rates of unemployment, particularly among the youth, and high rates of HIV often result in grandparents taking care of their grandchildren (Stanlib 2012). This further underlines the need for proper retirement planning.

It was found by Stanlib (2012) that 58% of South Africans expect to work after retirement; and the majority state they will need to continue working for financial reasons. With the high youth unemployment rate in South Africa, a retired individual might simply not be able to get a job, whether part-time or full-time, as these jobs would most likely be offered to younger people. Thus, individuals planning to work through their retirement years need to reconsider their retirement planning (Stanlib 2012), as these facts illustrate the dire provisions that the South African population is currently making for their retirement (De Clercq 2009:1).

The South African population comprises 54 million individuals, of whom 12.6% reside in the Eastern Cape (Statistics South Africa 2014a:2-3). The Eastern Cape is also

reported to have the highest poverty levels (National Development Agency 2014:12). According to the Broad-Based Black Economic Empowerment Act (2003:2), the term “black individuals” refers to African, Coloured or Indian persons who are natural persons and are citizens of the Republic of South Africa by birth or descent. Furthermore, a “black individual” refers to a citizen of the Republic of South Africa by naturalisation before the commencement date of the Constitution of the Republic of South Africa Act of 1993, or became a citizen of the Republic of South Africa after the commencement date of the Constitution of the Republic of South Africa Act of 1993, but who, under apartheid before that date, would have been entitled to acquire citizenship by naturalisation prior to that date. For the purposes of this study, “black individuals” refer to black individuals of African descent. Since black South African individuals constitute 80.2% of the South African population (Statistics South Africa 2014a:3), this study will focus on black South Africans. The lack of retirement planning that South Africans engage in is highly inclusive of black individuals, as prior research has indicated that the black race group has been identified as one that has insufficient retirement benefits. In addition, the black race group is significantly less likely than the white population to have access to private retirement funds. (Butler & Van Zyl 2012:12; Mawhinney 2010:2; Barnes & Taylor 2006:7).

Although prior research has indicated the lack of retirement planning by South Africans (Botha et al. 2014a:951; Butler & Van Zyl 2012; National Treasury 2012; De Clercq 2009:1 Manuel 2007), this problem requires more research to determine the reasons behind the lack of retirement planning to ensure adequate retirement funding, especially among black South Africans. For this reason and the discussions above, this study’s focus will be on the retirement funding adequacy of pre-retired black individuals in the Eastern Cape.