Issue: September-November 2011
Editorials

BENCHMARK SURVEY

All at sea

In many ways, the present retirement-fund model has failed. Rather than continue to dish out more of the same, it should become much more consumer-centric to influence behaviour.

Okay then, Sanlam. You’ve called for it so now go for it. What it wants is a “sea change” in the retirement industry. As one of the largest players in this space, may it only succeed; not so much for the sake of the industry, although it will benefit, as for future retirees pitifully unresponsive to their own looming perils.

Thankfully, the latest series of Sanlam symposia – to analyse its annual benchmark survey – dwelled not predominantly on the perils, depressingly predictable and familiar in the survey findings (see box). Instead, the presentations focused refreshingly on how to effect this “sea change” from client resistance to customer alignment.

It has to do, for want of a better cliché, with the savings culture. More accurately, the embedded culture of not saving. But if these sea changes are sought in the attitude of consumers – a concept different from pushing product onto captive but reluctant clients -- their corollary and perhaps their starting point is in current industry practices.

Can an attitudinal transformation actually happen? Well, to use an analogy offered, it was with cigarettes. Get across, as the anti-smoking lobby did, the message that early withdrawals from pension funds are dangerous to financial health. Also take a leaf from how societal predilections are positively impacted – from the dangers of obesity to the confrontation of race prejudice – by identifying and addressing the main factors that can seriously influence consumer behaviour in retirement provision.

To name a few: lack of trust in financial institutions, stemming from scepticism over whose interests take precedence; perceptions that costs are too high relative to value received; poor communication with fund members; inadequate levels of education and awareness; the preference for instant gratification and temptations to spend; priorities to satisfy such exigencies as housing, food, transport and school fees.

Much of this is valid, depending on individuals’ circumstances and experiences. Much isn’t, being thin rationalisations for apportioning responsibility elsewhere and excusing consumption of material products over savings products. The former is up against the latter in a battle for the mind of the consumer.

Already there are “sea changes” that beg recognition. One is in the uncomfortable consequences of the financial crisis, discussed at the symposium in the past tense. Events of more recent weeks reflect fears that it’s to be repeated.

Resulting from the crisis sparked in 2008, it was pointed out, the average SA fund member has lost four years of compound growth on his monthly contributions. To the extent that there is an average, his fund value is back to where it was in 2007 and his retirement savings are back to where they were in 2002.

Depending on how the present market turmoil and volatility are interpreted, they either strengthen or weaken the case for saving: strengthen, because they underline the need for constant commitment; weaken, because of the risk in capital depletion. Conventional truisms of equities appreciation over the longer term (however long that might be) are tested when markets turn flat, or headed for a protracted bear trend in the systemic contortions of a recession-prone world economy.

Depending on how the present market turmoil and volatility are interpreted, they either strengthen or weaken the case for saving: strengthen, because they underline the need for constant commitment; weaken, because of the risk in capital depletion. Conventional truisms of equities appreciation over the longer term (however long that might be) are tested when markets turn flat, or headed for a protracted bear trend in the systemic contortions of a recession-prone world economy.

In retrospect, it’s backfired. A key finding of the survey is that it has left many fund members worse off than had defined-benefit (DB) funds remained preponderant. Moreover, alarming proportions of DC fund members are unable to name even one trustee and didn’t even know that they could nominate trustees. Neither did they have an idea of how their savings are invested.

And this is despite members of DC funds ultimately bearing the risk in who does what with their money. Paradoxically, whereas the switch to DC has been to the financial detriment of fund members, it’s been to the relief of employers who in DB funds are liable for payment of contractual obligations.

Perhaps more significant than the sea change from DB to DC funds, now history, is the consolidation of standalone retirement funds into umbrella arrangements, now gathering momentum. At least they hold out the promise for smaller funds of lower costs, amongst other advantages of critical mass, but umbrella arrangements are limited in their capacity and remit to relieve the totality of residual flaws.

They might improve communication, for instance, but at a depersonalised remove from the workplace. They can discourage cashing in, but they cannot prevent it. Neither can they loosen the costof- living vice, which restricts discretionary incomes, nor can they overcome the paradox of increased longevity requiring increased savings levels.

Resolution will have to found by other means. To continue as previously invites the certainty, already evident, that the overwhelming majority of longerliving South Africans haven’t a hope of receiving post-retirement income that remotely resembles their pre-retirement salaries. Mandatory preservation is a blunt instrument, with devil in the detail, in any event too late to rescue them.

Accepting that member apathy is pervasive, crying out for adaptation are benefit structures (for example, default options on withdrawal and retirement that will require positive action by a member wanting to go his own way) and communication strategies (for example, by use of social media whose platforms offer stinging alerts).

At bottom is the reality of attitude. Change it or little will change. Call it retirement-fund reform, at the grassroot as opposed to the regulatory level, the better if the challenge is spearheaded by institutions themselves.

Main presenters at the Gauteng symposium were senior Sanlam executives Dawie de Villiers, Danie van Zyl, David Gluckman, Phelisa Ngonyama and Kobus Hanekom. There was also a provocative call to arms on consumer behaviour by Steve Burgess, director of the business school at Nelson Mandela Metropolitan University, while radio personality Bruce Whitfield let ‘em have it as a frustrated and disillusioned consumer.