Retirement planning - The integral role of risk products
Given the unique circumstances in South Africa, risk cover has become an integral part in retirement planning for trustees and consultants.
South Africa’s unique position poses some interesting challenges in terms of retirement planning. Firstly HIV and AIDS prevalence is high South Africa – an estimated 17% of all HIV cases in the world are reported here. Secondly, many South Africans, particularly among the middle to higher income groups, now face longevity risk: the risk of not having enough funds available to meet the cost associated with a longer life expectancy.
Industry innovations
Both health trends have far reaching implications for retirement fund trustees and consultants, who have to ensure that there is an equitable focus on the needs of members who reach retirement, as well on those who may die or become disabled before retirement.
Over the last few years, insurance providers have added innovations to their range of products to help fund advisors with this complex task. Examples include children’s education benefits, return-to-work bonuses for disability claimants, health waivers and repatriation benefits, which are especially valuable for migrant workers.
Risk cover options
Risk cover options such as income replacement or lump sum disability cover provide peace of mind to employees that any disability or illness occurrences will not eat into their budgeted retirement fund. Income replacement products typically also provide an employer waiver benefit which pays the employer’s contributions to the member’s retirement fund.
Recently, insurers have also included health waivers in their provisions to cover the cost of a member’s medical aid contribution if they become disabled. These waiver products are especially beneficial to employees who suffer long-term disabilities at a young age. Without adequate disability cover, members who are disabled close to retirement age often end up taking early retirement and eating into their retirement fund earlier than planned.
Increased cover
Furthermore, over the past few years the group risk industry has seen a move to increase the maximum amount of disability cover, with some now willing to provide cover of 100% of salary compared to the more traditional 75% of salary. This is against the backdrop where employers, employees, trustees and providers have all been playing a role in keeping employees healthy with a major focus on preventative healthcare. This is not only good for employers but, most importantly, employees now have support when dealing with illness and their retirement goals are not compromised. Product providers have also welcomed the changes in the industry, as this provides more space to provide innovative risk solutions that meet clients’ needs.
Beyond risk underwriting
Disability and health issues could have major implications for companies, both in terms of cash flow and loss of productivity. Leading providers are therefore going beyond simply risk underwriting, and are working with companies and funds to provide holistic solutions that focuses on early intervention to either avoid disability claims or to ensure a speedy rehabilitation and return to work.
Individual responsibility
Members of retirement funds should also realise that the cover provided in their group risk scheme may not adequately provide for their own individual needs. Individual needs must be assessed to establish a possible need for top up to death, disability or retirement savings with individual policies. Some group schemes offer flexibility in the choice of death cover but, often, members just stick to the default or core cover and are not adequately insured for their particular needs.
Partnerships
Employers and retirement fund managers should consider more than pricing and evaluate the support and value that service providers can add in providing innovative risk products to their employees. Long-term relations have major benefits including more accurate pricing and a better understanding of employer and employee needs.
