Member Communication Cost of Poor Member Decisions

COST OF MEMBER DECISIONS

3 Meet Joe Bloggs –Age 35; salary R5,000; accumulated credit R100,000; NRA 65 Conservative Investment Strategy (CPI + 2%) –Replacement Ratio: 44% –R2,199 per month in today’s money Moderate/Aggressive Investment Strategy (CPI + 5%) –Replacement Ratio: 78% –R3,904 per month in today’s money Meet Joe Bloggs –Age 35; salary R5,000; accumulated credit R100,000; NRA 65 Conservative Investment Strategy (CPI + 2%) –Replacement Ratio: 44% –R2,199 per month in today’s money Moderate/Aggressive Investment Strategy (CPI + 5%) –Replacement Ratio: 78% –R3,904 per month in today’s money Impact of Poor Choices

4 Meet Joe Bloggs –Age 35; salary R5,000; accumulated credit R100,000; NRA 65 Keep the assumption of 5% real return –Replacement Ratio: 78% –R3,904 per month in today’s money What if his accumulated credit was 0 at age 35? –Replacement Ratio: 57% –R2,857 per month in today’s money Meet Joe Bloggs –Age 35; salary R5,000; accumulated credit R100,000; NRA 65 Keep the assumption of 5% real return –Replacement Ratio: 78% –R3,904 per month in today’s money What if his accumulated credit was 0 at age 35? –Replacement Ratio: 57% –R2,857 per month in today’s money Impact of Poor Choices

Retirement Destruction What is the going Replacement Ratio in the industry? Average Fund Average Fund 80% Reality 28% 65%65%

SURVEY KEY FINDINGS

Survey overview Objective: To understand changes in the retirement fund market, to evaluate retirement fund investments and examine attitudes and perceptions among members and non-members on all issues relating to retirement. Field work conducted last quarter of 2010 – Cape Town, Durban, Johannesburg face-to-face interviews –Full-time metropolitan dwellers between years of age –Demographically representative sample –Split approx. half members of retirement funds –Statistically relevant sample

Key findings Many South Africans are struggling and are prioritising other obligations such as children’s education ahead of retirement Many South Africans don’t see themselves living long into retirement, thus they don’t identify with the need for retirement savings General satisfaction levels with the individual’s current state of retirement provision remains low Contribution levels remain too low to create sufficient retirement funding People are unlikely to preserve unless there is some form of compulsion People remain uninformed and uneducated about their retirement funds; current fund communication efforts fall short of improving this Many South Africans are struggling and are prioritising other obligations such as children’s education ahead of retirement Many South Africans don’t see themselves living long into retirement, thus they don’t identify with the need for retirement savings General satisfaction levels with the individual’s current state of retirement provision remains low Contribution levels remain too low to create sufficient retirement funding People are unlikely to preserve unless there is some form of compulsion People remain uninformed and uneducated about their retirement funds; current fund communication efforts fall short of improving this

Member of a pension/provident fund? Of whom: 30% (42%) also have a Private RA. 3% (7%) also have funds in a Preservation Fund from a previous employer. Of whom: 1% have funds in a Preservation Fund from a previous employer Of whom: 17% (25%) have RAs 16% (10%) work for an employer who does in fact offer a retirement fund* * Of those whose employers do not offer a retirement fund option, 58% (50%) would definitely participate if it was on offer (80% (76%) Definitely + Probably) Of whom: 56% (45%) Pension Fund 43% (47%) Provident Fund 2% (8%) Don’t know/hybrid vs. 57% in 2010 (Last year’s results in brackets) Being a member of a retirement fund increases the likelihood of other savings: members of retirement funds hold significantly broader basket of savings and investment policies

Satisfaction with current state of retirement provision  Younger respondents less satisfied with current state of retirement provision  Satisfaction increases with income

Age that want to retire vs. age will be able to retire Average desired retirement age is 60 Average perceived actual retirement age is 64 Average desired retirement age is 60 Average perceived actual retirement age is 64

Despite low levels of awareness fund members report being fairly satisfied with fund communication Effectiveness of retirement fund communication

Influences on perceived effectiveness of retirement fund communication Fund communication is most effective for higher income people, more educated people and those more comfortable with English

Methods of communication Schemes favour printed material when communicating with members However, the most desired forms of communication among members are , telephonic, cellphone and face-to-face. Provision of these forms of communication remains low. Only 31% of members read the member guide thoroughly on joining One third find communication difficult to understand Only 31% of members read the member guide thoroughly on joining One third find communication difficult to understand

Content of communication Content of communication does not inform members of the value of savings and underlying investments, general retirement information, and information that allows them to make informed choices In spite of frequency of communication, very low levels of informedness prevail among members Focus of communication not in line with member needs Content of communication does not inform members of the value of savings and underlying investments, general retirement information, and information that allows them to make informed choices In spite of frequency of communication, very low levels of informedness prevail among members Focus of communication not in line with member needs

The information gap Current fund communication focuses on factual information and does not enable members to make good decisions Members need to receive more information around adequacy of retirement provision and planning, risk benefits, rules and underlying investments NONE Info that allows me to make educated choices as to what/where my fund invests Info on underlying investments, what these are Info that allows me to make educated choices as to what to do with my retirement savings when I retire Info on my retirement needs vs. what I have saved Costs involved in administration & management Current value of your savings in the fund Risk benefits offered by fund e.g. death & disability Fund rules generally Basic info, name of fund, contact info etc %

Confidence in trustees, retirement fund adequacy and administration High levels of trust and confidence in trustees despite members’ lack of involvement Confidence levels across all attributes increases with income Will take care of me if I resign/am retrenched Will take care of me if I am unable to work due to ill health or injury Costs of admin and management are well controlled and reasonable* Administration of find is done properly Invests my money to give me the best benefit/return Will provide adequately for me when I retire %

COMMUNICATION GOVERNANCE

Working after formal retirement 58% expect to work for pay after formal retirement Of those who expect to work for pay after formal retirement:  78% say that this is due to financial reasons  27% say that this is because they enjoy working and want to remain engaged and stimulated 58% expect to work for pay after formal retirement. Bias: White, non-members 42% don’t expect to work. Bias: Indian and current fund members

How long will your retirement savings need to last? 43% do not see themselves living long after retirement Retirement provisions need to last for an average of 14.2 years

Anticipated reliance on state pension Growing anticipated reliance on a state pension and/or post- retirement employment Reliance on state pension and proportion of retirement income that will be provided by state pension is significantly higher among lower income group (earning < R3 000) –48% who earn less than R3 000 think they will rely on a state pension –23% who earn R3 000 – R think they will rely on a state pension –10% who earn R – think they will rely on state pension –Respondents earning < R3 000 say state pension will provide 28% of retirement income –Respondents earning R3 000 – R say state pension will provide 8% of retirement income

Salary contributions 88% report contributions below 10% of salary, whilst on average most people should target 15% of salary 97% have never made any additional contributions into their retirement funds % of Salary Contributed% of Respondents Up to 5 % % % %1 More than 20%1 70% contributions ‘about right’ 15% contributing too little 12% not sure 3% contributing too much 73% have a good idea of % contribution 27% don’t know/unsure of % contribution

Awareness of members Only 23% of respondents knew approx. value of their retirement fund 64% of respondents don’t know who manages the investments in their fund 67% don’t know where these funds are invested

Member level investment choice Individuals remain uninformed about investment choices and tend to remain in the default investment option 51% (50% in 2010) don’t know or are unsure whether their fund offers member level investment choice 13% (18% in 2010) have member level investment choice 36% (32% in 2010) not offered Of whom: 63% (58%) very confident exercising that choice 35% (35%) fairly confident 2% (6%) not very confident None (1%) not at all confident Of whom: 62% (66% in 2010) selected the default option (49% (41%) because they really thought it was the right option and 13% (25%) because they did not know what else to choose) 9% (11%) made a different choice 29% (22%) can’t remember

Awareness of pension reforms Low awareness of pension reform across the board; 76% do not know what the pension reforms are Amongst those who do have some awareness, attitudes towards reforms are mixed Awareness of pension reforms increases with income Fund members more aware of pension reforms than non-fund members Aware of key issues Heard a bit about it Little or no awareness at all

Pensioner Survey Pensioners mildly satisfied with retirement provision (6.5 out of 10) Strong evidence that pension adequacy is under pressure Nearly half do not think they have sufficient funds to last them through retirement Majority of pensioners displaying a drop in living standards after retirement When re-investing cash portion, most favour conservative savings vehicles 56% received no pre-retirement advice or counselling Pensioners mildly satisfied with retirement provision (6.5 out of 10) Strong evidence that pension adequacy is under pressure Nearly half do not think they have sufficient funds to last them through retirement Majority of pensioners displaying a drop in living standards after retirement When re-investing cash portion, most favour conservative savings vehicles 56% received no pre-retirement advice or counselling

Summary Members are disengaged from their funds Current communication not effective Retirement benefits diminishing to a fraction of their potential Financial security weak Members are disengaged from their funds Current communication not effective Retirement benefits diminishing to a fraction of their potential Financial security weak Effective Communication and Education programs will reduce the cost!

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