You have more in common with Eskom than you think
Hands up if you’ve spent time badmouthing state electricity supplier Eskom in recent months. Hands up if you’ve cursed the public works officials involved – hurling all manner of insults their way… What if I told you the majority of us suffer from the same affliction the power giant succumbed to? We may just as well have been cursing ourselves! Because like Eskom, which failed to plan for the country’s long-term power needs, nearly all of us fail to put aside enough for retirement. Like Eskom, which came up a few megawatt hours short in January 2008, you and I might be looking for handouts post-retirement too.
I can’t tell you how many seminars and presentations I’ve attended where the same old theme has been trundled out. Only six in a hundred people will retire comfortably – and that’s among those making some form of retirement provisions. The rest will have to make do with help from the extended family or – heaven forbid – the state old age grant! But we ignore the constant reminders, just as Eskom ignored the warnings a decade before it plunged the country into darkness. Why are South Africans such poor savers? And how do we go about changing the “I’ll catch up my retirement fund later” attitude? On 9 November 2010 we attended a thought provoking feedback session by independent financial advice group, acsis. They believe the solution lies in more effective member communication.
How to tackle member apathy
“The industry must realise members aren’t experts,” said Rob MacMahon, acsis business development manager. They’re daunted by the terminology used in member communications. And even if they understand the meticulously worded annual updates, they’re overwhelmed by the choices they’ve got to make. “It comes as no surprise – given the range of choices – that there’s a huge amount of uncertainty,” opined MacMahon, “and when you experience uncertainty you cannot take control…”
The country’s large life insurers, Old Mutual and Sanlam conduct extensive annual surveys to gain a better understanding of the retirement landscape. Old Mutual’s 2010 Retirement Survey suggests despite their best efforts retirement fund members have little understanding of – and take no action based upon – member communications. Apparently only 17% “understand” what they’re reading and even fewer (13%) act on the information. These statistics suggest its time to rethink the traditional printed communication which dominates the retirement fund space today.
Members want interactive communication. They desire face to face meetings, telephone contact with someone who can address their concerns, discussions with peers and “in the flesh” presentations. As more and more funds offer member-level investment choice (48% of funds and climbing) it becomes clear members must be empowered to make the challenging decisions about their long-term financial savings plans. That 68% of these members “choose” the default option suggests this empowerment remains an industry pipedream.
The following comment from Vanguard – one of the largest fund managers in the US – provides further insight: “The problem isn’t simply one of education. Even when individuals acknowledge or understand the need to make behavioural changes, inertia and procrastination prevent them from taking action.” This comment really hit home with the audience. Too many of us know what we have to do; but don’t have the stomach to take immediate action.
Member communication that works!
How can we improve the situation? How do we empower members with the certainty to enable them to make these decisions? “We looked at the concept of targeted communication to make it real and tangible,” said MacMahon. The first step was to identify groups of members with retirement shortfalls (not too difficult in the current retirement saving space). The second step was to send these individuals a one page letter with an extremely powerful message. “We told them they weren’t going to have enough money to retire and said they had three choices: to work longer, save more or accept they’re not going to have enough money to retire on,” he said. The communication (which included an invite to a retirement funding presentation) was “sent” in the month prior to salary review.
By informing retirement fund members of the risks they face, the steps they can take to tackle these risks and doing so at an appropriate “time” for the member to implement such changes, you increase member response exponentially.
Editor’s thoughts: The abovementioned presentation was fleshed out with case studies showing an amazing increase in members exercising investment choice and increasing their pension fund contributions. The combination of targeted communication, presentations and personal engagement is a clear winner. Would it be possible given the current pension funds environment to engage “face to face” with every pension fund member? Add your comment below, or send it to [email protected]
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