Tag Archives: Sanlam

Sanlam and TymeBank form new venture to offer unsecured loans

Financial services group Sanlam has announced plans to enter into a strategic joint venture with digital banking platform TymeBank, aimed at expanding access to unsecured personal loans and enhancing the group’s retail credit offering.

The proposed partnership, subject to regulatory and shareholder approvals, will see Sanlam Life Insurance, Sanlam Personal Loans (SPL), and TymeBank jointly establish a new operating company focused on originating and administering unsecured loans ranging from R5,000 to R300,000.

These loans will include embedded credit life insurance, and be repayable over terms of 12 months to 6 years at fixed interest rates.

As part of the agreement, Sanlam will transfer its loan origination business from SPL- excluding the existing loan book – into a newly created entity (JVCo), while TymeBank will acquire a 50% stake in JVCo for R31.5 million.

TymeBank will also purchase half of SPL’s retail credit loan book, currently valued at approximately R5 billion, for a base price of R400 million plus the capital value.

Additionally, TymeBank will acquire a Reference Share that entitles it to 50% of the credit life insurance profits associated with the JVCo loan book, for a subscription price of R320 million.

Sanlam said the joint venture aligns with its broader retail credit strategy and offers several strategic benefits. These include:

  • Access to a combined customer base across Sanlam and TymeBank, enabling cross-selling of financial products;
  • Utilisation of TymeBank’s robust digital infrastructure, fraud detection, and compliance capabilities;
  • Leveraging TymeBank’s nationwide digital footprint, including 800+ self-service kiosks and over 15,000 retail points;
  • Economies of scale that will help both parties deliver competitive lending products under their respective brands.

Sanlam’s has an indirect stake in TymeBank via its 25% holding in African Rainbow Capital Financial Services, which in turn owns 46% of TymeBank.

How to figure out how much you need to retire in South Africa

When it comes to calculating how much you need to retire comfortably in South Africa, financial advisors generally follow a few key guidelines and calculations to help you plan effectively.

Here’s a breakdown of what they typically advise:

  1. The 25x Rule (Retirement Capital Multiple)
    A common rule of thumb is the 25x rule. This suggests that you need to save 25 times your annual expenses for retirement.

For example: If you expect to need R300,000 per year to live comfortably in retirement, you would need R7.5 million in retirement savings (300,000 x 25).

This formula is based on the idea that you should be able to withdraw around 4% of your savings annually without running out of money over a 30-year retirement.

  1. Replacement Ratio (Income Replacement)
    Another approach is the replacement ratio, which is based on replacing a percentage of your pre-retirement income. Financial advisors often recommend aiming to replace around 70% to 80% of your final salary when you retire.

For example: If you earn R500,000 per year before retirement, you would aim to replace R350,000 to R400,000 annually in retirement.

If you’re aiming for R350,000 per year in retirement, using the 25x rule, you would need R8.75 million saved up (350,000 x 25).

  1. The “R25,000 Rule” for Monthly Expenses
    Some advisors break it down even further into monthly expenses. A guideline sometimes given is that for every R25,000 you need to live monthly in retirement, you’ll need about R7.5 million saved up.

For example: If you plan to spend R30,000 a month in retirement, you’d need around R9 million saved (30,000 x 12 x 25).

  1. Retirement Withdrawal Rate
    A common recommendation is that you should plan for a 4% withdrawal rate. This means that in retirement, you can safely withdraw 4% of your total retirement savings each year.

For example: If you want to withdraw R300,000 per year, you would need to save R7.5 million (300,000 ÷ 0.04).

  1. Inflation Adjustments
    Advisors emphasise the importance of factoring in inflation, as it will erode the purchasing power of your money over time. For example, inflation could be around 6% annually in South Africa, which means your retirement savings will need to grow by at least that much each year to maintain your standard of living.

To account for inflation, advisors recommend adjusting your savings target upwards regularly, typically around 6-7% per year.

  1. How Much to Save Each Month
    Advisors also recommend calculating how much you need to save monthly to reach your retirement goal. This can be done by considering:
  • Your current age and the age at which you plan to retire.
  • Your desired monthly income in retirement.
  • Your expected investment return (typically, long-term returns from a balanced portfolio are assumed to be around 7-8%).

Example calculation for monthly savings: If you want to have R5 million saved up by retirement and you have 20 years until retirement:

Use an online retirement calculator or a financial advisor to figure out how much you need to save each month.

If you assume an 8% return on investment, you’d need to save roughly R15,000 per month to reach your goal.

  1. The Two-Pot System (New South African Regulation)

With the introduction of South Africa’s two-pot retirement system (effective 2024), savings are split into two pots:

-A savings pot for emergencies, accessible before retirement.

-A retirement pot, which is preserved until retirement.

The savings pot allows you more flexibility, while the retirement pot ensures your funds are preserved for your future. You need to calculate how much should go into each pot based on your future needs and emergency scenarios.

Well-known financial institutions like Sanlam, Discovery, and Momentum also provide retirement planning advice, and they may offer slightly different approaches or additional tools for calculating retirement savings.

Here’s an overview of how these companies approach retirement planning and what calculations they typically recommend:

  1. Sanlam

With the introduction of South Africa’s two-pot retirement system (effective 2024), savings are split into two pots:

Retirement Planning Tools: Sanlam offers retirement calculators to help individuals estimate how much they need to save based on their desired retirement income. They also emphasize understanding how much your current income will be worth in the future, factoring in inflation.

Target Savings: They recommend using a replacement ratio, aiming for about 75%-80% of your pre-retirement income. So, if you earn R500,000 annually, they suggest targeting about R375,000 per year in retirement.

Sufficient Retirement Capital: They also follow the 25x rule and recommend that you need to save 25 times your annual retirement income. If you need R375,000 per year, you’d need approximately R9.375 million in retirement savings.

Lifestage Approach: Sanlam uses a life-stage approach, recommending that you begin saving as early as possible, but adjust your strategy based on your age. Younger individuals are advised to take more risk in their portfolios, while those closer to retirement should gradually move to safer investments.

  1. Discovery

Discovery’s approach to retirement planning is cantered around maximizing the value of your savings through tax efficiency and wellness incentives.

Financial Wellness Programmes: Discovery offers tools through its Discovery Life and Discovery Invest platforms that help track your savings progress. They also link their retirement offerings to their Vitality programme, which offers rewards and benefits for healthy living, and this can help reduce your retirement savings burden by promoting wellness-related benefits.

Saving for Retirement: Discovery suggests that retirement planning is about striking a balance between saving enough for the future and ensuring your lifestyle in the present. They generally recommend a replacement ratio of about 70%-80% of your current income in retirement.

Target Savings Calculation: Discovery follows the same general guidelines as others, advising that you need to save 25 times your annual expected retirement income. They also stress the importance of diversifying your portfolio to manage risk, especially in the years leading up to retirement.

  1. Momentum
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Momentum focuses on empowering individuals to make informed decisions regarding retirement through tailored plans and guidance.

Momentum’s Wealth and Retirement Calculators: Momentum provides a detailed retirement calculator that factors in various elements like desired retirement income, current savings, inflation, and expected returns on investments. This helps individuals assess how much they need to save each month to reach their retirement goals.

Retirement Target: Like the others, Momentum recommends using the replacement ratio model to ensure that you replace about 70%-80% of your pre-retirement income.

How Much to Save: Momentum uses a more holistic approach, often recommending that individuals save 10%-15% of their monthly salary for retirement, starting as early as possible. They suggest that higher amounts are necessary to counteract inflation and to accommodate unforeseen health expenses in retirement.

Inflation Adjustments and Growth Projections: Momentum highlights the importance of factoring in inflation and the growth of your investments.

They often stress real returns (returns after inflation) and recommend that your retirement savings should grow at least in line with inflation to ensure your purchasing power remains intact during retirement.

10X says you can also get a rough idea of how much money you’ll need to have saved at retirement by assuming that you will need R1 million invested in an annuity for every R5,000 per month you want to draw as income once you’re retired.

If you want to draw a monthly pension of R25,000 a month, you will need to have put away R5 million by the time you retire.

General Principles Across These Institutions

Replacement Ratio (70%-80%): Most advisors from Sanlam, Discovery, and Momentum recommend aiming for 70%-80% of your pre-retirement income to maintain a comfortable lifestyle.

25x Rule: Many of these institutions, like Sanlam and Momentum, follow the 25x rule, where you need to save 25 times your annual expenses for retirement.

Adjusting for Inflation: They all emphasize the need to factor in inflation, as it will erode the value of your savings over time. For example, saving R5 million today might not be enough in 20 years if inflation is not accounted for.

Monthly Savings: To help meet retirement goals, they recommend setting aside 10%-15% of your salary for retirement. This varies depending on your age and current retirement savings.

Life Stage Investment Strategy: Each institution stresses the importance of adjusting your investment strategy as you get closer to retirement. Younger people may invest in riskier assets, while those approaching retirement should gradually shift to lower-risk investments.

Each of these companies uses similar principles to help individuals plan for a comfortable retirement.

The core advice remains consistent: save early, diversify your investments, and calculate your retirement target using a combination of replacement ratios, the 25x rule, and inflation adjustments.

These calculations, while providing a useful framework, should be adapted to your unique financial situation, goals, and timeline.

South Africans face shocking reality of delayed retirement age

Many South Africans still associate retirement with the age of 65, but the reality is far different. According to internal member data from Sanlam Corporate, the true retirement age for most citizens—the age at which they can afford to retire comfortably—is closer to 80.

Kanyisa Mkhize, CEO of Sanlam Corporate, is calling for collaboration between corporates, financial institutions, and other stakeholders in the retirement funding industry to create a more sustainable environment where more South Africans can retire with financial security.

“Our internal member data indicates that while 65 remains the official retirement age, the majority of South Africans cannot afford to retire at this age. Most will need to work an additional 15 years to achieve financial security in retirement.

“This 15-year gap presents a significant financial challenge and requires a fundamental shift in how we approach retirement planning and employee benefits in South Africa. The disparity between expectations and reality poses challenges for individuals, businesses, and the economy, underscoring the importance of holistic benefits to secure a better future for our workforce.”

Sanlam Corporate’s insights are based on over 300,000 Sanlam Umbrella Fund members, demographic trends, actuarial data, and other economic factors impacting the country’s retirement outcomes.

According to the data, the average South African is expected to achieve only a 25% replacement ratio (the portion of their final salary they’ll receive as retirement income) at the traditional retirement age of 65. This is significantly lower than the industry benchmark of 75%, which is generally regarded as the threshold for a comfortable retirement.

According to research by Just South Africa, a retirement income and life annuity specialist, the average South African household needs over R7 million to retire comfortably, which translates to most people not having enough saved to retire comfortably, with many only reaching around 60% of this target amount; this is based on a typical household income of R300,000 per year.

Most South African retirees only replace around 30% of their pre-retirement income with their savings. To maintain a similar lifestyle after retirement, many experts recommend saving a lump sum equivalent to 15 times your final annual salary.

Sanlam Corporate’s internal analysis assumes:

Projected investment returns of 9.25% per annum based on a moderately balanced portfolio.
Estimated inflation and salary escalation rates at 5.25% per annum, aligned with the Reserve Bank’s mandate.
A 35-year savings term, recognizing that many South Africans face delayed entry into permanent employment.
An initial working age of 30.
What this new retirement age means for South Africa

For individuals: The extended working years will have profound implications on personal financial planning and career development. Workers must now consider strategies for maintaining employability into their seventies while managing their health and skills to stay competitive in the job market.

For companies: Employers face complex challenges when managing an aging workforce while balancing transformation objectives. Sanlam Corporate’s data reveals tensions between retaining experienced older workers and providing opportunities for younger employees in a country with high youth unemployment and a large youth population. With nearly 60% of South Africans under the age of 25, as per Stats SA, younger workers face increasing competition for jobs.

For the state: The data highlights significant implications for South Africa’s social policies and welfare systems. The old age pension means test, designed to assess financial hardship among senior citizens, presents a paradox. On one hand, individuals with retirement savings may be disqualified from accessing state support. On the other hand, these savings are often insufficient for a comfortable retirement, leaving many in a financial grey area. This underscores the need for a more balanced approach to retirement savings and state assistance.

Mkhize recommends several interventions to help address the retirement age gap in South Africa, including:

Life cycle contribution options: Implementing automatically escalating contribution rates that align with annual salary increases can improve retirement outcomes. As salaries increase, so should contribution rates. By automating these increases, employees can boost their savings without sacrificing their current standard of living.

Enhanced employer matching programmes: Expanding and optimizing employer matching contributions can accelerate retirement savings. When employers increase their matching thresholds or offer more generous matching ratios, employees are incentivized to save more, effectively receiving additional compensation through retirement contributions. This benefits both employers and employees and takes advantage of tax benefits available through retirement savings vehicles.

“While the 80-year retirement age is a challenging reality, it presents an opportunity for innovation in our approach to work, savings, and retirement planning. If we want to change this reality, we need a collective commitment to providing holistic financial solutions that can help reduce the retirement age and accelerate a better working South Africa.”