SA businesses must adopt new solutions to avoid retirement crisis
The vast majority of South Africans who reach retirement are unlikely to be able to support themselves financially in their later years. This is a serious issue for both individuals and businesses, yet solutions are available to help with this looming cri
According to Willem Loots, head of Umbrella Fund Solutions at Liberty Corporate, there are several issues that have contributed to this complicated scenario. “For a start, we are living longer. Recent research indicates that one in three girls born in the UK today will reach her 100th birthday. While South Africa may have a lower life expectancy, our overall health and longevity is better than any time in our history, thanks to modern medicine and technology. This is great news for most of us, but it also brings with it, its own set of challenges.”
”For example, if one considers the average retirement age between 60 and 65, where we may have had to plan for another 15 years in the past, we now have to plan for 20 to 25 years ahead.”
He says this could mean looking at the possibility of having to work longer. “From an individual perspective this has both financial and psychological advantages and from an organizational and collective perspective, there is no match for good old-fashioned wisdom and experience that comes from older people who have worked successfully within an industry.”
Looking at the broader economy, South Africans are faced with the challenge of high debt, high unemployment and a culture of poor savings. Statistics show that there are currently around 9 million South Africans with accounts in arrears. “This is a staggering number for a country where 13 million people are employed. We simply don’t have enough saved to comfortably support ourselves or our economy. As a result we rely on capital from abroad to finance our economic growth. This leaves us vulnerable to the turmoil in global markets.”
Loots says it is crucial that South Africans start to take responsibility for their own financial future. “As a vehicle to pool occupational retirement savings, an umbrella fund provides an excellent option for businesses to consider for their employees. Typically, an employer would choose to participate in an umbrella fund rather than start their own fund as it offers a sound bundled retirement fund solution.”
“This means the employer gets access to retirement savings and group risk benefits, while effectively outsourcing the complex administration of such an arrangement,” says Loots.
He says the Umbrella Fund model offers both the vehicle for employees to save for retirement in a tax efficient manner, as well as the ability to pool risk. “In addition an organisation generally incurs a substantial management burden in setting up its own standalone retirement fund. An umbrella funds takes away the management burden from the employer by offering its own set of trustees who adhere to regulatory requirements and implement proper governance.”
From a cost point of view, the employer has access to economies of scale through Umbrella Funds in terms of administration, governance and investment costs. By partnering with an established employee benefit provider, a company also gains the benefit of access to expertise in benefit design, and the reassurance of expert governance, in that the fund is overseen by professional trustees.
“Viewing one’s future in a positive light is far easier when you know you that have planned for the comfort and pleasures a sound retirement solution will provide you. It is vital that businesses and their employees engage with an expert and view their options with a critical eye to ensure that their golden years are indeed golden.
