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SIMON BROWN: I’m talking with Natasha Huggett-Henchie, consulting actuary and director at NMG Benefits. Natasha, I appreciate the time today. Recent data from Stats SA shows that we are living longer. Life expectancy for South Africans has increased. Research shows that people living to [age] 100 will have gone from 95 000 in 1990 to 3.7 million in 2050. We are living longer and in many senses this is good news because it’s more time with our loved ones, more time on planet earth. Living longer is good.
NATASHA HUGGETT-HENCHIE: Absolutely. The elixir of life – we all want to live forever.
SIMON BROWN: It’s that we are living longer and we don’t have enough money. I mean, the stat that you pulled out is that less than 10% of South Africans have enough money to retire. If we are spending maybe two, three, four decades in retirement, it puts a huge crunch into our retirement.
NATASHA HUGGETT-HENCHIE: Absolutely. I think what’s happened, unfortunately is that retirement funds haven’t really kept pace with longevity. When retirement funds started at a retirement age of 65, people died at 66 or 67. Now we retire at 65 and we are living to 85.
SIMON BROWN: That’s a great point because retirement hasn’t caught up. We don’t have a mandate for a retirement age in South Africa, but many companies do have a mandate for retirement ages and, depending on your agenda, that’s somewhere around 62 to 65. It’s a problem not only for the individual, but it’s also a problem for the corporate, I often think, because those are good skills that you’re sending away.
NATASHA HUGGETT-HENCHIE: Absolutely. Companies sometimes use a bit of ‘get rid of the dead wood’ as an excuse. But ultimately you’re absolutely right, you are losing good skills, people who’ve lots of value to add, particularly in the intellectual types of things. You possibly can’t dig a hole at 65, but you can still use your brain.
SIMON BROWN: I remember a bookseller in Pietermaritzburg who had an encyclopaedic knowledge of every book that had been through his shop in the 50 years he’d worked there, and they had sent him to retirement. This was pre the internet, so they’d absolutely lost it.
In the note you put out you’re talking around this global trend called un-retirement. What are we looking at here?
NATASHA HUGGETT-HENCHIE: Another way I like to think of it is to call it ‘retyrement’, spelling ‘tire’ t-y-r-e. So you are kind of putting on new tekkies and starting a new career, because often people are then forced out of their corporate job and are having to find another way to supplement their income, to allow their income to extend into their retirement age.
So people are doing different things, buying cafés or doing something else, reinventing themselves in order to be able to continue to earn and continue to add value to the economy.
SIMON BROWN: So this is much more than just ‘you’ve retired me, but I’ll be a consultant back to the company’. This is perhaps re-skilling, potentially.
NATASHA HUGGETT-HENCHIE: Some of it. There is obviously a lot of consulting back to the company. But there are people not necessarily re-skilling but – if they can’t get that opportunity to consult back – having to find some other way, buying a pet shop or doing something else to be able to make ends meet.
SIMON BROWN: I could see me doing a coffee shop in Jeffreys Bay. You make the point around working longer. As we say, it might not be possible in your current environment, but research that you guys did was [that by] working an extra four years you can boost retirement income by 10%. With an extra 10 years you can almost double it. That is massively significant, particularly because we are not old and frail at 66 any more.
NATASHA HUGGETT-HENCHIE: No, absolutely. That’s a compound of obviously investing for longer, getting that investment growth, and then not having to draw that income for those extra few years.
South Africans often have the mentality that ‘I want to retire early’. We don’t need to, we can actually work longer, and it can make a big difference. [People] talk about the ‘squeezed generation’ – people being responsible for both their parents and their children. If those parents continued working the squeezed generation might not be feeling it quite so badly.
SIMON BROWN: I take your point on that. Are there limitations? I remember – and I’m going way back into the nineties now – when you had to cash out Reg 28 products. I think the upper limit was 69, but if I recall that’s actually now been removed as well.
NATASHA HUGGETT-HENCHIE: Yes. Retirement funds will force you to take your benefits at 70. But if you’ve individual things you can continue to leave it. Alternatively you can convert it into something like a living annuity – just draw the 2.5% kind of minimum rate if need be.
SIMON BROWN: Take the 2.5%, and if you don’t need it you could simply just stick it back into a savings vehicle.
I remember reading about longevity probably about 20 years ago. We are talking in the South Africa environment here, but it is having its global impact. That was Pew Research data I was quoting up at the top there, where we are going to live longer because of health, because of the medical advancements that we’ve seen. I don’t want to call it a crisis, but I do suspect that there’s not enough thought perhaps being given to it in terms of financial wellbeing, in terms of companies losing skills, in terms of just sort of exiting the office at the age of 65. Do you get a sense that industry is cognisant and given this good thought?
NATASHA HUGGETT-HENCHIE: Yes and no. I think there are pockets where it is, but I think in general not. And I think the sad reality in South Africa is that we don’t have a skilled youth coming through. The education levels are appalling. People just don’t have those skills. So it’s almost that we are losing the experience at the top, at the older end – and there’s no funnel coming through, no pipeline pushing the other side. So it is potentially a crisis, I agree with you, particularly in some industries – for example, the teaching industry. There’s a huge retirement bubble about to happen.
These are kind of the last people that went through those old teacher-training colleges [who] are about to retire, and there are no new people through the teacher-training colleges. So yes, there are some industries where there’s a big problem.
SIMON BROWN: A huge problem. A last point. The youth out there are thinking ‘I’m far away from retirement, this isn’t my problem’. Well, you might be the squeezed generation, but also it’s the good old fashioned ‘the sooner you start saving for retirement, the better it’s going to be’ – at 20 is better than at 30, and if you didn’t do it at 30, well then 35. Sooner is always just better. I know we beat that drum all the time, but time is powerful.
NATASHA HUGGETT-HENCHIE: Absolutely. The power of compound interest is really there. Sometimes you can’t. When you come straight out of university you might have a bit of a student loan, understandably. But kill the student loan and then put what you were putting into your student loan immediately into your retirement savings.
Understandably, when you get to middle age the kids will come and the schools and whatever and you might need to cut it. But as soon as the kids are out of school your school fees should go into retirement saving – or once the kids leave home, that kind of thing. Make it lumpy, but make sure you top up … in the middle years.
SIMON BROWN: That’s actually a great point. I hadn’t thought of that. Of course, the process of saving for retirement doesn’t have to be the same from day one. Life circumstances change. Change that as well.
Natasha Huggett-Henchie, consulting actuary and director at NMG Benefits, I appreciate the time.
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