Employers and Employees Take Wait-and-See Approach to Retirement - Neither Side Managing Retirement Risk Properly

Carel Smith, Executive Head, responsible for retirement funding with Aon Consulting South Africa

A 2009 Benefits & Talent global survey by Aon Consulting has shown that many employees are waiting for an economic recovery before moving forward with retirement and employers are taking the same attitude with retirement program changes and risk issues.

The survey found that a significant proportion of the South African clients surveyed are changing their retirement programs, either in terms of benefits or service providers and employees are delaying retirement due to economic conditions. Significantly, a third of employers have less than 70 percent of their employees enrolled in their defined contribution (DC) plans, with the majority (67 percent) saying they believe workers are not enrolled because they can't afford it.

38 percent of these employers believe employees have little knowledge of the funds needed for retirement and 52 percent said employees have only some idea of what's needed to retire with enough funds. Just 8 percent believe their employees have a strong understanding of the funds needed for retirement. Workers wanting to learn more about retirement savings have turned to their employers for additional information.

In fact, 64 percent of responding employers said there was an increase in investment-related questions in 2008 and 2009 vs. 2007, but only about a third of these organizations increased their communications around the importance of saving for retirement last year, while 62 percent said their communication remained unchanged from the previous year.

"The 'wait-and-see' attitude is not surprising," said Carel Smith, Executive Head, responsible for retirement funding with Aon Consulting South Africa. "We may continue to see dramatic economic swings, as interdependencies grow in the global economy, and retirement programs and savings can't stop with every downturn. Retirement security for working South Africans will soon become a challenge for policy makers and employers, along the lines of health care reform and the anticipated introduction of the National Saving Scheme. With a trend toward individual responsibility, increased mobility, complex investment choices, rising cost of health care and improved life expectancy, employers may have to do more to help workers understand and plan for their retirement needs."

Smith says that most employers surveyed are not changing the risk profile of their pension plans, as two-thirds of these organizations have not made changes to their pension investments during the past two years and do not intend to do so in the next two years.

"We do not subscribe to the 'wait-and-see' attitude for employers as employees have no real upside with such a strategy. The financial risks and costs of managing a sustainable and appropriate retirement plan, notwithstanding the rising costs and uncertainty, can best be managed by way of having a balanced approach to a retirement plan’s funding and investments during the next few years, as financial markets recover."