Retirement savings, one of the most talked about topics at the moment, needs a fresh approach and more detail on how we can possibly approach this was under discussion at the recently held Batseta Conference. One specific question that was asked was whether retirement funds are geared up for the future.
Generational gap
Nomha Kumalo, Managing Executive: Public Sector at Momentum Corporate, pointed out that answering this question is not as easy as it seems.
From the start, it needs to be pointed out that the retirement funds industry has been in existence for a long time and has been disseminating information in a specific way according to a specific formula that has been established through years of experience.
Yet this is proving to be a challenge as the generational gap is catching up with the industry. Currently, 39% of the country’s workforce is made up of people from Generation Y. However, by 2020, it is expected that Generation Z will make up 24% of the workforce. This will grow exponentially year on year.
“A large part of the workforce in the past was made up of the Baby Boomer generation who accessed information in a very specific way. We are now dealing with Millennials and Generation Z who access information instantly and in a very different way from their predecessors,” said Kumalo.
Influencers
She added that generations approach savings and finances completely differently than those before them. This outlook is influenced by many factors.
In the past it was assumed that a person who was saving for retirement had a specific number of dependents that was initially limited to themselves and would eventually grow to include their spouse and children. “This is not the case in the current market. People who are saving for retirement are doing so with a large number of dependents who they have to provide for. This is a problem because from the start, the priority to save is already competing with this important factor,” said Kumalo.
Because of the access to information and social media, Millennials and those belonging to Generation Z are receiving information from a number of different sources. In the past, advice around saving came from advisers and family members who served as an example to younger members of the family. We now have to add social media influencers who may have a different outlook to saving than what they are being taught at home and by their advisers.
Health and wellbeing
There is a lot of pressure on those who are employed and providing for dependents while saving for retirement. This is raising growing concerns in the industry as it is exerting so much pressure that it is often moving people towards retirement faster than age is.
“If a family is lucky, they will have two incomes to depend on within a family. However, there are a lot of cases where there is only one income. When this person gets sick or suffers an event which leaves them temporarily disabled and unable to work, the financial demands on that person do not stop. Research by Momentum has shown that a lot of people are resigning from their jobs just so that they can access their retirement savings to cater for a pressing need. This is a sad situation, but it is a reality,” said Kumalo.
Logistically speaking
When one considers the question of whether current retirement funds are geared for the workforce of the future, there are a number of logistical factors that need to be taken into consideration.
The first is that decisions regarding retirement funds and the products that are being offered are being done by a group of people that are far removed from the current workforce in a simple way… salary wise. Kumalo pointed out that the average South African salary is R10 000 a month, yet, the decisions around retirement savings are being made by management and people higher up in companies who earn a salary that is possibly ten times that of the average worker.
Retirement savers are also feeling that they are disengaged from the industry because it is difficult for both savers and retirement funds to plan for a future that is largely uncertain and is changing every day because of the influences of technology.
Momentum research also points out that the greatest priority of previous generations was saving towards a home, saving towards educating their children and then retirement. Kumalo pointed out that Millennials and Generation Z are so obsessed with information and the need to be informed (#FOMO) that education is a priority. For this group, retirement is such an obscure construct that they will be reluctant to do it unless there is serious innovation in the industry.
Editor’s Thoughts:
So, are retirement funds geared up for the workforce of the future? Probably not. The need to move people towards a decent retirement is so important that we cannot afford for this to fail. Innovation needs to take center stage. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.
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Added by Garrick Bergh, 12 Jun 2019