Young employees in medium and large companies and owned by a pension fund have been hit harder financially by the pandemic than their middle-aged colleagues, with higher layoff rates and higher levels of financial stress, such as as measured by their credit scores and debt default rates.
That’s one of the findings of Alexander Forbes Member Insights’ annual report, released this week, which surveyed nearly a million members among the hundreds of retirement funds that Alexander Forbes administers. While its primary purpose is to monitor how diligently pension fund members save for their retirement, the report uncovered many other trends among employees, including trends in gender parity in the workplace. and overall financial health.
The survey, which covered the calendar year 2020, classified people by age as follows:
- Start of Generation Y: 18 – 35 years old
- Late millennials: 36 – 45 years old
- Generation X: 46 – 55 years old
- Baby boomers: 56 years and over.
The average age of members was 40 and the average personal income was R19,327. The gender distribution was roughly equal: 49% female members and 51% male members.
Layoffs in 2020 showed a surprising increase as the “annus horribilis” progressed: from 3,128 in the first quarter to 12,173 in the fourth quarter.
The highest redundancies concern employees aged 25 to 45, between 14% and 17%. Over a longer period (2019 and 2020), there was a 30% drop in memberships among employees under 25.
Looking at the credit and debt statistics, the first millennia got the worst scores, with 35% of them at medium credit risk and 6% at high credit risk, according to the XDS Presage credit scoring system. . These scores decreased with age, with only 5% of baby boomers at medium risk and none at high risk.
Another indication of financial stress was the proportion of loans in default. Members with past due loans run the risk of legal action and debt review, according to the Alexander Forbes report. “On average, the first millennia have just over 14% of their loans in default. This is significantly higher than any other generation. The second highest is among late Millennials, at just under 5%. Currently, on average, 5% of members are subject to a formal debt review; that’s almost double the average South African population.
The average debt-to-income ratio for all members was 77%, meaning that more than three-quarters of the average pension fund member’s income was spent on debt service. Women seemed to manage their debt better than men: on average, they had a higher credit score (771 vs. 762), a lower debt-to-income ratio (74% vs. 80%), and a lower proportion of loans in the city. default (23% against 27%).
Statistics on retirement savings
South African workers are expected to retire on just 40% of their last salary, on average, according to the study. (This percentage of final salary is known as the net replacement rate, or RNR.) The severance pensions for current retirees were 31% in 2020, an improvement from 28% the previous year. We are still far from the RNR objective of 75% of the industry
According to Member Insights, only around 6% of pension fund members can expect an NRR above 75%. John Anderson, head of investments, products and empowerment at Alexander Forbes, says these numbers can be improved by retirement funding stakeholders, including employers, trustees and advisors, by creating more meaningful links with members. “The results of Member Insights serve to amplify our collective responsibility to better communicate with members through access to information, education, advice and guidance. We have hard evidence of the impact on decisions when such connections are enhanced and we are confident that it will have a positive impact on people’s lives, ”he says.
The government is also taking steps to improve retirement outcomes with its proposed ‘two-compartment’ system (see article here).
The implications of Covid-19 on retirement outcomes are evident in the research, which found that:
- About 30% of pension funds have implemented contribution holidays or reduced contributions.
- Many funds have since been clawed back and only 5% of funds still have these relief measures in place.
- Average contribution rates decreased slightly from 14.18% to 14.10%.
- The percentage of members preserving their savings by changing jobs rose from 8.8% to 9.6%, while the share of assets preserved decreased slightly, from 48.4% to 48.3%.
Anderson noted that the fact that preservation rates did not drop during the pandemic indicates that financial hardship is not the main reason people do not preserve their savings; rather, it is a lack of understanding of what it means not to preserve, and this needs to be addressed through education and communication.
Millennials hardest hit financially in 2020, study finds
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