Retirement benefits that make a meaningful difference
Most South Africans are not saving sufficiently for their retirement with the result that the number of individuals who can afford to retire is exceptionally low. The reasons for this, says Michelle Acton, Mutual Principal Corporate Consultant Consultants, at Old is that most people don’t realise how important it is to save for their retirement, they don’t realise how much they need to be putting aside for this stage of their lives, or they don’t save enough of their salaries for long enough. It’s often something that is low on many people’s list of priorities – until it’s too late. “The alarming trend we’re seeing is that although young people are investing in retirement products, as soon as they change jobs they are cashing out their retirement fund benefits rather than preserving it.” A rule of thumb is that saving diligently over a typical 40 years of working life cycle will provide sufficient funding for 20 years of retirement, but as Acton points out, if you cash out your pension fund every time you change jobs, these savings are significantly reduced, leading to the very real probability of having insufficient funds to retire on.
RETIREMENT VEHICLES
About half of employers provide retirement vehicles for their employees. However, for those individuals working for a company that doesn’t provide any kind of retirement vehicle, few save sufficiently for retirement, according to research conducted by the Old Mutual Savings and Investment Monitor. “Internationally, studies have proved that compulsory savings vehicles are the most effective way to assist individuals with savings,” says Acton, adding that this is one of the reasons National Treasury is considering automatic enrolment of employers as one of the retirement reform measures. Employers therefore play a vital role in providing appropriate savings and retirement vehicles. Critically, they need to structure, select benefit a design suitable structure a suitably retirement and costeffective fund ensure members and education have around access the to information benefit structures, says Acton. “In addition, employers need to decide on suitable defaults in respect of the investment strategy of the fund, contribution rates and risk benefits, as well as selecting an employee benefits specialist to assist them through the process.” What employers should not forget to factor in is SA’s unique family structure, adds Samantha Jagdessi, Head of General & Benefits Consulting at Old Mutual Corporate Consultants. “Many individuals in middle and lower income brackets tend to have a broader family structure which they are often responsible for supporting. Retirement and savings vehicles need to focus on improving the financial outcome of all employees,” she says. The needs of each individual must be taken into account. “For the first time ever we have five different generations in the workplace, each with their own wants and needs. For example, forced saving towards a pension will not necessarily result in the best outcome if the employee does not have access to an emergency fund, or a bucket of funds intended for specific life goals such as buying a house, a car or providing for a child’s education,” explains Jagdessi.
MEET EMPLOYEE NEEDS
Employers, Jagdessi says, should consider flexibility and a range of simple products that meet the needs of their employees. “It’s important that employers look beyond gender, education the usual criteria and income like age, band and rather understand the needs of their employees and the nature of their situation. While the chosen structure will not meet everybody’s unique needs, the idea is to get as close as possible and structure a scheme with diverse or multiple levels and appealing benefits with suitable cost structures as well as providing options to add on or top up benefits.” While employees often focus on the short-term impact on take-home pay, in the long term, well run employer funds with low costs and attractive benefits, offer significant benefits to their employees, points out Acton. Key to getting employee buy-in for a stakeholder education. retirement Member engagement structure, education, she and says, member which is employers are usually best positioned to facilitate, should include basic financial management and budgeting training, understanding the importance of saving for retirement, how much needs to be saved, the impact of different investment choices and the impact of these choices on retirement savings, establishing how much cover is required; and finally, making the right choices at retirement. “The choices to be made at retirement are some of the biggest financial decisions most people will ever make,” explains Acton. “There’s no going back if you get it wrong which means that members need to be aware of their options, the implications and the costs.” Get good advice and support, adds Jagdessi, both from pension and provident fund schemes as well as independent financial advisors, who are prepared to work with the company and its employees to understand their needs and advise accordingly.
For the first time ever we have five different generations in the workplace Samantha Jagdessi Head of General & Benefits Consulting at Old Mutual Corporate Consultants Studies have proved that compulsory savings vehicles are the most effective way to assist individuals with savings Michelle Acton Principal Consultant at Old Mutual Corporate Consultants