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People are living longer, baby boomers retiring later

01 October 2020 Myra Knoesen
Viresh Maharaj, Chief Executive of Corporate Sales & Marketing at Sanlam

Viresh Maharaj, Chief Executive of Corporate Sales & Marketing at Sanlam

Nashalin Portrag, Head of FundsAtWork at Momentum Corporate

Nashalin Portrag, Head of FundsAtWork at Momentum Corporate

Many South Africans either do not have the funds to contribute to savings after their monthly budgets have been exhausted, or they feel that saving for retirement is just not that important.

At the same time, key trends are shaping the retirement funds space and FAnews spoke to a few industry experts on their views of the trends and what to expect in the year 2020. 

Key trends that will shape 2020

According to Viresh Maharaj, Chief Executive of Corporate Sales & Marketing at Sanlam, the key trends that will shape our future, specifically 2020, include:

  1. The rapid consolidation of standalone funds into umbrella funds. Standalone retirement funds have been converting into umbrella funds over the course of the past decade, and we anticipate that the vast majority of such funds still remaining will do so over the course of the next few years. Trustees and employers must consider a range of factors when making such a decision with the ultimate criterion being how to best enable financial resilience for members.
  2. The introduction of severe illness benefits. The introduction of severe illness benefits is a trend identified by Benefit Consultants as employers have a greater appreciation of the need to provide financial cover for severe illnesses.
  3. The increased role of Retirement Benefits Counselling in improving financial outcomes. Retirement Benefits Counselling can provide up to date information in an easily accessible manner to all fund members to equip them to make better financial decisions. Counselling is a pre-cursor to financial advice and fund members are encourage by counsellors to obtain financial advice from the appointed advice panel.
  4. Greater pressure placed on the industry by the regulator to play a meaningful role in the transformation of the sector. Transformation is receiving greater attention due to the introduction of the voluntary FSC Scorecard that focuses on representation and procurement. We can anticipate that transformed providers will grow in this context.
  5. The growing need for cybersecurity. Cyber risk is an emergent but absolutely critical threat to the retirement fund industry and all stakeholders need to play an active role in ensuring the cyber-resilience of members’ funds. Consultants and advisers need to evaluate the cyber resilience of the providers that they utilise in order to provide meaningful advice.
  6. Individualisation is the trend towards engaging with members of retirement funds to inform them of their benefits and options with a range of digital capabilities being implemented to do so in conjunction with appropriate financial advice mechanisms. 

“The significant increase in the number of younger generations who enter the workforce continues (i.e. more Millennials and Generation Z). Companies now have multi-generational workforces, who have different needs, values and expectations. Millennials are seeking to make a social impact by doing more purposeful work. They are also interested in careers that allow work and their personal lives to be integrated, and so mobility and connectivity plays a key role. The advancement in technology has changed the way employees engage and collaborate with each other,” said Nashalin Portrag, Head of FundsAtWork at Momentum Corporate.

“People are living longer, and more baby boomers are now retiring later and therefore staying in the workforce for a longer time. This is largely driven by the tough economic environment, and the realisation that most haven’t made adequate provision for retirement,” continued Portrag     

Key things to be monitoring and addressing

“Employee financial education and engagement is critical. Each employee is unique, and it is important for each employee to understand how their needs are being met through their employee benefits, with a view to optimising these benefits to fit their unique realities. Insurers are therefore placing a greater focus on member engagement to assist with education and empowering employees to make informed decisions through a range of mediums given the multi-generations in our current workforces,” said Portrag.

“It is important to focus on improving client experience using technology i.e. an increased adoption of digital technologies to better engage with clients as well as increasing automation and Artificial Intelligence in an effort to drive cost efficiencies and improvements in client experience,” added Portrag.

Why is financial advice critical?

“Given the low level of awareness and education around financial products, employees need financial advice in order to make wise choices at different stages of their lives e.g. when they join or leave an employer, when they buy a house, or have children, as their inaction or decisions will have significant impacts on them in later years. Based on Momentum Corporate research, many employees recount personal stories of financial stress where advice and assistance would have made a real difference.

The default regulations require that retirement funds offer members benefit counselling on their funds default portfolios. This creates an accessible channel for all members to develop a sound understanding of their benefits. Professional advice from a qualified financial adviser builds on the foundational understanding of benefits established by the benefit counsellor and helps members to make informed decisions which lead to better outcomes,” said Portrag.

“Advice is critical to ensure the optimisation of member outcomes. This could mean enhancing existing frameworks within standalone funds or transitioning from standalone funds to high quality umbrella funds or even switching from one umbrella fund to another,” said Maharaj.

“Quality advice is integral to educate members in order to improve the low net contribution levels of members and the need to preserve funds when changing employers.  There are a range of idiosyncratic factors that make each person’s retirement funding journeys unique and while the appropriate default can get them quite far in their journey, individualised attention is needed to calibrate their circumstances to their desired outcomes,” continued Maharaj.

“High quality advice is a key component of an enabling ecosystem. According to the research, approx. 60% of respondents have a formalised strategy to provide financial advice to members. Of these, two thirds have implemented access to a preferred panel of financial advisors and just under a third do provide subsidised advice. Members who receive high quality financial advice tend to have better outcomes in retirement and access to advice therefore becomes a transformative component of financial inclusion,” concluded Maharaj.

Writer’s Thoughts:
South Africa is increasingly vulnerable, and advisers play a critical role in helping their clients achieve the best retirement outcomes possible but are we asking the right questions? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].

 

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