While it would not be ideal or practical for corporations to revert to the paternalistic era of the eighties in terms of nudging employees towards retirement savings employers have a vital role to play in solving the country’s retirement savings shortfall.
This is the view of Dawie de Villiers, the CEO of Sanlam Employee Benefits (SEB). He noted that since the shift from defined benefit to defined contribution benefit structures, the risk and responsibility for retirement provision has rested largely with the employee.
“It would not be ideal or practical for any employer to revert to the paternalistic era of the eighties but the current results are unsatisfactory, said de Villiers. Most employees seem predisposed to apathy with regard to retirement planning, with only 10% of employees going back to review the retirement benefit option they selected when they joined the fund. They consider retirement as a very distant event and are not interested in the detail around it. In fact our research shows that people only seek financial advice on average 12 years before retirement”.
He added that “The severity of the shortfall between the amount needed for retirement and the funds available to most South Africans is well documented and has been taken up as a key priority by National Treasury. Our research this year has strongly shown that the issues are ongoing, with, for instance, 51% of surveyed pensioners not making ends meet and 62% of job changers still not preserving their retirement savings, despite all the warning signs.”
But with Treasury’s plans likely to only take hold in 2015, Sanlam believes many of the findings of its research point to the need for greater responsibility from employers. “According to the principal officers of stand-alone retirement funds, 47% of retirement fund members turn to human resources (HR) for retirement queries throughout their working lives and 32% ask HR for advice at retirement. But only 52% of employer funds have a formalised strategy in place to render financial advice to active members (either the fund on its own or in consultation with the employer). In addition only 26% have a built-in preservation strategy as a default option, this is perpetuating the trend for employees to spend their savings before retirement when they resign or are retrenched,” said De Villiers.
“An employee’s retirement journey starts on day one of employment and continues for the rest of their life. Considering that at the end of a retiree’s working life, he or she would have contributed to some form of retirement vehicle for on average 28 years, it is disconcerting to think that after almost three decades of saving, the retirement capital will be insufficient to last through the “golden years”. This reality should, we believe, be enough evidence for employers to step in and provide the requisite support and guidance, or “nudge”, needed to help employees make informed decisions about their financial planning for retirement .”
“If the employer works with every employee to develop a retirement strategy that fits into their overall financial plan and also helps them to understand the consequences of certain actions or inaction during their employable years, we would see a marked improvement in retirement statistics in this country.”
He said that, pleasingly, three out of four pension funds surveyed offer pre-retirement counselling but only 41% have a stated target pension. “A key first step is for retirement industry stakeholders (Board of Trustees, Benefit and Asset Consultants) to ensure that the fund architecture is fully supportive of a successful retirement for each individual. The entire structure of the benefit should be designed to gently ‘nudge’ the employee to make decisions that will benefit them in retirement – without being prescriptive or taking away member choice. For this to become a reality, many more employers need to put in place counselling strategies and ensure skilled resources are allocated to successfully implement these.”
“Over the past number of years our research has consistently pointed to a need for regulatory change in the retirement industry and we are extremely pleased that the wheels have been put in motion with Treasury – we are also delighted to have played a role through our BENCHMARK Survey in highlighting the problems the nation faces. But realistically, these proposals are a few years from implementation and we believe that a significant impact can be made in the short term by employers,” said de Villiers.