Bosses must support retirement planning

With 51% of surveyed pensioners not making ends meet and 62% of job changers still not preserving their retirement savings, South Africa’s employers and business owners have a vital role to play in solving the country’s retirement savings shortfall.

This is the conclusion drawn by Sanlam after analysing the results of its 2013 Sanlam Benchmark Survey. Dawie de Villiers, CEO of Sanlam Employee Benefits (SEB), says National Treasury is keen to address the issue, but proposed measures will likely only take hold in 2015. This is why Sanlam believes its research points to the need for employers to step into the breach.

“According to the principal officers of stand-alone retirement funds, 47% of retirement fund members turn to human resources (HR) for retirement queries throughout their working lives and 32% ask HR for advice at retirement,” says De Villiers. But only 52% of employer funds have formalised strategies to advise active members. And the fact that only 26% have a built-in preservation strategy as a default option ends up perpetuating the trend for employees to spend their savings before retirement when they resign or are retrenched, adds De Villiers.

“An employee’s retirement journey starts on day one of employment and continues for the rest of their life,” says De Villiers.

Taking into consideration that employees would have contributed to some form of retirement vehicle for an average 28 years by the time they retire, it is disconcerting to think that nearly three decades of saving would not be enough to secure a comfortable retirement. De Villiers feels this is enough hard evidence for employers to step in and nudge their staff towards making informed decisions about their retirement financial planning.

Since the shift from defined benefit to defined contribution benefit structures, the risk and responsibility for retirement provision has rested largely with the employee. De Villiers does not advocate a return to the “paternalistic era” of the 1980s, but believes current results are unsatisfactory.

Most employees do not seem to care very much about retirement planning, with only 10% bothering to review the retirement benefit option they selected when they joined the fund. “They consider retirement as a very distant event and are not interested in the detail around it. In fact our research shows that people only seek financial advice on average 12 years before retirement,” says De Villiers. “If the employer or business owner works with every employee to develop a retirement strategy that fits into their overall financial plan and also helps them to understand the consequences of certain actions or inaction during their employable years, we would see a marked improvement in retirement statistics in this country.”

Happily, three out of four pension funds surveyed do offer pre-retirement counselling, but only 41% have a stated target pension. Retirement industry stakeholders such as trustee boards and benefit and asset consultants should make a real effort to ensure that the fund structure can support a successful retirement for each individual member, says De Villiers. Retirement funds need to gently nudge their members towards making decisions that would benefit them in retirement, without being prescriptive or taking away member choice, says De Villiers. And to make this a reality, many more employers need to put in place counselling strategies and ensure skilled resources are allocated to ensure their successful implementation, adds De Villiers.

“Over the past number of years our research has consistently pointed to a need for regulatory change in the retirement industry and we are extremely pleased that the wheels have been put in motion with Treasury,” says De Villiers. But until these proposals become reality, employers can do much to aid matters, concludes De Villiers.

Sanlam Employee Benefits is a leading provider of group life and disability benefits, institutional investments, risk services, fund administration, derivative based structured solutions to institutions and retirement funds through a number of specialist divisions. For more information visit the Sanlam Employee Benefits webpage or call 0860 100 539.

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