The lack of sufficient retirement savings globally represents a significant risk to the financial wellbeing of people and their families and, hence, a risk to the health of financial systems.

For example, a retirement annuity (the monthly stipend from a retirement savings plan upon retirement) is usually determined only at the time of retirement, subject to the vagaries of the financial climate at that time, which means that even conscientious retirement savers can be subjected to a lower quality of life than what they have consistently saved for.

This can disincentivise retirement savings, while typical retirement savings do not guarantee many lower- and middle-income earners a secure retirement annuity, resulting in their often not saving as they should, says financial services firm Liberty Investments product development head Mark Lapedus.

Therefore, Liberty has changed the way it provides retirement annuities for investors.

“Fundamentally, there is a need to encourage more people to save for their retirement at all levels of income. “Further, with healthcare costs typically outpacing general inflation, as well as being unpredictable, but critically important, there are risks not only to the security of retirement of a person, but also often the financial security of a family.”

To encourage more people to save for their retirement, Liberty has launched its Agile Retirement range, which aims to enable people to start saving at any stage in their lives and be assured that they will receive a specific amount of money once they retire.

The range enables clients to decide how they want to allocate their retirement savings – either into an account that will provide a fixed monthly stipend or into a higher-growth, longer-term savings vehicle, such as equities portfolios or other investment products.

“Both are necessary in our view, as one without the other does not provide the security or reward potential required to incentivise broader retirement savings,” avers Lapedus.

The Agile Retirement range of options works on an age-based inclining scale – as the age of the saver increases, more of the funds are allocated to the accounts that provide a fixed retirement annuity, up to a maximum of 50% of retirement savings at 55 years of age.

Users can change the percentages allocated to the various funds, but Liberty advises savers younger than 40 years to allocate their money into the higher-risk and -reward funds because the returns over time are much better than the lower-growth, secure fund, despite the volatility of the markets in which the funds are invested.

The minimum allocation allowed for the Agile range is R1 000 a month, which does place it out of reach of the lowest-income groups, but is affordable on the average salary earned by employees in South Africa, typically about R15 000 a month.

However, Lapedus notes that further changes to retirement savings are expected, and even mandatory savings for the lowest-income earning groups are being considered by policymakers, reflecting the importance of the issue to financial systems and States.