As the rope appears to be tightening around globalisation’s neck, Clement Chinaka, MD of Old Mutual Corporate, warns against the dangers of a potential globalised world, and its negative effects on countries such as South Africa.
Chinaka, who believes that anti-globalisation sentiments would further halt global economic growth, said: “Without strong global economic growth to pull it up, South Africa’s economy is likely to remain stuck in its low-growth mode, with a recession still a distinct possibility.”
This, he added, will have a distinct impact on South African’s retirement savings, as outcomes on retiring will likely to be lower than anticipated in such a low growth environment.
“Retiring in the face of anti-globalisation is a serious concern because most South Africans are saving for retirement through defined contribution funds – not defined benefit funds,” Chinaka explained.
“This means members carry the investment risk and, as a result, the amount they get out on retirement depends on how much they invest and on the performance of the underlying investments in their pension fund portfolios.
He pointed out that in such uncertain times, it is crucial that retirement fund trustees and advisers manage the expectations of members. “Advisers need to assess how much lower the returns would be if the economy were to remain in a low growth mode, compared to what the market has been used to. Similarly, trustees have to take a view on what is achievable in order to effectively manage the expectations of members.”
Globalisation is currently experiencing a phase of transition and the reality is that this will impact on retirement outcomes for members, Chinaka said warning that investment strategies needed to be reviewed to improve returns, and ultimately to improve members’ retirement outcomes.
Emphasising the importance of clear, constant and effective communication to members around return expectations, as well as the value of encouraging members to seek sound financial advice, he said:
“Ultimately, the investment risk falls squarely on the shoulders of members, and it is crucial that they be kept well-informed about the state of their retirement.”