A tree with strong roots flourishes in life

South Africans have a poor culture of savings; the vast majority of people who do save, put away less than 8% of their salary toward retirement.

Of those who save, 69% cash out their savings before retirement, compared to 31% who choose to preserve their savings when they leave work. This leaves them financially vulnerable as they would not be ready to retire and continue to lead a comfortable lifestyle where they provide for themselves.

But what if the savings story was different? Some say a tree with strong roots flourishes in life. If savings is your root, you will flourish in retirement.

The longevity factor

Exacerbating the retirement savings challenge is that a growing number of people are living longer in retirement. The number of people living beyond the age of 100 has been doubling worldwide each decade, and is expected to reach 2.2 million by 2050. For South Africa, this trend would add over 10 million pensioners to the country, placing a burden on resources if the savings culture is not radically changed.

There is a 47% to 55% increase in duration of clients’ retirement period. This leads to clients needing more money in retirement, which their accumulated savings often cannot provide.

The importance of shared value

The concept of shared value is to align a company’s performance and success by addressing social needs. Using this approach, clients, companies and society as a whole benefit together.

The concept relies on consumers doing what is best for themselves, and this is what also creates the best value for the company.

Making shared value work

Using this approach, Discovery Invest is using its own revenue generated by the combination of increased longevity and improved persistency to create two new benefits to boost clients’ retirement funding at no additional cost.

The solution tackles savings in two equally key periods: prior and post retirement. Before retirement, clients can plan to retire with increased savings through the Retirement Upfront Investment Integrator. They are provided with the ability to boost their retirement savings upfront by up to 15% based on their retirement term.

This encourages clients to start saving earlier, therefore helping to address a poor savings culture. With a focus on long-term savings, coupled with immediate value upfront for clients, the risk of running out of retirement savings due to increased longevity is reduced. This allows clients to retire with greater peace of mind.

Enjoy retirement

After retirement, the approach aims to reward clients who are leading healthier lives, by turning their good health into an asset.

In a unique approach, the Retirement Income Investment Integrator is an investment structure that uses health benefits from Vitality to reward clients for conserving their retirement savings and for looking after their health.

This integrator provides clients with boosts to their annuity income of up to 50% for ten years. Again, by making people healthier and encouraging them to withdraw appropriately from their retirement savings when they reach retirement, this means that their overall fund values remain invested longer, which in turn allows Discovery to earn its fees for longer. It is this positive behaviour from clients that enables Discovery to boost their clients’ income so dramatically without charging them anything extra.

This solution is relevant in the current South African environment because with this boost to capital, clients are rewarded for making smart financial decisions and living healthy lifestyles.

Because these investment solutions harness both the impact of longevity and persistency, it ensures that it is relevant to clients and the modern world they live in and are likely to retire in.

Investment products should not be innovative for the sake of innovation, they have to be relevant and address real challenges; an approach using this shared value model is a powerful step in solving the structural savings challenges facing our country.