Edition: June - August 2015
EXPERT OPINION

Right time, right place

These must be top of mind for success in employee benefits
communication, suggests Ashleigh Davies,
Thought Leadership Manager at Old Mutual Corporate.

Employed South Africans are often provided with benefits that go well beyond take-home pay. Access to clinics, medical aids and retirement funds are examples.

Just take retirement funds. There are many good reasons that employees should take advantage of the opportunities these funds present e.g. tax-deductible contributions, cost-effective risk benefits and no additional administration fees on additional contributions. Many members don’t maximise these benefits.

Why? More than employee apathy are perhaps ineffective education of members and poor communication with them.

The question then arises – how should this be tackled and, perhaps, more importantly, when is the best time and place to engage with the members?

The new member

When a young employee joins a company, this is the ideal time deal to impact on his or her future financial security. Starting to save at age 25 rather than at 30, for instance, could add an extra 30% to a member’s retirement income.

A 25-year old employee will need appropriate counselling as retirement saving and financial security are usually not priorities for many young people. The most important consultation during the employee’s induction process will most likely be about the staff benefits offered by the employer, as these may form the foundation of a successful financial plan.

It may also be a good idea to introduce the employee to the principal officer or other representative, such as a trustee or management committee member. This should convey the importance, effort and commitment behind the paperwork, and should have positive benefits for both the fund and the employer. It will also allow the new employee to ask questions.

If this is not an employee’s first job, it may still be possible to discuss the preservation of the benefit accumulated in a previous employer’s retirement fund, either in a preservation vehicle or by transferring it to the new fund. This will be an important contributor to the member’s final retirement outcome. In addition, depending on how this on-boarding process is managed, it could be an ideal time to introduce the member to an onsite advisor who can assist the employer’s HR department/fund representative in explaining the employee benefits available.

Future communication prompts

Similar to salary-increase letters, members generally scan their annual benefit statements in a superficial way until they see the value of their accumulated credits. Often little attention is paid to the amounts of death or disability cover provided by the fund, notwithstanding how important this may prove in future. As it is also unlikely that members digest much of the information presented in their annual member-benefit statement, they should be encouraged to revisit their financial plans at significant times.

These are when their circumstances change through salary increases, promotions, bonus awards, marriage, birth of children and divorce. They might also have to consider their positions when they can withdraw from the fund (e.g. through job retrenchment or resignation), and should routinely do so on receipt of their annual statements.

Withdrawal/resignation

Increasingly, employees have a number of employers in their working lifetimes. The principal officer or other fund representative should ensure that part of the exit process includes advice on the member’s options and the importance of maintaining the plans made when the employee joined the company.

Disability

Hunter Davies . . . engagement prompts

Should a member be unable to work because of illness or injury, it will be reassuring for the person to know that at least his/her financial circumstances have been catered for by their retirement and medical aid funds, which could include disability cover as part of their benefit. At this vulnerable time, expert financial counselling is invaluable. If properly managed, it can only deepen the employee’s perceived value of the sponsored benefits and associated service providers.

Retrenchment

Sadly with tightening economies, changing industries and the increasing use of technology, retrenchments have become an inevitable outcome of the risks to formal employment. Given the impact of the loss of work at this time, emphasising the contribution that can be made for this time is hard to overstate.

Approaching retirement

Retirement investment is a long-term business. If proper planning is left too late, little can be done. So regular reviews are important to ensure there is sufficient time to make a meaningful intervention for adequate retirement savings.

Employees within 15 years to retirement should be encouraged to attend workshops to educate themselves on how to manage their funds, and possibly boost their savings when approaching and reaching this milestone. There are a number of ways in that this can be done. If the staff complement is sufficiently large to warrant it, workshops should be held by the employer at least annually. Members should be encouraged to attend these at five-yearly intervals until five years from retirement, where after they should attend annual events as many important decisions will need to be taken during this time.

At retirement

This time of change can be a stressful time for members.

Members should have had ample opportunity for counselling prior to retirement on the type of annuity that best matches their needs, and to gain a proper understanding of their future financial circumstances.

Post-retirement contact

Most employers will be cautious of being seen to be somehow responsible for retired staffers. This might present an opportunity for fund representatives to improve the trust between the financial-services industry and its clients.

A final counselling session initiated by the company/fund should ensure that the member understands the various options upon retirement. It can include explaining why a particular default annuity was selected by the trustees / management committee member and the full implications of not opting for this i.e. how a large sum of money can be saved by accepting the default due to the pooled nature of annuities, the absence of commission and lower administration charges.

If members opt for living annuities, it will be important that they understand the financial risks associated with their choices of underlying investment, amount of drawdown, the need for capital preservation, market fluctuations, longevity and their financial acumen to manage these effectively.

Future security depends on the solution chosen by the member. Post-retirement planning is as important as the planning undertaken at the first day at work.

For more information about Old Mutual Corporate, visit www.oldmutual.co.za/corporate

Old Mutual is a Licensed Financial Services Provider.
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