Only 6% of South Africans retire comfortably. The other 94% generally depend on some form of societal or familial welfare. Why is this the case and what can retirement savers do to ensure that they fall on the right side of this statistic?

Most companies across the world have shifted from traditional defined benefit (DB) pension schemes to defined contribution (DC) schemes. In the former, the employer calculates a defined pension benefit that the employee will receive upon retirement (the criteria used to determine the actual benefit includes years of service, pension contributions, final salary, etc.). In the latter case, the pension benefit that the employee receives at retirement is predominantly defined by the contributions the employee makes during their years of service. The most important distinction between the traditional DB scheme and the modern DC approaches to pension schemes is that in the traditional case, the investment shortfall is covered by the employer while in the modern case, the employee covers their own investment shortfall.

As someone saving for retirement, you are more likely to be saving within a DC scheme (unless you work for the South African government, in which case you are most likely still in a DB scheme). This places a greater emphasis on the choices you make to ensure that you secure a comfortable retirement.

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