There may be a silver lining

28 October 2021 Myra Knoesen

COVID-19 has impacted employee benefits and retirement contributions. Will we see a long-term effect on retirement outcomes as a result of the pandemic?

FAnews spoke to Avishal Seeth, Head of Umbrella Solutions at Sanlam Corporate, Darryl Moodley, Head of Tailored Investments at Sanlam Corporate and Guy Chennells, GM and Head of Product of at Discovery Employee Benefits at Discovery Limited, about retirement and employee benefits in South Africa.

The employee benefits space

“COVID-19 has resulted in many employers being forced to suspend contributions to retirement savings. Our Sanlam Benchmark research indicates that one in three stand-alone funds and about 40% of participating employers in umbrella funds have had to suspend contributions to retirement funds for an average period of about 4.5 months over the last year,” said Seeth.

Seeth further added that “The research also indicated that employers are looking at holistic wellness offerings as part of their employee value proposition. By integrating health and financial wellness programmes you are addressing the interconnectedness of financial stress and wellbeing which is a step in the right direction.”

Workforce wellness has suffered

“COVID-19 has galvanised many companies into an energy around caring for employees that we have never seen before. On the back of this, we have seen a growing eagerness among employers to ensure that the benefits they have in place are high-quality benefits that are actually helping employees,” said Chennells. 

“They want risk benefits that are secure, and they want a retirement provider that offers both flexibility and engagement to drive better employee decision making. This fits into a broader theme of the shift in workplace culture, to something more flexible and individualised,” added Chennells. 

“Workforce wellness has suffered – our Healthy Company data shows spikes in usage during lockdowns, as people face the anxiety and stress of these times. Employers need to put in place a safety net that can coach people struggling to adapt to the new work environment and to set healthy work-life boundaries, not just a hotline for people with clinical level depression or trauma concerns. People have proven their incredible resilience, but the environment is one of unprecedented pressure and employers, who have needed their employees to rise to the occasion for business survival, likewise, need to rise to the occasion in providing effective support. The social contract is evolving, and the best employers are recognising the change and evolving with it,” continued Chennells. 

Long-term retirement outcomes

“We don’t believe that we will see a significant effect on retirement outcomes as a result of suspension of contributions. Four and a half months’ worth of suspended contributions will not materially affect the retirement outcome of a member. Our concern is more the economic effect and the knock-on effect that this will have on the retirement industry and system as a whole. The level of unemployment has increased as a result of the pandemic and this means that the burden on employed individuals will increase. The formula is quite simple – the lower the proportion of the population employed, the more people that are reliant on those that are employed and in turn the greater the burden on the employed. As important as planning for your retirement from a young age is, the immediate need of supporting those closest to you now ranks higher on the list,” said Seeth. 

“The most immediate and dramatic impact of COVID-19 on retirement savings was the equity market crash of early 2020. The market has since recovered from this fall, and so what seemed like a catastrophe at the time, has become just another bump in the road – it is another lesson learned that one should not panic-sell when markets fall. The less dramatic impacts, however, may be more significant over time. Many companies have had to cut salaries or offer low or no increases. This makes it harder for people to increase savings contributions, something that anyone who has ever cashed out when changing jobs definitely needs to do. And then there are those who lost jobs during the pandemic and cashed out – that decision makes catching up very hard to do,” said Chennells. 

“However, there may be a silver lining – the pandemic has forced many to become more frugal and conscious of not living at the full extent of their means. If people are given the opportunity to commit to contribution increase plans that will slowly up their contributions over time, many may be more open to that than before. The other good news is that the contribution holiday that many employees took during the months of 2020 will make only a small impact on retirement outcomes – as long as one returns to the plan,” emphasised Chennells. 

Investing in infrastructure

Moodley outlined that the recent draft Regulation 28 proposals, without necessarily prescribing a minimum level of infrastructure investment, are a step in the right direction for the country to achieve some of the outcomes of the National Development Plan, in particular to develop more efficient and competitive infrastructure. 

Chennells added, “The Regulation 28 changes will do two things. It will allow, not compel, funds to invest a big portion of their assets in infrastructure projects. It will ensure that infrastructure investment is tracked and reported on. This visibility may create greater focus by trustees on infrastructure and spur them to investigate infrastructure opportunities. To the extent that they find good infrastructure investments, this will benefit members (through long term real returns uncorrelated to equities) and the country (through more capital flowing into the real economy).” 

Moodley however believes that the draft proposals have already increased visibility around the asset class and has prompted Fund trustees to revisit their investment strategies. “Some retirement funds already make meaningful investments into infrastructure, and we would hope that a simplified framework within Regulation 28 could encourage further investments into the sector. In fact, our Sanlam Benchmark 2021 research showed that surveyed standalone retirement funds will invest up to 6.6% of their fund assets into infrastructure. The challenge, however, remains for government to ensure that there is a sufficient pipeline of bankable opportunities for retirement funds to invest into.”

Moodley also added, “The recent civil unrest across Gauteng and Kwazulu-Natal has illuminated the need to transform the economy to be one that is more inclusive. After decades of under-investment into the sector, infrastructure could be the key enabler to unlock inclusive economic growth in South Africa. And this could ultimately provide the catalyst for retirement funds to earn higher investment returns.”

Writer’s Thoughts:
The need for a robust employee benefits has increased. The adviser is integral to improving the outcomes for members, and partnerships are the ideal value proposition. Do you believe that there is untapped opportunity in this market? Please comment below, interact with us on twitter at @fanews_online or email me your thoughts


Added by Cynical Simon, 28 Oct 2021
Why am I not enthusiastic about the infrastructure investment which now appears to be the necessary financing solution of the" dead in the water" National Development plan.

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