Don’t save for retirement (just yet): Rethinking South Africa’s employee benefits model

Anne Cabot-Alletzhauser, head of the Alexander Forbes Research Institute.

Alexander Forbes says it does not believe the internationally accepted, decades-old employee benefits model which places a singular focus on compulsory retirement savings as top priority, is relevant for the current financial needs of South Africans.

Instead, the financial services company has appealed to policymakers and employers to rethink how compulsory savings might be better deployed.

“We are not saying ignore the retirement income question, but are questioning whether we couldn't create a controlled savings environment that provides more flexibility in terms of allowing individuals to more effectively address issues such as housing, education, health and other financial risks at the same time,” said Anne Cabot-Alletzhauser, head of the Alexander Forbes Research Institute.

Alexander Forbes suggests that by allowing employees to prioritize how to best apply their compulsory savings during their working life, policymakers might better address issues of both financial protection as well as financial mobility.

A survey of Alexander Forbes Retirement Fund members, conducted by ReThink Africa, revealed that over 80% of respondents highly valued long term savings programmes. The conflict for them was whether receiving a monthly income on retirement was as relevant to their long term savings needs as obtaining or building a house, funding their children's education, or addressing other financial risks. Improving both the quality of their life and their children's futures were both factors that contributed to better retirement outcomes.

“Globally, employee benefits models target retirement savings as the top savings priority, irrespective of what one's financial circumstances are. But the question that emerged out of follow-up focus groups was whether this made the most sense when it became clear that using savings to increase one's social mobility was as important as using savings for social protections, Cabot-Alletzhauser said. “This may be a model that is better-suited to first world countries, where you have adequate employment and wealth generation. Our research is suggesting that if we can help individuals to tackle their savings needs through an integrated, evolving process that responds to their changing financial needs, we can squeeze far greater value from those savings. Financial imperatives suggest that when retirement fund members have greater priorities than retirement income, they will in many cases look to cash in their retirement savings to fund these more urgent needs. We believe that by understanding these needs better, we can rebuild our benefit offering to help mitigate the relevant risks.”

The Alexander Forbes research showed that while saving for retirement ranked second in importance, deriving a monthly income in retirement seemed to be the more problematic issue.

One interviewee, from a black-owned fund administration company, argued that for some of their clients, mostly low-wage employees, retirement benefits were a misplaced focused. He argued that rather than solely focused on ensuing income after retirement, policy reforms should consider how the benefits framework might be used to help people acquire assets such as housing. “One of the major drivers of poverty and financial instability is the lack of assets owned in low-earning communities. The resources people hold in their employee benefits could be used to help them acquire these,” Cabot-Alletzhauser said.

“A new employee benefits model would be the first real step in truly recognising that financial wellbeing was about the journey, “and not the end-game”.

Key to the new model’s success would be the creation of a new form of employee benefits platform or programme that helps individuals control when to shift from one savings priority to the next.

“The model provides a way for South African workers to map their own way to financial stability for their families. If this succeeds, it could reduce future dependencies on government-provided grants and social protections.”

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