Most of employees find themselves in dire situation when they retire. The National Treasury estimates that South African household savings are at about 10 percent. Let alone accumulated debts over the working life of an employee. Pravin intends to make joining retirement funds mandatory to improve savings levels.
The question one asks is whether the savings would be enough to allow a comfortable post – employment life. The current scenario is that even when employees save, the money they take is shamefully low. This problem is borne by the fees that are paid to manage their savings. Through fund managers, investment managers and consulting fees. The government has reached an agreement with the ASISA on ways to reduce fees.
One solution is to find financial services products that improve ultimate savings level. One can argue that the low savings ratio in South Africa is due to fees eroding the savings. Some experts argue for index tracking as they attract lower fees. Secondly, they reduce the risk to a policy holder as they would give an investor a market related returns.
A promise of 6% investment return is unlikely materialize due to erosion by fees. Invest R100 000 at 6% with annual charges of 0.25%, and your porfolio will be worth almost R535 000. if the annaul charges are 1.5%, your portfolio will grow to R375 00. for 30 years, and your portfolio The argument for low fees is more relevant now.