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Throw the old retirement book out the window

08 June 2015 Jonathan Faurie

FAnews recently attended the Sanlam Benchmarks Symposium which is one of the industry events that is important to the retirement industry as it gives a good indication on where the retirement industry is, and where it is moving to.

The audience was treated to a number of talks from different role players in the industry who were on hand to give their key insights into the industry. One of the dominant themes of the symposium is that the industry is changing, and that advisers and product providers need to keep pace with this change.

Change your frame of reference

We are called upon to exercise a mind shift as the traditional way of looking at retirement is waning and is fast becoming obsolete. Avishal Seeth, Principal Consultant at Simeka Consultants and Actuaries, pointed out that this is currently being driven by the fact that member needs are changing and that people are spending a longer time in retirement then they used to.

“We are living in the shift age where millennials are taking centre stage. This generation thinks completely differently than generations that preceded it because of the influence of technology. They are driven, motivated and genuinely believe that they can make a difference in the world,” said Seeth.

They are also motivated by the fact that there needs to be a wealth creation that benefits society before it can benefit an individual person. Therefore, the majority of collective wealth will be in the hands of the public.

But how does one engage with this target market? Willem le Roux, Head of Investment Consulting at Simeka Consultants and Actuaries, pointed out that this group of people is extremely connected and lives in the technological age where information is at their fingertips.

“Even with all this information, the human brain is simply not hardwired to plan for retirement. Saving for the future always competes with short term needs, and short-term needs will generally win hands down. People need incentives to work hard and to prosper,” said Le Roux.

Changing the end game

How do we provide this group with a meaningful retirement solution bearing the above information in mind? The move away from defined benefits (DB) to defined contributions (DC) has put significant pressure on the public to fund their own retirement shortfalls.

One of the biggest criticisms of retirement funds is that the cost of belonging to one is simply too high. There is very little chance for the middle to lower income earners to belong to a fund because their actual retirement savings will be negligible. A saving grace in this aspect has been Umbrella Funds where the costs are spread across a pool of investors.

However, just because there has been a shift from DB to DC, it doesn’t mean that employers can avoid all responsibility. Conrad Roper, New Business Development Consultant at Sanlam Employee Benefits, pointed out that when we buy a car, there are certain aspects/features we will not compromise on.

Certainly, we don’t always go for the cheapest car on the market. He then asked why should employers take this approach when it comes to selecting the Umbrella Fund that they offer employees? “Many employers treat retirement funds as a necessary offering and not an Employee Value Proposition,” said Roper.

Reframing retirement

So how do we reframe retirement? Well, we have pointed out that millennials are informed and engaged, but we have also pointed out that sometimes retirement can be a tangled web because of the information overload associated with it.

Yegs Ramiah said that one of the key ways of reframing retirement is that we need to move from complex communication to simple communication. There is simply too much information that is being distorted by what millennials feel is information overload. “We need to introduce simplicity into the decision making process. The only thing that millennials want to know is: will I have sufficient money to live comfortably in my retirement years?” said Ramiah.

We also need to move from a retirement industry where the focus is on the individual to a retirement industry where there is a focus on the community. Studies have shown that humans have an innate need to have a sense of belonging, and communities where there is a collective sense of belonging are happier than other communities.

Editor’s Thoughts:
At the end of the day, the money habits we learn as children stay with us for the rest of our lives. Albert Einstein once said that we cannot solve our problems by using the same language we created them with. Employers need to be more involved and engage with employees on a regular basis on retirement as they will feel included, and a sense of belonging creates a happier community. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

Comments

Added by Wick, 09 Jun 2015
"where there is a focus on the community"

This sound like an introduction of national pension scheme. Just visit the UK to find out how even the capital of finance did not get that to work and how older people get tax incentives to go back to work and laws changing so they can cash in their retirement funds to keep them alive. You think with our skew balance of employ we can defy gravity? Smoke and mirrors..
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Added by Zarrick, 08 Jun 2015
So are we going back to Defined benefits then if we all are all so driven to help each other? Are we going to pool the money again like a DB scheme? Why is it that when corprates changed from DB to DC we all would have got out less on retirement, but our contributions stayed the same. Who is taking the money? The insurance companies? This seems like a lot of fluff... bull baffles brain stuff to me. Millenials, non millenials...yada yada. People need to save, that's the bottom line. Maybe this is positioning for a new product that will follow the DB structure because they have realised that nobody will be able to retire and they don't want a riot on their hands in 10 years time. There was no reason to get rid of DB except to profit off of the masses.
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Added by Kenny Williamson, 08 Jun 2015
This shift happened many years ago... like the article... agree with the simpler communication. What exactly is meant by a "social/ belonging" type of fund/savings?
Perhaps a future article along these lines? the ideas coming forth?
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