SA employers urged to consider employee profiles before selecting employee benefits

Why offering employee benefits in industries such as mining requires a unique approach by employers

For companies offering employee benefit schemes or looking to do so, it is crucial to consider the profiles of their members to ensure it is structured to best meet their financial needs.

According to Vuyolwethu Nogantshi, Head of Institutional and Consulting at Nedgroup Investments, traditional employee benefit schemes, which include retirement savings as well as risk benefits, are generally structured based on the assumption that members will retire somewhere around the ages of 60 or 65.

While this is true for most industries, there are certain sectors to which these traditional assumptions do not apply. For example, employees in mining, certain professional sports and other physically demanding industries generally have shorter careers than those in other, more sedentary professions.

Employers in these fields therefore face significant challenges when it comes to selecting the most appropriate employee benefits for their workforce. For example, when it comes to retirement savings, although being invested more aggressively is the best way to achieve better returns in the long term, this option is unlikely to be popular with, or even appropriate for, employees with a shorter career span, as their circumstances may make it untenable for them to face any significant losses as a result of a market downturn or crash.

“Furthermore, employees in this situation often take a short-term view to their financial provisions and want to know that at any given moment, if they take their money out, they will get back at least what they put in,” he says.

Therefore, Nogantshi says these schemes are likely to take a more conservative investment approach. However, he cautions that this strategy comes with some important considerations too.

“Understandably, for members with a shorter time horizon, the focus tends to be on preservation of capital. Unfortunately, this kind of investment strategy has a double-negative effect for members in that firstly, they are not invested in a growth strategy and secondly, they are also not invested for as long. This inevitably results in them having a smaller nest egg in retirement than their counterparts with longer careers.”

Nogantshi says it’s crucial that employers take sound advice on these matters and offer solutions and options that are tailored to provide employees with the best chance of meeting their financial needs.

He also encourages companies to get their employees to start thinking about the growth of their portfolios as early as possible.

“The intention is that members with shorter career paths are kept informed of their retirement situation and can have a longer-term financial plan in place by the time they reach retirement,” he says.

Nogantshi stresses the importance of communicating with employees on these matters as early in their careers as possible, rather than doing so only in the years leading up to normal retirement age, which is generally the case.

According to Nogantshi, it is also important that employers understand the post retirement options available to employees and ensure their pre-retirement investments are aligned to these. This will facilitate continuity from an investment perspective and make long-term planning easier

He says the proportion in which contributions are allocated between group life, disability and investments should also be a key consideration for employers as certain profiles of employees will value each of these benefits differently – depending on the socio-economic and risk environment in which they live and work.