Solutions needed for low-income earners
Improving the financial wellness of South Africans is an urgent priority for creating a growing, more inclusive economy and innovative insurance and retirement savings solutions are urgently required to enable employers to promote the financial wellness of their employees, particularly low-income earners to whom affordability is a huge concern.
Katherine Barker, head of Momentum Funds At Work, says in his 2017 budget speech, former Finance Minister Pravin Gordhan referred to the need for creating a more inclusive and shared economy, before he outlined the economic growth challenges facing this country.
He highlighted that growth and improving inclusivity of all demographic groups required effective collaboration among all stakeholders.
“South Africans are notoriously poor savers and high levels of indebtedness underpin low savings levels. Many South African households tended to use their retirement savings when they changed employers to cover cost-ofliving expenses. This leaves them with inadequate savings or income when they retire,” Barker says.
According to the Finscope South Africa 2016 Survey, making up the majority of South African employees, lowincome earners are vulnerable in the area of financial wellness. Some 90% of employed South Africans earn R15,000 or less a month, while 81% of the 90% earn R6,000 or less.
“There is clearly a dire need for innovative financial services solutions for these members of the population,” Barker says.
She adds that MMI has done extensive research on employee productivity, creating SA’s first Effective Employee Index. This shows that physical health and financial wellbeing are key drivers of employee productivity. Low productivity affects the financial wellness of a business/employer directly, influencing its ability to grow.
According to the MMI Effective Employee Index, unproductive employees cost SA R70bn annually; about 2% of gross domestic product.
By providing appropriate insurance and retirement solutions and by engaging in the correct wellness programme, employers are able to influence up to a third of lost productive employee time at work.
“National Treasury is embarking on significant regulatory reform to encourage household savings, particularly among lower-income earners.
“Moreover, Treasury has raised concerns about the general low level of financial literacy and a lack of preservation, and highlighted how high investment charges and costs as well as complicated products are failing to provide in the needs of lowincome earners.
“It has emphasised strongly that retirement savings products in particular be made simple enough to be understood and be cost effective without compromising on value to the consumer.”
She says there is a shortage of suitable solutions to deal with these issues. “It is not surprising that, with the exception of banking, the penetration of financial products/services is low across low-income earners. Only 54% have employer-sponsored insurance and retirement savings benefits while a mere 31% have access to cover for private healthcare,” Barker says, adding that the financial services industry and particularly those who offer employee benefits need to step forward with suitable solutions.
She reiterates employers and their employees also need smart solutions that appreciate the interdependence between financial wellbeing and physical health, and present holistic benefits to address both aspects.