Retirement should be an enjoyable, peaceful and comfortable time, with as few financial concerns as possible. Too often it isn’t. Many South Africans don’t save enough or start saving too late. Women, in particular, need to change this habit and start saving as much as they can – and more – for retirement.
This month we highlight the challenges women face when it comes to saving for retirement and suggest a few ways you can help them improve their chances of having a more comfortable, financially secure retirement.
Why women need to save more for retirement
1. Women live longer than men
Women live six years longer than men in South Africa, on average (68.5 versus 62.5, according to Stats SA, 2020), which means women need an extra six years’ worth of funds in retirement. Although there is an option to work longer, our later years in life are traditionally more expensive. Internationally the gap is around four years, but even that requires a significant amount of extra savings.
2. Women earn less than men
Women earn less, but they need just as much in retirement! The reasons for lower earnings include:
- The gender pay gap: South African women earn between 23% and 35% less than men, for the same work.
- Women work in lower paying jobs: Globally and locally, more women than men work in lower paying jobs. This is nowhere more evident than in the South African domestic worker sector, where the minimum wage is below the national minimum wage. At the upper end of the scale, only around a third of managers and senior managers in the country are women.
- Women find it harder to find jobs: The COVID-19 pandemic provides a good example. According to the NIDS-CRAM Wave 5 survey, employment had recovered in March 2021 from the pandemic lows of April 2020, for men. For women, employment was still down 8.4%.
As a result, women have less money to save for retirement, and less money in retirement. This is not only true in South Africa. An OECD study on women in retirement found that in its 38 member countries, women over 65 years receive 26% less income than men from the pension system.
3. Women work in non-paying jobs
Caring for a family – cooking, cleaning, transporting and more – is time-consuming, and largely done by women in the family, for no pay. This means they have nothing to save for retirement and a reliance on family members in old age.
4. The financial burden for single mothers
According to the Stats SA 2019 General Household survey, 42% of children live with their mothers only. Sadly, female-headed households are around 40% poorer than those headed by men. This places a heavy financial burden on many single mothers, leaving little for savings and investments.
5. Women have interrupted savings patterns
Even though maternity leave is generous, employers are not obliged to continue with pension and retirement savings contributions during maternity leave. In addition, many women take extended work breaks to care for children, including home schooling. The impact on retirement savings is high, as women’s retirement funds not only lose out on contributions but also the effect of compound interest.
We calculated the impact on retirement savings of taking three years off work. We found that even with savings preserved, not contributing monthly for just three years reduces retirement savings by R467 578.
|Saving contribution starting at age 25 (increased by 5% each year)||Breaks from saving||Amount saved after 30 years (aged 55)|
|R1 000||0||R2 394 622|
|R1 000||Two – one year at age 30 and two years at age 34||R1 927 578|
Assumptions: 8% investment return, 5% increase not applied in break years, lump sum already saved invested at 8% in break years.
6. Women pay more incidental expenses, such as school and shopping expenses
We don’t have an exact number on this, but anecdotally, many women end up paying for the after-school snack, the uniform or sports equipment, the birthday present for the friend’s party, often because they are more available. Net effect? Women have less to save and find it difficult to increase their retirement savings contributions.
Can you reverse the trend?
Yes – if you can find ways to increase savings to the retirement pot, and make sure that unless it is absolutely essential, contributions are made every month of every year.
- Share with your clients how important it is that women save as much as they can for retirement.
- Ask if you can assist with their budget and reprioritise some funds for retirement savings.
- If clients do take an extended break for childcare, advise them to ask about and consider work from home options or part-time work so they still earn an income.
- Encourage clients to find ways to earn a second income and save a high percentage of this income for retirement.
- Make sure salary packages are optimised and women pay as much as possible into pension funds. It may be possible to increase contributions without affecting take-home pay too much (especially if all the tax benefits are used).
- Encourage women who do not have mandatory pension fund membership at work, or who are self-employed, to save for retirement, preferably in a tax efficient option such as a retirement annuity.
- Consider increasing contributions annually by a slightly higher amount – in our above example, if contributions are increased at 6% each year instead of 5%, the amount saved increases to R2 137 161, an extra R209 583 for retirement.
- Make sure the investments earn a decent return and aren’t too conservative. Thirty years is a long time to save. In the early years of saving in particular, asset allocation can be weighted towards investments that have a higher risk-return profile. Putting everything in a money market or cash-type investment won’t achieve the higher returns needed!
- Encourage women to track all their expenses so they know exactly how much they spend on child and home care compared to their partner, and if they need to ask partners for a larger contribution – in cash and kind – encourage them to do so.
Women need to pay themselves first
We want a good or better life for our children. This very rarely includes having to rely on them in retirement. Women need to pay themselves first and save as much as they can for retirement. This not only boosts their financial independence and generational wealth, but also gives children more financial stability and funds to help them build their own generational wealth.