Costs of saving for retirement in South Africa

Abstract

How much are South Africans paying for their retirement funding? 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 the retirement years. This paper analyses the administrative charges paid by South Africans saving for retirement in three tax-effective vehicles: occupational retirement funds, individual life products and unit trust arrangements, using a model designed to evaluate the lifetime impact of these charges. The analysis presented here 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 costly products. Overall, however, charges appear to be high. Comparison with international benchmarks confirms these concerns. Policymakers should be addressing this through stronger disclosure requirements and consideration of a standardised national product and potential charge ceilings.