Introducing a new role that the adviser may well have to take on

Psychology is the study of human behaviour, which has the immediate goal of understanding the mental influences of individuals and groups. Many psychologists believe that humans are programmed in a specific way – according to influencing factors such as cultural differences and family values – which in turn, influences the decision that an individual will make in a specific situation.

A lot of time and effort is spent on studying and perfecting this art with perfection and there is never a guaranteed outcome. One of the fields that psychologists do agree upon is the fact that it may be possible to re-programme an individual as one can re-programme a computer to think and act in a different way.

Advisers need to be psychologists

How does this apply to the retirement industry? Well, it has significant implications as the current mantra of a number of industry experts suggests that the public needs to adopt a radically new approach towards retirement. This would mean that advisers, as the company's product retirement planners, would need to be able to make considerable efforts in reprogramming the way people view retirement.

Before we get into the factors which are currently playing a role in the insurance industry, it may be worthwhile to look at some of the findings of the 2014 Sanlam Benchmark Survey. According to the report, 26% of the people who participated in the survey say that they will need to supplement their income after retirement age. A third of the survey's respondents have indicated that they are going into retirement with significant amounts of debt, while 42% of respondents have indicated that their retirement funds are not enough to cover their medical aid commitments.

Some advisers argue that reprogramming the public's approach to retirement may be an impossible task. However, Johan van der Merwe, Chief Executive of Sanlam Investments, stresses the need for the public to start saving for their retirement at an earlier age, to preserve their income for as long as possible, and to select a retirement product which will fit their future anticipated retirement needs.

Keep the ace up your sleeve

There is nothing being said here that advisers do not already know, and some may argue that they will be taking a significant gamble if the future of their client's retirement is hinging on the adviser's abilities to re-programme their client's approach towards retirement. But every gambler knows the need to keep that hidden ace up their sleeve.

This hidden ace may be longevity. Viresh Maharaj, Chief Marketing Actuary at Sanlam Employee Benefits, points out that longevity is increasing at alarming rates. Research by the World Health Organisation shows that longevity is increasing by 1.2 years per decade and while this does not seem significant, if this trend continues then by 2029, there will be over 1.1 billion people in the world that are over the age of 65.

"The tools we are using to plan retirement are becoming obsolete because of shifting goalposts, which is being caused by longevity,” says Maharaj.

This has a significant impact in South Africa, which has the highest infection rate of HIV and AIDS in the world. Reports indicate that without AIDS, the country's life expectancy would be closer to 70 years old than the current 50 years. However, with the research being put into Anti-Retroviral Medication, it is possible for a person who is living with HIV to live within three years of a person without HIV.

Science fiction is becoming science fact, and advances in medical research is making it possible to prolong the life of the public. Therefore, retirement funding needs to adjust accordingly.

Overcoming the perfect storm

There could be another reason why South Africa has such a small percentage of the population which is able to retire comfortably. Danie van Zyl, Head of Guaranteed Investments at Sanlam Employee Benefits, says that he feels that retirement apathy is one of the biggest problems in the market at the moment.

Van Zyl defines retirement apathy as the practice whereby people are not saving enough for their retirement because they are not too worried about it. He points to a number of statistics to back this up. "Currently, when a person retires, research shows that 71% of them take their retirement benefits in cash, while 29% preserve their income in various other vehicles,” says Van Zyl.

How do we overcome this? There is no use in identifying the problem and not digging deep for solutions. Quoting the famous scientist Albert Einstein, Dawie de Villiers, Chief Executive of Sanlam Employee Benefits says that as an industry, we cannot solve our problems with the same thinking we used when we created them.

This means that product providers need to come up with innovative products and services that will adequately cover this evolving industry, and advisers need to find new ways in which to engage with clients.

Tossing the rose tinted glasses

When one gets used to the way the industry was operating for so many years, it becomes difficult to break these norms in order to adapt with the changes that the industry is experiencing.

However, there are a number of ways in which retirees offset the situation that they are in. Maharaj says that one method is by getting a second career or for companies to keep on retirees in a consulting or mentorship position to lend support to younger staff members.

Another method is to realise that it is never too late to start investing. Again, Maharaj points out that Warren Buffet only accumulated the majority of his wealth after the age of 60. If he had done this when he was in his 30s, very few people would have taken notice.

Editor's Thoughts:
I often overhear heated discussions debating what the hardest profession in the world currently is. While there is a lot of focus on judges and surgeons, being an adviser in today's climate cannot be an easy job, particularly if they have to change the way people think in order to improve their chances of commercial success. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].

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