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This is one of the key findings of the 2014 Sanlam BENCHMARK Survey, a comprehensive annual review of South Africa’s retirement industry. Now in its 34th year, the BENCHMARK Survey polled over 900 retirement fund members, pensioner, trustees and principal officers.

Danie van Zyl, head of guaranteed investments at Sanlam Employee Benefits, says past assumptions based on life expectancy, family structures and capital requirements at retirement no longer hold true and require fresh insight. “We’ve found that people have less money to live on at retirement but they have longer retirements and far greater financial burdens. It is critical that the retirement industry looks closely at just how different the situation is now, compared with just a few years back, and finds ways to address the changing needs of the retiree.”

The research showed that the normal retirement age for new employees has remained constant at the 63-year age mark. “The total provision for retirement has kept steady for the last four years at around 12%, with a marginal increase of 50 basis points to 12.5% this year. Average contribution rates have remained fairly consistent at 9.6% by employers and 6.4% by employees.”

Stand-out findings from the member survey include:

  • 68% of members have adult dependants (including spouses)
  • The effect of consumer price inflation is being felt by members with the top expenses being transport, groceries, mortgage bonds, utilities, insured benefits and medical aid contributions
  • 68.5% of employed individuals contribute to medical schemes
  • Less than a third (27%) are making provision for post-retirement medical aid contributions
  • There is a steady reduction in members surveyed who have taken their full withdrawal benefit in cash when changing jobs (2014: 54%; 2013: 62.4%; 2011: 70.4%)
  • 47.3% of individuals rely on themselves when it comes to financial decisions regarding retirement and investment decisions.

The key take-outs from the pensioner study include:

  • 20% of retirees have indicated that they supplement their retirement income with part-time work
  • 12.4% of retirees have adult dependants other than their spouse
  • 21.6% have child dependants
  • Two thirds of retirees claim to have received financial advice on retirement options before retirement – around 11 years before their retirement date
  • Of the retirees who received advice, less than half (45.6%) received post-retirement advice on an annual basis
  • Of the retirees who received advice, only 58.3% had a complete financial needs assessment done before retirement
  • 59.2% of retirees experience a shortfall between their income and expenses in retirement (33.1% in 2011 and 51.0% in 2013)
  • The top three expenses for pensioners are groceries, utilities and medical aid contributions
  • 38.4% of retirees have depleted the lump sums that they accessed at retirement – the time it takes to erode these benefits is 2.42 years.

“One of the key messages that emerged from this year’s results is the crucial importance of qualified financial advice. There is concerning evidence that even though retirees have an express need to talk to a professional, most spend insufficient time and energy on the all-important exercise of obtaining professional advice,” says Van Zyl.

He says the impact of timeous advice for retirees who may not have sufficient capital to last for their retirement years cannot be underestimated. “The 2014 BENCHMARK Survey has once again demonstrated the tough financial circumstances faced by South African retirees today. The correct decisions taken at and after retirement can greatly influence retirement outcomes. For example, appropriate advice at the point of retirement, and post-retirement, can assist retirees to benefit from a lower initial capital drawdown with smaller annual escalations. The main message is that retirees should not leave the decisions up to others – they should actively seek out appropriate advice to improve the quality of their retirement,” Van Zyl concludes.

Sanlam Life Insurance is a licensed financial service provider.
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