CPI+7% from a retirement fund?
Read an interesting article today about retirement funding (http://www.fanews.co.za/article.asp?Life_Insurance~9,General~1202,Putting_defined_contribution_funds_on_trial~12421) that stated that “Actuarial studies suggest that a 13% contribution of gross salary, invested over 35-years and achieving returns of CPI plus 7% should ensure a replacement ratio of 70% to 75% (at retirement)”.
And therein lies the rub…CPI+7% is not likely from any retirement fund and especially not with the very strict enforcement of regulation 28. Rather, we should expect CPI+5% over time…the 2% difference compounded over 30 years is staggering. Most reg28 funds are also managed with a 5-7 year view and not the 30-35 year time horizon as proposed by the actuarial study or for that matter of the average fund member.
Too little “risk” is probably more dangerous than “more risk” over that sort of time period. Reg28 will ultimately result in more people under-funding their retirement. Perhaps it is time younger investors shunned pension funds and RA’s in favour of discretionary funds where there are no restrictions on the assets and there is at least a reasonable probability of CPI+7-9% over time?