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Choosing employee benefits that go the distance

02 March 2021 David Potgieter, Co-Head of Institutional Discretionary Fund Management at RisCura
David Potgieter, Co-Head of Institutional Discretionary Fund Management at RisCura

David Potgieter, Co-Head of Institutional Discretionary Fund Management at RisCura

The days of enticing prospective employees with only a great job description and a salary to match are long gone.

Prospective staff want to know about the firm’s purpose, flexibility, the wider available benefits and future career opportunities. There has been a large shift towards how employers better ‘care’ for their employees, but the employee benefits portion does require some careful thinking too.

Employee benefits is a term that regularly comes up in corporate conversations when talking to staff. It covers a range of elements and usually includes retirement and risk.

• Reviewing retirement fund options
With people expected to live longer due to medical and technological advances, more awareness exists around saving enough for retirement. Increasingly, employees want to know what the prospective employer offers in terms of a retirement fund and if the company allows for additional voluntary contributions.

The options around the investment solutions, the performances of those solutions, and the fees (referred to as total investment costs) all play a vital role in how much a person ultimately saves for retirement. These should be considered carefully and should be transparent enough for employees to easily understand.

Too much choice is often provided, which can be problematic, as very often members select the wrong portfolio for their needs, or delay making a decision due to lack of knowledge. Ideally, employers should have three or four options, including a default life-stage solution, where retirement fund members need to elect to opt-out as opposed to having to choose to opt-in. A well-costed multi-manager solution, incorporating active and passive is often a good idea here, in terms of diversifying across asset classes, managers and styles.

• Preparing proper post-retirement solutions
Retirement fund members approaching retirement, are often shocked at the cost of annuities and other post-retirement solutions, relative to what they are paying in the company retirement solution when investigating market options.

Being able to offer a post-retirement, in-fund annuity solution, leveraging off the same cost base as active members, can ensure members who retire can do so with the comfort of lower institutional pricing of their annuity investments, compared to what they would obtain if they were to purchase them directly from the market.

• Risk benefits require real solutions
Obtaining risk benefits such as life cover, income protection and funeral benefits, a person can obtain the level of cover they require at a much lower cost as a member of a group scheme and often without underwriting. As an individual, in their personal capacity, trying to obtain the same level of cover can be more expensive depending on health condition/s, or may be loaded or have a benefit category omitted as part of the cover on offer. So, being offered risk benefits from an employer plays a big role in terms of what is being offered.

• Member training is a must
Obtaining ongoing training on the various elements of employee benefits allows members to make decisions with the insight and knowledge that improves their chances of retiring comfortably. Keeping employees engaged with their own future financial planning is crucial.

Thinking about the above helps employers to offer competitive options, increases the retention rate of current staff, and strengthens their offering when talking to prospective employees.

 

Quick Polls

QUESTION

Financial behaviour experts suggest that today’s risk modelling methodologies ignore your client’s emotional ability / behavioural capacity. What are your thoughts on spicing up risk profiling tools to make allowance for your client’s financial behaviours

ANSWER

[a] Bring it on; my client’s make too many irrational financial decisions
[b] Existing risk profiling tools are adequate
[c] Risk profiling tools should be based on the model / rational client
[d] The perfect risk profiling tool is science fiction
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