Sanlam Employee Benefits (SEB) addresses South Africa's growing retirement crisis
15 January 2014
Viresh Maharaj, SEB
Viresh Maharaj, actuary at Sanlam Employee Benefits.
Employers need to play a far greater role in addressing South Africa’s growing retirement crisis. They have the infrastructure to communicate to employees, are best positioned to facilitate advice regarding choices when joining a fund, and can guide them on preserving retirement savings if they leave the company before retirement, says Viresh Maharaj, actuary at Sanlam Employee Benefits.
According to Maharaj, the 2013 Sanlam Benchmark Survey of South Africa’s retirement industry showed that:
• 51% of employees had not received any information relating to their retirement from their employer
• 90% of employees had never revisited the retirement decisions made when they first joined their employer
• 53% of employees were not aware that they have life cover via their funds or group schemes.
Maharaj says a key contributor to South Africa’s retirement predicament is a lack of ownership of the responsibility for retirement savings among employees and employers. "The onus for proper retirement provision has rested on employees since structural changes were made to retirement funds some years ago, but employees have not yet fully embraced this responsibility. This has resulted in unintended negative consequences that need to be addressed to move employees to a better day one of retirement.
"Most South Africans still believe their employers will take care of their financial needs in retirement and thus abdicate their responsibility to do proper planning themselves. For example, 50% of employees believe that they will continue to receive post-retirement medical aid benefits from their employer, which is typically not the case.”
Maharaj says while National Treasury is working on retirement reforms at a structural level, there are some simple things employers can do to improve the prospects for their employees’ golden years. These include:
1. Hiring qualified financial advisers familiar with the rules of the relevant fund to run annual retirement weeks. In this way, employees will have access to invaluable advice they are often not willing to pay for.
2. Arranging retirement workshops to educate employees and their spouses. The efficacy of these workshops may be enhanced by:
• Aligning the workshops with life stages so tranches of employees receive contextual information for their own circumstances
• Providing attendees with their benefit statements before the workshops to create an awareness of their own circumstances
• Providing estimated replacement ratios based on their actual contributions
• Providing employees with the ability to effect changes at the workshops to mitigate procrastination
• Bringing in actual retirees who previously worked at the business to speak to employees.
3. Arranging for human resources (HR) people to better assist employees with retirement. The survey showed that employees rely heavily on HR to obtain not only retirement fund information (51%) but also financial advice at retirement (32%). HR can be empowered to bridge the gap between the fund and employees by:
• Upskilling HR to be able to provide accurate fund information
• Providing HR with trustee-approved schedules that they can use to offer guidance to employees
• Empowering HR to direct employees to mandated financial advisers who are familiar with the rules of the particular fund.
4. Raising awareness of retirement planning through existing performance management infrastructures. This could be as simple as the inclusion of a retirement planning conversation in the performance appraisal process. For example, a key performance area could be that each employee needs to review their fund statement annually and report this to their manager. Such an approach would formalise the retirement conversation and ensure that employees remain informed and engaged.
"By making a commitment to improving the retirement prospects of their employees, and introducing a few simple initiatives such as these, employers can play a bigger role in reversing South Africa’s current retirement savings crisis,” Maharaj concludes.