Small to Medium Size Enterprises (SMEs) have a major role to play in increasing South Africa’s savings rate, which is a crucial step towards boosting our economic growth rate and bringing it closer to that of other major emerging markets.
According to Bongani Madikiza, MD of Old Mutual Corporate, employers need to create more formal structures to encourage their employees to save for important long-term goals such as retirement.
He says SMEs can play a much more prominent role in persuading especially younger employees to start contributing towards their retirement as early as possible. He refers to the results of the recent Old Mutual Corporate Retirement Monitor, which revealed that the majority of working South Africans are not saving enough for retirement and lack awareness of personal retirement savings issues. The 2011 Old Mutual Savings Monitor also indicated levels of savings among South Africans were lower in 2011 than in 2010.
“Employers can play a major role in encouraging savings, firstly by ensuring that a retirement vehicle is available to their employees, and secondly by making every effort to convince them to join the scheme. By introducing more employer-based schemes, especially among the small to medium sized enterprises, more South Africans will be empowered to save for long-term goals,” he says.
Madikiza says that many SMEs do not yet offer retirement funds to their employees because they are perceived as costly, complicated and time consuming. “However, there are options, such as umbrella funds, which address many of these concerns.”
He explains that these options offer employee benefits such as life and disability cover, family funeral cover as well as a retirement savings vehicle without any medical underwriting. “Businesses also receive on-going support as well as free access to advice from a web-based, employment law service.
“Employers also have the option of structuring retirement schemes to allow for variable contribution rates by employees. For example, employees can choose a monthly contribution rate of either 15% or 5% of their monthly salary.”
Madikiza urges SMEs that already offer retirement funds to carefully review their communication to members to overcome those perceptions that are barriers to saving for retirement. He says that many South Africans, especially those in the lower income earning brackets, see retirement funds as a luxury, and funds must be sensitive to these perceptions.
For example, the results of the Old Mutual Retirement Monitor revealed that respondents’ primary savings motivation was the need to save for their children’s education. Madikiza explains that this pressure on middle-aged people (35-49 years) to focus on saving for their children’s education means that their retirement preparation is likely to fall short.
“The possibility exists that some respondents regard their children as a form of substitute retirement policy. However, irrespective of respondents’ views on the role of their children in their retirement, it remains very concerning that only 54% of respondents who are 10 years or less away from retirement are actually saving for that retirement,” he says.
“Financial education programmes are one of the many tools employers can use to raise awareness of the importance of long-term savings and the various vehicles available to them in which to do so. Providing these tools not only improves financial literacy, but it also shows that the employer cares about the wellbeing of employees, which can help to attract, motivate and retain key staff,” he says.