South Africa must find a way to help people in the informal sector save for retirement, Old Mutual Consulting actuary Stephen Walker said.
Walker, a pensions expert, was speaking at the 3rd Annual Africa Financial Inclusion Summit in Cape Town. He said people in the large informal sector often fall outside formal retirement savings.
“We must allow people to save without realising it,” Walker said, according to Moneyweb.
He said the problem is well known. But he said the financial services industry and the government do not yet know how to solve it.
Walker said South Africa has done a lot of work to reform savings in the formal sector. This includes tax changes for retirement funds and the two-pot system.
He said other countries are going further. They are trying to bring informal workers into a long-term savings culture, with small and flexible contributions.
One example he gave was Thailand, where gambling is popular. The country will now take a share of the money spent on lottery tickets and put it into micro-savings products. Buyers there must show an ID to buy a ticket.
To make saving more exciting, Thailand also holds a monthly lucky draw. Part of the interest earned on the retirement savings pays for the prize.
“But at the same time, if people are going to do it anyway, then you might as well make something good of it,” Walker said of the lottery plan.
He also pointed to Kenya. There, money is taken from some everyday purchases, such as airtime, and placed in a micro-savings product. Walker said such default savings are a “crucially important concept”.
In South Africa, pension payments for formal workers are often compulsory. They are taken off salaries before workers are paid. Walker said informal workers do not have this, and many also have low trust in formal institutions.
Walker said the old age social grant is very important. He said research has linked it to better nutrition for children when grandmothers receive it. But he said more can be done for informal workers.
Walker has worked in pensions for 27 years. He said many people wrongly believe they do not need savings because they will die soon after turning 60. This is because life expectancy in Africa is between 60 and 65.
He said a person who reaches the retirement age of 60 lives, on average, another 18 years.
“The message for people who reach their 60s is actually that they are boringly stable people,” he said. “So you’re likely to live a long time.”
Walker chairs the Retirement Matters Committee of the Actuarial Society of South Africa, which publishes retirement guidance for the industry. He has proposed that the society research a savings solution for the informal sector and present it to National Treasury.
Source: this article is based on reporting by Moneyweb. Image: Moneyweb. Written with the help of AI and published by the Tzaneen Voice Business desk. See our Editorial Standards.
Anelisa Nkuna covers business and money news for Tzaneen Voice. Anelisa reports on the rand, fuel prices, interest rates, jobs, Eskom, Transnet, farming and company results. The aim is simple: explain what the numbers mean for household budgets, small businesses and workers in South Africa.