Saving for retirement in South Africa: charges to the consumer

Abstract

Whether in occupational plans or private supplementary arrangements, workers pay for the opportunity to save for retirement through a variety of charges that erode the prosperity of their retirement years. This paper provides an analysis of the administrative charges paid by South Africans saving for retirement in the areas of occupational retirement funds, individual-life products and unit trusts, using a model designed to evaluate the lifetime effect of these charges. The analysis suggests that retirement funds are cheapest, followed by unit trusts and then individual-life products. These results are consistent with the flexibility of the more expensive products. Overall, however, charges appear to be high. Comparison with international benchmarks appears to confirm these concerns. South Africa is in need of new pension-fund legislation and initial thinking on the framework has begun. The paper ends with thoughts on the implications of this research for policymakers.

Keywords: retirement, administration, charges

South African Actuarial Journal Vol. 5 2005: 61–133