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JIMMY MOYAHA: We are a little over a year into the full implementation of the two-pot system in South Africa, [which] has brought about some very interesting decisions from a savings perspective and other financial decisions that consumers are having to make.
We’re going to be taking a look at this in a bit more detail with Michelle Acton, chief customer officer at Old Mutual Corporate. She joins me on the line now to see what we make of this. Michelle, lovely having you on the show. Thanks so much for taking the time.
A little after the two-pot system was implemented, where do we stand today? Have we seen some significant changes in how South Africans are approaching their financial decisions now that we’ve implemented this?
MICHELLE ACTON: I think what we’re seeing – there are two areas where we’re seeing some changes.
The first is no surprise: we are seeing members accessing their two-pot savings, or the savings component in the new system, now that they’ve been enabled to access one per tax year.
At the moment we’ve seen that, of the members who can, I would say as many as 80% of members have actually come and claimed some two-pot money from their fund.
Which I think shows the level of financial pressure people are under, as well as the fact that there was always a need for some sort of emergency savings or the ability to access money if they need it on a day-to-day basis.
The second piece, and I think the bigger and more important piece, is what the two-pot legislation did is twofold. It enabled some access, but it also requires that there be a level of preservation, or money that you cannot access, where you used to be able to access all your money when you change jobs.
That, for us, is a bigger lever and we have seen a significant improvement in our preservation levels over the past 18 months, I think it is now, since the system went live.
JIMMY MOYAHA: Now, Michelle, South Africans access their two-pot savings for various reasons.
Chief among them is likely immediate needs that they feel could be serviced by this. But we’ve also taken a look at this in the past around whether or not this is the most efficient and most effective way to utilise those funds at a [given] time.
How important is it for South Africans to consider the impact of withdrawing, and to weigh that up against the emotional needs of what it is that they require the money for?
MICHELLE ACTON: I think it’s exceptionally complex, but there’s no doubt that for the vast majority of South Africans, the only savings they actually have is what they’ve saved for retirement in terms of savings with their employer.
We find that the members, historically and even currently, otherwise don’t have any other short-term access or ability to save.
So what we are seeing in terms of this access is that it is giving people a safety net they otherwise wouldn’t have. But it’s not an easy decision in terms of [whether] to access this money now or leave it for retirement.
The other big challenge we have in South Africa is that if you don’t save for your own retirement, there is very little fallback because all we’ve got is the state grant. So it is important for people to be saving for retirement to ensure that they have some financial stability.
But when you dig into the reasons people are accessing [their savings], I think it shows main three drivers – basic living needs such as food, electricity, rent and school fees, followed by emergencies and unforeseen expenses, as well as [debt repayment].
So I suppose the big question a lot of people are asking themselves is, which is the lesser of two evils in terms of needing to have immediate access versus saving for retirement?
Interestingly, we did a survey recently where we asked members [if they considered their decisions] before just diving in to access their savings part – and overwhelmingly, people said they considered the long-term impact, [but ultimately felt] it was the best option available to them at the time.
So I think we also cannot underplay how seriously people are taking these decisions around the need to access their savings pot.
JIMMY MOYAHA: So perhaps it’s less about emotion and more about not having any alternatives.
Michelle, before I let you go, I want to take a look at how people are potentially able to build out those alternatives. We see very often throughout one’s career – people tend to change jobs, people tend to take on new avenues of income streams to try and offset against their main income streams; these would ideally be good opportunities to build [up] savings.
As you rightly mentioned, there isn’t a lot of savings that is present at the moment beyond retirement savings. Can we look at just those small behavioural changes that could potentially allow for individuals with a change of circumstance to be able to better prepare for their future needs?
MICHELLE ACTON: I think there are a number of areas that are important.
The first is awareness. I think people feel that retirement funds are very far [off] and [question] why they should save for retirement [instead of using] the money for what they immediately need. But you need to be saving [over] a long time if you want to make sure you’ve got enough for retirement.
So it’s important to start as early as possible, even if it’s small amounts, in order to build up [savings over time].
But it’s really also about empowering yourself with knowledge.
I think one of the things that has happened historically is people haven’t engaged with their retirement funds. They haven’t even worried about how it works or how much they’ve got.
There really hasn’t been engagement.
What we are also seeing post two-pot is that people are getting more engaged with their retirement benefits and [are increasingly] wanting to understand them, and I think that’s really important.
The second thing is that, like you mentioned, it’s important that we have short-term savings as well as long-term savings.
You don’t want to get into the habit where you’re using your retirement fund money on an annual basis, and we are beginning to see people [doing this]. We’re on our third cycle of access, and we are seeing a number of people come in and access every year.
Those individuals, you’ve almost got to look and say, surely you should be looking at putting small amounts of money away, create for yourself another savings vehicle that’s not your retirement fund.
Otherwise, later on, as we know, when people reach retirement, we have very poor retirement outcomes in South Africa and we need to look at how we balance all of these things to try and improve those as well.
JIMMY MOYAHA: Michelle, speaking of retirement outcomes, one simple thing that South Africans could potentially do to better their retirement outcomes, what would that be?
MICHELLE ACTON: I think a big one is to speak to somebody and get advice. People are afraid to understand where they are.
It’s similar to a car – you need to take your car in for a service every couple of months, otherwise it stops working. Financial advice is no different.
So even if you can’t afford to make big changes, at least get an understanding of where you are.
How much should you be saving; what [is] your current financial position? Don’t put your head in the sand.
I think that’s really step one, because often people perceive ‘Until I can afford it, let me not bother’.
But actually, the sooner you start speaking – whether with a financial coach, even researching stuff online to understand better, or speaking to an advisor – the better.
It is a critical first step in properly understanding what you should be doing in your own personal circumstances, because awareness is the first step to improving your financial outlook.
JIMMY MOYAHA: Speak to a financial advisor. It could be the difference between making the right decision and the wrong one, especially when it relates to planning for your future.
We’ll leave the conversation on that note.
Chief customer officer at Old Mutual Corporate, Michelle Acton, joined us to take a look at some financial decisions post the two-pot implementation era, and how South Africans are navigating them.
Brought to you by Old Mutual Group Communications.
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