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Calling the retirement superhero

01 April 2017 Liberty Corporate

When it comes to planning for retirement, far too many people do not really know what to expect, simply putting their trust in their employer’s retirement fund and hoping that it will provide what they need when the time comes.

Think about it this way: without any further financial education, how many retirement fund members are likely to celebrate their retirement without having any idea of what their actual retirement or pension income will be for the rest of their lives?

Limited financial literacy
Most South Africans do not have the financial literacy to understand their retirement benefits and what it really means. Our research has shown that often people think they are fully aware of their situation post retirement, but when you look a bit deeper, they either simply do not want to admit that they don’t understand their benefits or they just don’t realise what the numbers will mean in real terms when they retire.

It is the industry’s responsibility to help them and give them the advantage of knowing.

Working for an employer that helps you save for retirement through a retirement fund is a great place to start with securing your financial future. But, just as we keep track of our own bank accounts, it is equally important for retirement fund members to understand how their retirement plan works and what benefits they will receive.

Collaborating for success

The responsibility for communicating benefits and ensuring that clients understand them is a shared responsibility between the fund administrator; the trustees of a fund; the management committees (comprising of both employer and employee representatives); and the adviser, who acts as the glue that binds them all together.

All of these groups have to follow regulations, such as PF130, which govern how a plan is managed, benefits design, cost analysis and what information clients has to receive.

But doing this in a way that is easy to understand and, more importantly, ensures that members understand the information requires a bit more effort.

The key is communication aimed at advising members on the what, when and how of achieving a comfortable retirement. Trustees and advisers have a fiduciary responsibility to act in the best interests of the members, and the employer has a moral and social obligation to ensure that they look after their greatest asset - their people.

Understanding the basics

In a corporate retirement fund, trustees are required to create the benefit statement and the management committee is tasked with ensuring that it reaches members. But regulations do not include a requirement to put the information into a format that’s easy to use and understand.

Educating fund members goes deeper than giving them a basic understanding about their retirement benefits, and this is where the role of the adviser is key.

Advisers are responsible for engaging with fund members to understand what their financial needs are. For example, members need to understand the shortfall between what they are already saving and what they need to be saving on order to adequately cover their risks and to save for retirement. Advisers then need to help them find solutions to close these gaps.

Pertinent impact

When it comes to the cost of funding their retirement savings today, policyholders are not always aware of the impact it has on their current salary, how much can be deducted by their employer, or what it means for their tax returns.

Helping employers to optimise their payroll systems and manage this process for employees is another area in which administrators can make a difference.

Ultimately reaching retirement with enough savings to ensure that the client can continue to look after themselves and their family is a joint responsibility. Advisers, trustees, fund administrators and employers all have a responsibility to educate and empower retirement fund members so that they can make the best decisions for their future financial security.

 

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