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You might need to save more after COVID

26 Nov 2020

Ultimately a vaccine may banish COVID-19, but a more resolute attitude toward saving and more robust pension fund contributions will be needed to cure the serious gaps left in many peoples' accounts.

The COVID-19 pandemic forced many to abandon their dreams of an idyllic retirement in order just to survive after being retrenched or seeing their income reduced.

"Many people who previously had a well-established retirement plan literally threw in the towel and took what money they had in their savings to get through, most of this was short-term thinking in an attempt to cope with events," says Alisha Corbett, head of Liberty Corporate Umbrella Fund Solutions.

She points out that the concept of retirement preservation is almost an unknown one in South Africa, to the extent there's a standard of cashing in when you lose your job.

This way of thinking coincides with figures that indicate only around 6% of people in this country are in a realistic enough position to retire comfortably given the state of their savings.

"It is obviously highly detrimental to your retirement plans when you access your savings for whatever reason. You're looking at people in their 40's or 50's who have to start their retirement planning all over again. Which up to recently has been extremely difficult in this environment, and given the previous cyclical low returns in markets as well," she says.

The pandemic and recession had an added impact in that many people cashed out during a lower market cycle, further exacerbating losses.

Corbett says there is remedial action that can still be taken, it’s arguably a tough route, but with the right long-term attitude much can be achieved to reverse these circumstances.

By this she means saving as much as you possibly can when income returns, and maybe even consider plans to retire later in life.

"We are encouraging people to make Additional Voluntary Contributions to their funds when they can, if not today, but in a year or two when affordability allows. We as South Africans don't have a culture of adding to our existing savings, but this now would make a lot of sense for many people," she says.

"Markets do recover and it's a matter of not making emotional decisions, and sticking to your long-term strategy, in doing this finding ways to keep your investments going, which would mean getting to grips with different financial priorities."

"We at Liberty offered contribution relief options for the short-term earlier this year, and with the move to level one of the lockdown, we are now seeing more companies coming back to full contributions, which is a positive thing."

"Already investment returns are improving. You need to remain invested in the long-term, and let go of the flight attitude in tough times, which do inevitably come around as a matter of course," she says.

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Liberty Group Limited (Reg. no 1957/002788/06) is a licensed Insurer and an Authorised Financial Services Provider (no 2409).