22Nov, 2014

Index forecasts a lower pension when you retire

By: | Tags: | Comments: 0 | November 22nd, 2014

The average retirement fund member in their 40s or 50s may retire with only half to two-thirds of the pension they expect, as returns on retirement savings are expected to be lower in future.

This is highlighted in the latest Alexander Forbes Pensions Index, which shows changes over the last 12 years since the index was launched.

The Alexander Forbes Pension Index tracks four savers born on 1 January 1982, 1 January 1972, 1 January 1962 and 1 January 1952. On 1 January 2002, they were 30, 40 and 50 years old respectively, and all were on track to receive an expected pension equal to 75% of their salaries when they retired at age 65.

However, recent market returns have been lower than expected and changes in the index paint a gloomy picture. People in their 50s who were on track in 2002 to achieve 75% on retirement may now be looking at about 50%, while those who are in their 40s may retire on a replacement ratio of just over 40% of their salaries.

Slower economic growth is one of the factors impacting on retirement savings. In addition, many South Africans retire with only a third of the replacement ratio they targeted, due to the withdrawal of their savings when changing jobs,  instead of preserving them.

[Source: Indpendent on Saturday, Personal Finance]