Many people who have converted from a defined benefit pension fund to a defined contribution fund are sitting on a time-bomb that will hit only years from now.
The changeover, in many cases at the not-to-subtle urging of employers, means that the responsibility of managing the individual's financial affairs after retirement moves from the company to the individual.
My question is: do most people have the knowledge and the discipline to handle their financial affairs during retirement? I fear not.
What many people overlook is that with the traditional defined benefit pension fund, the benefits are defined, largely in terms of final salary and years' of membership.
Any actuarial shortfall in the pension fund must be made good by the company concerned, even to the detriment of company profits. This happened to American companies like Ford and General Motors about two years ago when they had to take massive write-offs against company profits as a result of looming shortfalls in their respective pension funds.
In Germany many companies are having to take a serious re-look at their hitherto generous guaranteed retirement benefits.
Underlying this massive trend from benefit funds to contribution funds is the fear that pensioners will live too long and could, ultimately drain pension funds.
Companies in South Africa will no doubt deny this, but the fear of similar profit write-offs in future is behind their eagerness to persuade employees to move from the defined benefit retirement to defined contribution funds.
What is often not spelt out very succinctly is the fact that with a defined contribution fund the company liability ends with the handover of that seemingly large cheque at retirement.
Often a large carrot in the form of a "bonus" is dangled before the totally confused employees as further inducement to choose the defined contribution option.
I seriously question the ability of most people to handle their finances at an age when they will be at their most vulnerable. People will have what seems to be a very large sum of money to invest, yet often they will lack the investment acumen to make the right decisions. I see it all the time.
People with relatively small amounts of money will panic every time the stock market goes into reverse.
Apart from making the wrong decisions, there is also a possibility of people falling victim to all kinds of investment scams.
Thirdly, and I kid you not, I have come across some people who openly admit that they prefer the defined contribution route in order to take cash and for example buy a farm for a son and then apply for a state pension, pleading poverty.
If companies continue to persuade their employees to move from the traditional pension fund to the new contribution-based fund, at least they should introduce some kind of on-going investment training for people as they approach retirement.
However, defined contribution funds have some benefits that need to be pointed out.
Firstly, the withdrawal benefits prior to retirement are substantially better than in the case of most benefit funds.
Many traditional pension funds still retain the company's contributions should a member resign.
With a contribution fund it becomes easier to transfer the full benefits to another fund.
Secondly, the returns on contribution funds can be substantially higher and young people can look forward to large pay-outs should the funds be in the hands of capable fund managers.
My experience with most people at retirement is that they overestimate the amount of money they will have and underestimate how much they are likely to need for the rest of their lives.
At the age of 60, the average male can expect to live another 15-odd years while the average female can live very close to an average age of 80.
Many people are going to run out of money before they run out of breath!
It brings home the old saying about retirement being a race between inflation and death. In many cases inflation is going to be the winner.