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The impact of the ‘great resignation’ on retirement

13 July 2022 Allan Gray
Saleem Sonday, Head of Group Savings at Allan Gray

Saleem Sonday, Head of Group Savings at Allan Gray

Can employers still retain and attract talent with enticing retirement saving schemes?

Spurred on by COVID-19, recent news reports point to an alarming global workplace trend of job hopping and ‘en masse’ resignations. Likely set to continue this year, this trend is touted to have a significant impact on employers in South Africa.

“Employer value propositions are more critical than ever in attracting and retaining talent,” says Saleem Sonday, head of group savings at Allan Gray. “With no single company having the monopoly on talent, South African businesses competing for the same talent will need to find elements of differentiation.”

The PWC Global Workforce Survey 2022, recently released, found that one in five individuals plan to change jobs in the next year or switch employers.

“Workers resigning and seeking better opportunities is nothing new. What is different is the pace at which it is happening,” says Sonday.

He says that a key risk factor in light of these new trends is that employees, upon resigning, opt to withdraw their accumulated savings.

“What we are seeing is that pension coverage is decreasing,” he notes. “Most companies would offer employees membership to a pension fund, with the intention that this would allow employees to fund their retirement. However, with employees changing jobs more often, there is a risk that they fail to choose to preserve their savings, taking he cash instead.”

In a country in which the retirement savings rate is already so dire, Sonday says that South Africa cannot afford for the preservation rate to drop.

He says another problem is that employees who job hop, or move employers a number of times, could lose track of all their preservation pots if they do not transfer their “paid up” fund to their new employer. “Retirement portability could become a solution to this problem down the line,” says Sonday.

The positive takeout, he says, is that in today’s upside-down world where retaining talent is becoming increasingly complicated to navigate given changing trends, group retirement saving schemes can play a role in retaining talent.

“The tax incentives to save in a retirement vehicle – whether it is a group retirement annuity, company pension fund or an umbrella fund – are still extremely attractive,” says Sonday.

He adds that the pension fund legal framework in South Africa is robust, and the impending two-pot system will strengthen the overall retirement framework in the country. The proposed system, to be implemented from March 2023, will allow retirement fund members to access up to a third of their net retirement fund contributions if they need it for short-term relief, provided that the remaining two-thirds are preserved over the long term, which will improve retirement outcomes for the majority of fund members.

“Also, the recent relaxation of the investment limits in terms of offshore allocation, allowing investors to allocate up to 45% of their portfolios outside of SA, will be good for investors over the long term, as it allows for greater diversification and flexibility to benefit from a larger investable universe.”

Sonday encourages employees who are thinking of quitting or changing jobs, to engage with their retirement benefit structure, to get a sense of the full picture of the benefits offered by the prospective employer.

“Some of the things that employees can do is to take time out to understand their benefit structure better. While it is understandable to focus on net take-home pay in today’s high inflationary and cost-conscious environment, it is also important to try and move beyond this.”

He offers the following tips for employees:

• Understand your pension contributions, especially the breakdown of your current contributions versus your employer’s contributions. This should be disclosed on a pro-forma pay-slip.
• Look at who covers the cost of administration: Is it your employer? If so, this can go a long way over the years and help you retain more of your retirement money, rather than it going to costs.
• Understand what your underlying investment choices are within the pension fund that you are invested.
• Look at the healthcare benefits offered by your company.
• Unpack whether your employer offers you any employee assistance programmes – especially on wellness and mental health assistance.

“These can be often overlooked quite easily, but in the long-run can make a massive difference to how you view your connection with your employer,” concludes Sonday.

To unpack this issue and other related topics, Allan Gray will be hosting its second virtual Employee Benefits conference on 16 and 17 August 2022. Local and international thought-leaders, including world-renowned economist, Dr Mariana Mazzucato, and Daniel Susskind, senior research associate and University of Oxford Fellow in Economics are on the agenda. Some of the key issues that the event will tackle include whether the world of work really has changed, what the future of compensation in the world of work looks like and evaluating the post-pandemic shifts in the benefits landscape. Attendance is free and open to anyone who has a stake in the world of work, including CEOs, decision-makers, business owners and HR managers. To register, click here: https://allangray.zoom.us/webinar/register/WN_ByQmKADDRLqLJPojkK7UKQ

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