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The Fourth Industrial Revolution heralds a new era for employee benefits

31 March 2020 Momentum Corporate

In the 2020 Budget, Finance Minister Tito Mboweni announced constructive measures to prepare tomorrow’s workforce for the Fourth Industrial Revolution. This is part of the Government’s plan to use the Fourth Industrial Revolution to help address pressing problems, like unemployment and poverty.

According to Dumo Mbethe, CEO for Momentum Corporate, the time has come for traditional employee benefits arrangements to be reinvented in order to meet the needs of the technology-savvy younger employee generations who will lead the charge in this emerging era.

The Fourth Industrial Revolution will inevitably impact significantly on existing jobs and create many new areas of work, many of which we are only just starting to imagine. However, there are two burning questions. Who is the workforce tasked with transforming this vision into reality, and how do employers and regulators need to change their thinking and prepare for this new cohort of employees?

Speaking at Partnership Connect, a series of nation-wide events hosted by Momentum Corporate to share data-derived insights that inspire new thinking around employee benefits, Mbethe said that an analysis of members on the FundsAtWork Umbrella Funds shows that Millennials, born between 1981 and 1996, are now 52% of the workforce. Although Generation Zs (Centennials), those born after 1996, are currently only 4% of the workforce, this percentage is set to rise rapidly in the near future.

These younger employee generations will need to manage the opportunities and threats introduced by the Fourth Industrial Revolution. While Millennials grew up in a digital world, Centennials, the digital babies who have never known a non-digital world, is probably the generation most adept for this task.

However, if employers want to attract and retain these younger generations, they need to develop employee value propositions that address their specific needs, values and preferences.

Mbethe says, “Two of the key features that will reshape employee-employer relationships in the era of the Fourth Industrial Revolution are younger employees’ propensity to change jobs more frequently than previous generations and the appeal of the gig economy.”

The Deloitte 2019 Global Millennial Survey, which now includes Centennials, shows that 49 percent of Millennials would quit their current jobs in the next two years, if they had a choice. This is a significant increase from 38 percent just two years ago.

This survey also shows strong correlations between those who plan to stay in their current jobs and those who said their companies deliver best on financial performance, community impact, talent development, and diversity and inclusion. These are clearly priority areas for employers seeking to maintain a stable workforce and retain younger employees.

The tendency to change jobs regularly has dire consequences for South Africans’ retirement outcomes. Momentum Corporate’s research shows around 61 percent of withdrawals are for Millennnials and that 90 percent of them don’t preserve their retirement savings when they leave their job, and then have to start saving for retirement all over again. Mbethe says, “All employees should have access to smart technology-driven services which tangibly demonstrate the implications of withdrawing savings rather than staying invested.”

The second key feature impacting on future employee and employer relationships is younger employees’ attraction to the gig economy - a labour market characterised by freelance work or short-term contracts.

According to the 2019 Deloitte survey, the gig economy appeals to four in five Millennials and Generation Zs. The attraction is the chance to earn more money (58 percent), work the hours they want (41 percent), or achieve a better work/life balance (37 percent). However, the perceived uncertainty around remuneration and difficulty to plan long-term are their biggest areas of concern.

Mbethe says, “The burning question is how retirement industry players, from the regulator to employers to financial advisers and service providers, can help gig-economy workers to save for retirement while also making benefits more portable, without stimulating cashing-out?”

Historically, traditional employment-based retirement funds have been set up for permanent employees. Often the special rules of the fund, specific to a participating employer, prescribe that only “eligible” employees may be members. This typically excludes short-term contractors, who are required to make their own provisions for retirement, insurance and health benefits.

Mbethe points out that a pure reliance on individual products for gig-economy employees means these employees miss out on the economies of scale and cost-efficiencies synonymous with group savings and insurance cover. Umbrella funds are particularly cost-effective, and the lower fees mean more members’ contributions are invested for retirement provision.

Where automatic, compulsory retirement fund membership is not part of the employee-employer relationship, there is a high risk that gig-economy employees may neglect to save for retirement or make provision for their personal health and insurance cover. Mbethe says this may mean that the growing number of gig-economy employees end up a financial burden on their families or the State.

Mbethe concludes, “The dawn of the Fourth Industrial Revolution in South Africa will usher in many exciting opportunities, as well as risks that need to be carefully managed. It’s time for regulators, employers, financial advisers and service providers to work together to reinvent employee benefits for the emerging workforce who will be instrumental in bringing the vision into reality.”

Source: 2019 Millennial Survey, read the report here.

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