Alex Forbes’ Head of Actuarial, Aimee Langford, says an average Namibian contributes only 13% of their income towards retirement savings, falling short of the recommended 23.5% needed to maintain a comfortable lifestyle in retirement.
Speaking at Alex Forbes’ Hot Topics 2024 on Thursday, Langford said individuals should aim to replace 75% of their pre-retirement income when investing to maintain their standard of living in retirement.
“And so ultimately we saw that members only contributed 13% on average towards their savings. At Alexander Forbes, we believe that members should really be targeting a specific retirement income or replacement ratio when planning for their future,” she said.
Langford further explained that members contributing less than 8% of their income towards retirement savings could only expect to replace about a quarter of their previous income in retirement.
However, the majority of members were still contributing at a level that would only allow them to replace less than half of their previous income in retirement.
She also said that only approximately 41% of members could expect a replacement ratio of between 50% and 75%, but only 5% were projected to meet or exceed the 75% target.
“The majority of members are contributing at a level that will not allow them to replace more than half of their pre-retirement income, which is concerning. To gain a more comprehensive understanding, we also analysed member projections, considering not only contributions but also accumulated savings and time until retirement,” she said.
She further explained that another problem is the low rate of pension preservation.
Only 15% of Namibians who change jobs preserve their pension savings, while the remaining 85% opt to cash out.
Langford explained that this decision, while tempting in the short term, has devastating long-term consequences, especially for older workers who have less time to recover lost savings.
“What we did see though is that more recently there was an uptick and as recently as 2022 that the preservation rate actually increased to just under 15%, so that’s very positive news. However, on the flip side, that does mean that 85% of members who left the fund during that year chose to cash their full benefit,” she said.
