Considerations for generations to come

10 October 2019 Myra Knoesen
David Gluckman

David Gluckman

The first data to be released around compliance of default regulations by retirement funds paints a bleak picture.

According to the 2019 Sanlam Benchmark research, 24% of retirement funds were still struggling to meet all the regulatory requirements around the time of the 1 March 2019 implementation deadline. Just as concerning are the stats on financial resilience. The majority of umbrella and standalone funds surveyed believed just on 20% of their members would be able to retain their standards of living into retirement.

FAnews spoke to David Gluckman, Head of Special Projects at Sanlam Employee Benefits, about the key findings from the survey and how we can make retirement great for generations to come.

Key findings from the survey

“There has been a steep rise in group risk charges as a result of a deterioration in claims experience across the industry. Fifty two percent of professional employee benefits consultants indicated their clients experienced steep group insurance rate increases in the last three years,” said Gluckman.

“EB consultants were asked whether they review their umbrella fund providers and 33% have never done so, 48% said they had and 36% indicated that they have considered switching. We believe going forward, there’ll be more switching between providers,” continued Gluckman.

“Cybercrime is emerging as a top risk globally, but EB consultants view it as the least important business challenge – with 35% not being sure whether administrators have implemented any strategies to protect members from the threat,” added Gluckman.

The Default Regulations, according to Gluckman, accelerated the shift of funds engaging directly with members. Retirement Benefits Counselling forms part of this and it was encouraging that 88% of EB consultants think Retirement Benefits Counselling will improve members’ outcomes.

“While the use of technology will continue to be a big focus, members want some engagements to include human interaction,” he said.

“There are 1 450 standalone funds in 2019 versus 13 000 in 2005. The consolidation of standalone into umbrella funds is a huge trend that shows no sign of abating,” Gluckman emphasised.

Member retirement readiness

The vast majority of members, Gluckman mentioned, are not ready for retirement and will not be able to maintain their standard of living in retirement. Funds estimated that the following percentage of their membership will be able to maintain their standard of living in retirement:

  • 0% - 30%: 68% of standalone funds and 75% of umbrella funds
  • 31% - 60%: 22% of standalone funds and 10% of umbrella funds
  • 61% - 100%: 4% of standalone funds and 9% of umbrella funds
  • Don’t know: 6% of standalone funds and 6% of umbrella funds

“We will only succeed in making retirement great if all stakeholders work together and every role player focusses on doing the right thing. Our ultimate combined goal is to improve the lives of members by providing value-adding products and services at reasonable prices, thereby ensuring that members become more financially resilient,” he said.

“One big enabling factor is driving cost efficiencies. However, while cost efficiency is important, it’s important to consider the value that is being produced and how this is making a difference in the lives of members,” continued Gluckman.

“The current scenario can only be solved by a perfect combination of factors. Better member communication, education and counselling can only do so much. A focus on better investment by clients can only do so much. A regulator with strong leadership can only do so much. Ultimately, it’s a coordinated effort by all stakeholders that has the best chance of assisting South Africans towards achieving financial resilience. We need to work together to make retirement great again,” added Gluckman.

The impact of counselling

“For members retiring in the first four months of 2019, only 39% of members took their full retirement benefit in cash when counselled, as opposed to a staggering 78% of members doing so when not counselled. At withdrawal, 90% of members took their full benefit in cash when they were not counselled, as opposed to only 72% of members doing so when counselled. Preservation can single-handedly make or break a good retirement outcome and this is a step in the right direction,” said Gluckman.

“The method of Retirement Benefits Counselling is very important. 51% of funds implemented written communication as part of their Retirement Benefits Counselling strategy. Our research has shown that members find written communication less effective in engaging and influencing them than human interaction. Funds indicated that their hesitance to use humans were: 69% being wary of cost; 13% believing that setting up own infrastructure is too cumbersome; 31% still unaware of what Retirement Benefits Counselling entails; and 4% ran out of time to properly consider Counselling,” added Gluckman.

“Funds should ensure they have solutions in place that will assist in improving member outcomes and that they are able to measure the difference any interventions are making. If a fund does not receive any reporting, or if they are not seeing a meaningful difference in member behaviour, they might want to start exploring other methods of engagement,” continued Gluckman.

Fixating on costs over value

“From our research, the number one thing that EB consultants would change in our industry is for clients to stop fixating on costs and pay more attention to value. One of the keys would be to raise awareness about the actual impact costs make in improving member outcomes, versus the impact the value that is added can potentially make,” said Gluckman.

“Cost is what you pay and value is what you get. Take the example of the impact of Retirement Benefits Counselling above. If you can improve preservation at withdrawal by 280% (only 72% not preserving when counselled versus 90% when not counselled) and this impact was mainly due to proactively calling members leaving their funds, it might make sense for a fund to pay for such a service. The alternative is more members leaving their funds, taking cash and having to start their retirement journeys over,” continued Gluckman.

“Moreover, not only is a fixation on costs a problem due to not properly considering value, but there is a trade-off in time spent as well. We all know that many times, boards of trustees have time constraints in making important decisions. The opportunity cost of focusing too much on costs, would be that boards can easily run out of time to consider other important matters that might have a much greater impact on member outcomes,” he added.

“Although some degree of fixation on costs isn’t likely to go away any time soon, we shouldn’t lose focus on the good we are doing and value we are adding to enable financial resilience for members,” concluded Gluckman.

Editor’s Thoughts:
As Gluckman mentioned, the ultimate goal is to improve the lives of members by providing value-adding products and services at reasonable prices, thereby ensuring that members become more financially resilient. We will only succeed in making retirement great if all stakeholders work together and every role player focusses on doing the right thing. Do you agree? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts


Added by GAVIN CAME, 10 Oct 2019
Half of retirees have less than R1million in their fund. Best advice is to cash it in pay off debt and apply for a state pension. Retirees are not stupid. "Counselling" usually revolves around the supplier looking to keep that assets
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