Saving is not possible for most South Africans

Given current inflation rates, average annual salary increases, and the growing number of dependents on earners, due to the downturned economy, saving is viewed as a luxury by many South Africans, who simply cannot afford it.

Scott Field, financial director for FedGroup, South Africa's only independent life insurer, believes transformation will occur within an environment that enables saving, even in these dire circumstances. He also believes that saving for retirement needs to be mandatory, even if only in terms of forcing preservation of a portion of a working person's pension contributions.

Statistics prepared by ASISA, the country's primary authority for insurance savings, show that more than a trillion rand currently sits in unit trust funds in South Africa. This has a major steadying influence on the overall economy, but represents savings by only 5% of the population and all of it from the upper income groups.

"In an attempt to encourage savings, banks are introducing accounts designed for low income people, but are still adding bank charges that effectively nullify any potential for an individual's wealth to grow. A deposit of R100 will attract bank charges of R5. If the interest earned on that deposit is 5%, then it takes the consumer a year to recover the bank charges, without being able to increase his capital. To make matters worse, with inflation running at 5% the consumer is actually losing money, not making more of it.

"The only way for an ordinary person's money to make money is through participation in property or the stock market. The least complicated and best performing vehicles for such investments is unit trusts and there are indeed many unit trusts that allow a deposit as low as R50.

"However, again, the bank charges eliminate any profit. So, for most South Africans, there is no incentive to take an interest in unit trusts."

Field also believes that the government's insistence, via Sars, on a tax number being provided by participants in unit trusts - and in any other savings - is a significant administrative burden that, particularly, the poor don't want to shoulder.

"In any case, the vast majority of South Africans earn too little to pay tax and, therefore don't have a tax number. Having to register for a tax number just so that you can participate in unit trusts is hardly worth it, if the bank charges on your deposit wipe out any interest you may earn. And, for those earning more and, therefore, are able to deposit, say, R100 000, being taxed on the R1 000 in interest that you would earn at the end of your first year is most discouraging.

"Fais and Fica impose similar impediments to saving."

Far better, Field believes, is for government to focus on encouraging savings by eliminating the need for a tax number or proof of residential address for deposits below a certain level and also to put pressure on banks to slash bank charges for savings accounts less than a certain value.

"If we want people to want to save, then we have to offer them an opportunity that isn't simply an alternative to the mattress or coffee tin they're already using to store their money. And only government can bring to bear the moral and policy force to make commercial entities change their approach."