The research sought to answer two questions: To what extent do individuals perceive themselves to be retirement literate? and; How does the perceived retirement literacy of individuals compare to their actual retirement literacy?
I found a clear discrepancy between how much people thought they knew and what they actually knew about finance for retirement. With the financial pressures caused by the pandemic, and conversations around early access to retirement funds, the need to bridge this divide is apparent.
My research comprised two parts. In the first, I administered a questionnaire about what respondents thought of their own retirement knowledge, retirement planning skills, intentions to actively plan for retirement and the activities undertaken to plan for retirement.
The questionnaire revealed most people who participated in the research (65%) intended to plan for their retirement by making contributions towards a pension fund and planned to seek professional financial advice for their retirement. The sample also agreed (43%) they understood how retirement funds operate. More than half of the respondents (53%) stated they were comfortable with the concepts relating to retirement, they could apply their knowledge to improve their financial welfare and were preparing for a financially secure retirement.
In the second part of the study, I investigated the retirement literacy of individuals through a multiple choice test. The main areas of the test covered general financial knowledge, retirement-related investments and advanced retirement knowledge. One question weighed their understanding of inflation and its impact on savings. Another gauged their knowledge on asset allocations in retirement funds. The knowledge around tax implications on retirement benefits was also assessed.
Overall, 59% of the sample failed the retirement literacy test. While most people (75%) could correctly answer the general finance-related questions, less than half the respondents (47%) could answer the retirement-related finance questions. When more advanced retirement-related concepts were presented to the respondents, only 10% gave the correct answers.
In particular, the respondents lacked knowledge on how shares, in the long-term, outperform other types of financial securities and the significance of preservation funds. This finding corroborates reports on how many South Africans don’t save their retirement provisions received from their pension when changing jobs or employers.
Perceived and actual knowledge
With many people under financial pressure and may soon be allowed to spend a portion of their retirement savings, it’s important they should understand the options and risks.