South Africans saving for retirement are making a big mistake

South Africans saving for retirement are overly focused on the fees they pay in their retirement annuity (RA), often at the expense of other important considerations. 

These considerations, such as performance, the option to change the underlying investment, and accessibility, are equally important for an individual considering investing in an RA. 

EasyEquities recently outlined these important considerations in an analysis of what matters most when choosing an RAF and an investment platform. 

The company said that the fees paid by the investor cannot be the only lens that is used when choosing an RA, as this could set them up for a costly mistake. 

“The retirement industry has improved dramatically over the past two decades. Most new-generation RAs now charge well under 1.5% per year, and that is real progress,” EasyEquities said. 

“But the conversation has overcorrected. Every comparison article leads with fees. Almost nothing else gets airtime. Here is the hard truth: you cannot eat low fees in retirement.” 

The company argued that fees are only input into the number that matters most, which is the rand value of the account when you stop working. 

With regard to fees, EasyEquities said that comparisons are trickier than they look, with the headline platform rate only being part of the picture. 

The other important consideration is the total investment charge of the underlying fund that the savings are invested in. These fees change over time and can be driven by external factors. 

EasyEquities pointed to its Balanced Actively Managed Exchange Traded Fund (AMETF) as an example, with its total investment charge surging as a result of growing assets under management. 

The fund’s assets grew from R20 million to over R800 million in a year, which drives elevated transaction activity as the fund has to deploy new capital and rebalance its exposure. 

This creates an outsized transaction cost that temporarily inflates the total investment charge. As a result, the total expense ratio is 0.86% excluding the transaction costs, but 1.29% when including it. 

EasyEquities said this is the first major mistake people make when comparing retirement funds, as they assume fees are static and do not change with scale, maturity, and efficiency. 

It argued that what should matter is the trajectory of the fees and why they are increasing or decreasing. 

Three important considerations

Apart from fees, EasyEquities said that there are three other main considerations when choosing an RA – performance, optionality, and accessibility. 

It explained that low fees are not enough to compensate for a poorly-performing fund, the inability to change the investment, or being unable to access your money. 

“You can be on the cheapest platform, invest in a poor-performing fund, and retire with less than someone who paid slightly more but chose better. Net-of-fee returns – what actually lands in your account – are what count,” it said. 

However, it explained that comparing performance can be difficult depending on what you demand from a fund or want from an investment. 

“The right choice depends on your conviction in the manager, your investment philosophy, and critically, your time horizon,” EasyEquities said. 

The company suggested that South Africans look at net-of-fee returns and not gross, while also urging individuals to insist on annualised figures over meaningful time periods. 

A second consideration is optionality, which refers to the freedom of investors to invest across different funds and potentially change those underlying investments over time. 

“Most RA comparisons pick one fund per platform and compare that. But a platform is not a fund – it’s a universe of options,” EasyEquities said.  

“And the quality and range of that universe matters enormously over a 20- or 30-year horizon where your needs, risk appetite, and the market itself will all change.”

As a result, when things change in the market or in your financial planning, a platform gives you the freedom to adapt the RA without switching and incurring penalties. 

The final pillar for consideration is arguably the most important, with a lack of consistency and accessibility rendering the others useless. 

“This one is uncomfortable to say out loud, but it might be the most important of the four: the best RA is the one you actually contribute to. Consistently. For decades,” EasyEquities said. 

“It doesn’t matter how low the fees are or how strong the historical performance is if you find the platform confusing, lose track of your contributions, or can’t easily add money when you have extra to invest. Friction kills habits. And broken habits quietly destroy retirement outcomes.” 

This is something relatively simple, like being able to see your balance in real time, make a deposit easily, and track your RA alongside other investments.