Edition: Sept - Nov 2013
EXPERT OPINION

HELP EMPLOYEES TO A BETTER RETIREMENT

Practical suggestions for employers on what can easily be done is offered by Viresh Maharaj, actuary at Sanlam Employee Benefits.

Research that we recently undertook into South Africa’s retirement industry clearly shows that employers can play a far greater role in addressing the country’s growing retirement crisis. This is because:

Employers have the infrastructure to communicate with their employees;

Employers are best positioned to advise employees on their choices when joining their fund;

During the course of employment, employers can guide employees on the critical matter of preserving retirement savings should they leave the employer prior to retirement.

But our research also indicates that, unfortunately, many employers are not playing a sufficiently large role in this regard:

51% of employees had not received any information relating to their retirement from their employer;

90% of employees had never revisited theiroriginal retirement decisions made when they first joined their employer;

53% of employees are not aware that they have life cover via their funds or via group schemes.



Maharaj . . . rise to the need

A key contributing factor in South Africa’s retirement predicament is lack of clarity about who is responsible for retirement savings. Most South Africans still believe that their employers shall take care of this and abdicate their responsibility to properly plan for retirement to them.

By way of illustration, 50% of employees believe that they will continue to receive post-retirement medical aid benefits from their employer, which is most often not the case. In truth, the responsibility for proper retirement provision has rested with the employee since structural changes were made to retirement funds a number of years ago. This move has resulted in unintended negative consequences. National Treasury is trying hard to address the retirement crisis now faced.

But while government works on retirement at a structural level, there are some relatively simple moves that an employer can make to improve the prospects for their employees’ retirement years. As well as offering value to employees, it makes good business sense to take care of employees’ retirement planning as it is a powerful tool for staff attraction and retention. Here are some suggestions:

1. Hire qualified financial advisors to run annual retirement weeks. Negotiate a flat fee with the advisors and allow employees to engage with the advisors to assess their retirement planning. In this way, employees have access to the invaluable advice they need – but are often not voluntarily seeking – and they are able to get it free of charge as the employer picks up the costs.
2.

Arrange retirement workshops to help educateemployees and their spouses about retirement planning and raise the profile of retirement planning amongst staff. Make sure that these are as effective as possible by:

Aligning the workshops with life-stages so that employees receive appropriate information for their own individual circumstances;
Providing the attendees with benefit statementsbefore the workshops are held;
Providing estimated replacement ratios based on their actual contributions;
Providing employees with the ability to effect changes at the workshop itself e.g. on contribution rates; and
Bringing in actual retirees, who previously worked at the company, to speak to employees about their retirement experiences.
3. Our research indicates that employees rely heavily on the company’s human resources (HR) department to obtain not only information but advice on retirement itself. For example, 51% of employees would contact HR for information on the fund and 32% would seek financial advice from HR at retirement. We believe HR needs to play a more active role by bridging the gap between the fund and the employees. In essence, employees want help with retirement planning from HR and the infrastructure to help already exists, so the employer now needs to close the gap. This may be achieved by:
Upskilling HR to be able to provide accurate information on the fund;
Providing HR with trustee-approved schedules that it may use to provide guidance to employees;
Empowering HR to be able to direct employees to mandated financial advisors.
4. Finally, the company’s existing performance management infrastructures can address the lack of awareness among employees and help to raise the profile of retirement planning among employees. This could be as simple as the inclusion of the retirement-planning conversation in the existing performance appraisal process.

For instance, a key performance area could be that each employee needs to review his or her fund statement annually and report this to their manager. Then managers themselves would also be assessed partly on whether or not their employees have reviewed their statements. Such an approach formalises the retirement conversation. It would also ensure that employees remain informed and engaged as doing so would affect their performance rating.

We firmly believe that by making a commitment to improved retirement prospects for employees, and starting a few simple initiatives, employers can play a significant role to resolve the country’s retirement-savings crisis. Essentially, this would also be in the interests of the employees and employers themselves.

• See the full BENCHMARK survey on www.sanlambenchmark.co.za.