Malusi Ndlovu, Head of Old Mutual Corporate Consultants.
Prudence Thipe. General Manager: SME Segment at Old Mutual Corporate.
As it stands, the majority of South African workers aren’t confident about their financial retirement plan – a sentiment that is likely only to be worsened by the current economic uncertainty. If this trend is not reversed, it could further compound the pain that the local economy is currently feeling.
With only 32% of small and medium enterprises (SMEs) – the country’s largest source of employment – having retirement funding on their agenda, the feasibility of improving the country’s saving rate narrows. This is according to the 2017 Old Mutual Corporate SME Employee Benefits Monitor which was launched in Johannesburg this morning, 20 June 2017.
First launched in 2015, the Old Mutual Corporate SME Employee Benefits Monitor surveyed 460 established SMEs (those in operation of over 5 years, with an annual turnover of more than R2 million and employing over 10 employees) and 460 staff to investigate trends, perceptions and attitudes towards retirement funding and employee benefits.
Speaking at the event, Malusi Ndlovu, Head of Old Mutual Corporate Consultants, says the Monitor reveals that only 8% of SME decision makers are positively confident about South Africa’s economy. This is not surprising, he says, given the respondents were surveyed during the first quarter of 2017 – a period in which the country’s GDP contracted by -0.7%, leading to a technical recession.
He goes on to say that if South Africa is to address the negative economic growth levels, we need to address the national savings level due to the correlation, and SMEs are ideally positioned to close this gap.
“Established SMEs are both the lifeblood of the South African economy and the providers of the lion’s share of employment opportunities to working South Africans.
“While putting money aside for retirement should be a worker’s biggest financial priority, it often comes last, if at all. Our 2017 Retirement Monitor shows the dire extent of this, with 30% of working South Africans having no formal retirement savings at all. SMEs should be looking at measures to implement that will afford their employees long-term financial security,” says Ndlovu.
Talking to the results in greater detail, Prudence Thipe, General Manager: SME Segment at Old Mutual Corporate, says that while 86% of SME decision makers agreed that retirement funding should be a priority for SMEs, and while both SMEs and staff acknowledge that it is a shared responsibility in terms of contributions, these attitudes aren’t translating into action due to perceived barriers.
Financing and debt is one such constraining factor for SMEs and staff alike, says Thipe. “38% of SME decision makers feel a considerable amount of their business’ turnover is used to pay off debt.
“As SMEs’ business confidence and prospects also become increasingly strained, this has the potential to compound their financial pressures. Only 27% of SME decision makers strongly agree debtors are paying on time – a decrease of 5% when compared to 2015. There is also a strong agreement amongst decision makers that the cost of business has increased (64%) and that SMEs are operating in a more competitive environment (58%).
“Furthermore, in terms of their business’ profitability, only 41% of SMEs reported healthy profits – down from 48% in 2015.”
From a staff perspective, 45% feel a large percentage of their salary goes to paying off debt, and of these, almost half (48%) says it is more than 50% of their salary. Thipe adds that staff’s ability to afford employee benefits was listed as one of the reasons for decision makers not offering it.
“Given the environment in which SME’s find themselves operating, it is understandable that many find it difficult to achieve a balance between profitability and the moral obligation they have to provide more than just a monthly salary for their employees.”
Furthermore, Thipe adds that many SMEs – especially medium-sized businesses – are also having to comply with the same regulations enforced on corporates due to their tax threshold, yet they don’t have the support that a large business would. “Just 7% of SME decision makers strongly agree that Government is supportive of SMEs and that legislation has made it easier to do business in South Africa.”
Thipe says that SMEs often perceive employee benefits as another cost or administrative burden to ‘comply’ with. But she says that this isn’t the case if structures are implemented correctly.
“The provision of employee benefit solutions can help staff achieve their desired financial outcomes, but can also be a significant source of competitive advantage for an SME, particularly when it comes to attracting, retaining and developing scarce talent, which ultimately comes at a cost to a company in terms of, recruiting, training and mentoring.”
The Monitor shows that 75% of staff believe it is different working for an SME compared to working for a corporate. “While many viewed this as a positive – in that it offers a more personal and flexible environment – they also believe corporates hold better prospects, better benefits, and higher salaries. Of those staff who believe SME’s are different, 33% cited they’d leave for better benefits.
“While the findings show that SMEs are aware of the mutual benefits that employee benefits can unlock, clear perceptions and challenges remain that need to be addressed. It is important for SMEs to be aware of the workable solutions that are available to their business that can aid in unlocking and delivering tangible benefits for staff and the sustainable growth of the business,” concludes Thipe.
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