AS a trustee of one of the country’s major mining retirement funds, and as a trade union official who is often involved in retrenchment processes, I notice time and again that mining employees do not provide sufficiently for retirement. Given that people have a longer life expectancy nowadays, the message to miners is that retirement planning has become all the more important.
For most mineworkers, their interest in a retirement fund is the largest investment they will ever have, and the consequences of irresponsible investment decisions will only be felt at the time of retirement when it is too late to do anything about it. In this regard, World Bank research shows that only 10% of employees make sufficient provision to maintain their standard of living after retirement.
Members of defined benefit funds expect to procure a comfortable retirement at a 75% nett income replacement rate. The motivation for 75%, and not necessarily full income replacement, is based on the assumption that by the time of retirement employees would have moved out of their mining houses and own their own homes, be debt-free, and their children would have left home.
The extent to which mining employees themselves accept responsibility for their retirement from their very first payday is key to their financial well-being after retirement. That being the case, the most generally acceptable guideline is a pension contribution rate of at least 15% of total remuneration taken over a career span of 40 years with nett investment returns of 6% above the inflation rate over the longer term.
Where members can exercise individual investment choices the advice of the mining fund I am involved with is that members should be prudent in exercising choices and that they should consider staying on in a life stage option. The risk profile in a life stage option is usually structured in such a way as to reduce risk exposure and to achieve the best possible outcome on the nett income replacement rate.
Cautionaries that are not heeded enough pertain to the impact premature withdrawals have on retirement provision. Given that career changes are more common in mining these days, too many employees regard resignation or retrenchment as an opportunity to withdraw retirement savings to provide solutions to other financial problems.
Such a step is understandable in cases where a long period of unemployment could lie ahead due to slow growth in the mining sector, but ideally, financial challenges should be addressed through the severance package, and if it falls short a partial, rather than a full withdrawal of pension benefits, should be made.
Offering voluntary severance packages to employees who are close to retirement has also become the norm in the mining industry.
A severance package paid out as a lump sum often appears very appealing if combined with a pension pay-out. Premature withdrawals are most certainly the main destroyer of retirement provision and the necessity of preservation must be emphasised. It is also not the time to take all the money and invest it blindly in a business undertaking without seeking expert financial advice.
The typical example is when a retired underground mining official with a successful mining career behind him, suddenly becomes a KFC franchise owner – the tendency is to manage the business into the ground.
The National Treasury has already made progress with reforms in the retirement industry, and the recent promulgation of three new regulations to promote retirement fund growth, should bear positive results for members of retirement funds.
However, it does not obviate the responsibility mining employees and South Africans have to make their own provision for their wealth; nor does it make that responsibility easier. At the same time, there has to be an awareness that to achieve a comfortable retirement, retirement savings must be preserved all along until retirement is reached.
Gideon du Plessis is Solidarity’s General Secretary