Life is a journey, are we ready for the ride?

06 November 2019
Anne Cabot-Alletzhauser

Anne Cabot-Alletzhauser

Africa is currently home to three of the world's fastest growing economies. Because of this, there is an emerging middle class that are not only valuable contributors to economic growth, they have tremendous purchasing power and are the clients of the future.

However, does this translate into savings and financial prosperity as clients head towards retirement? Currently, it does not. This was highlighted at an Alexander Forbes media briefing. 

Lens of responsibility

The growth of the African middle class is intruding a whole new dynamic in the financial services industry, which is highlighting how legacy products are becoming inappropriate within the African context. 

“In developed markets, the lens of responsibility usually consists of the client, their spouse, and two or three children. This is not the case in Africa. The lens of responsibility is far wider and consists of a client, their spouse and children as well as other family members such as aging parents, a school going child, a niece or nephew or the spouse’s parents. 

Legacy products pose a problem because clients are being put under financial pressure from all sides and cannot save in conventional ways,” said Anne Cabot-Alletzhauser, Head of the Alexander Forbes Research Institute. 

Median difficulty

The growing inefficiency of legacy products is being highlighted by another opportunity-challenge scenario. 

Population growth is rampant around the world. However, in developed countries, longevity is becoming such a factor that the sector of the population that is over the age of 65 is growing more than births. This means that there is a smaller workforce entering into the market. 

The situation is reversed in Africa. According to Cabot-Alletzhauser, the working age population is growing far quicker than people over the age of 65, which has been stable since 2010. 

This is good news for advisers and insurers because their potential pool of new business has seemingly limitless potential. However, the fact that Africa is not as homogeneous as developed nations is highlighting the inefficiencies of legacy products. 

“African nations rank the highest when it comes to diversity in the world. You cannot establish a median in Africa where a set of rules will work for the whole nation. This suggests that the conventional models (legacy products) simply do not work effectively,” said Cabot-Alletzhauser. 

Undeniable facts

Even though it is difficult to establish a median in Africa, there are some undeniable facts that can be applied across its population diversity. These lessons have been learned in South Africa which has been dealing with the above concerns since the birth of democracy. 

“Less than 10% of people preserve their savings when changing jobs. Further, less than 5% of retirement fund members are able to maintain a replacement ratio of 75% upon retirement. The fact of the matter is, people do not see retirement as a priority, mortality is their reality,” said Cabot-Alletzhauser who added that there is a growing level of distrust between the financial services sector and government. 

“Basically… the system does not work the way it was intended to,” said Cabot-Alletzhauser. 

Life is a journey

When reflecting on life, Romanian gymnast (and one of the most celebrated Olympians of all time), Nadia Com?tilde;neci once said: Enjoy the journey and try to get better every day. And don't lose the passion and the love for what you do

If this is applied to the financial services sector, we need to determine how does the industry make employee benefits and compulsory saving more meaningful to members? 

Cabot-Alletzhauser suggested that the industry needs to convert compulsory saving into a guided financial planning tool for employers that focuses on the journey of employment and not just the end game of retirement. 

Answering questions

If the industry is to achieve the above ideal, Cabot-Alletzhauser believes that a few key questions need to be answered.

  • How effectively is the current model of employee benefits addressing member needs?
  • Who does the current employee benefits model really benefit? and
  • What does the industry need to do to achieve better outcomes? 

An Alexander Forbes Benefits Barometer suggests that the system is too fragmented to deliver on the promise of physical, mental and financial wellbeing. In order to rectify this, the industry needs to get stakeholders back to the table to work together to create an integrated solution. 

Secondly, the Benefits Barometer suggests that pension reform shifts the focus away from the employer/employee need to find a solution for the whole employment journey. 

According to the Benefits Barometer, perhaps the most important question that needs to be answered is: should compulsory savings only solve retirement challenges in a developing economy? 

The Benefits Barometer suggests that there should perhaps be a shift towards the
Singapore Central Provident Fund model which teaches fiscal responsibility and addresses basic needs. 

The Fourth Industrial Revolution has also changed the game when it comes to retirement. In order to address this, some of the critical building blocks of future models need to include HR data analytics, customised benefits, a well-being programme and skills development. 

Writer’s Thoughts:
Innovation is needed, and the financial services industry does have a lot of challenges that it needs to resolve before it can implement an effective retirement model that can serve the whole nation. This is not impossible to achieve. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts


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