Retirement is a shared responsibility

Our annual Sanlam BENCHMARK symposium has shown us consistently that, year on year, our active member surveys display the same trends – members are apathetic towards retirement and other employee benefit issues, they have low levels of financial knowledge, and as a result of these two factors, members are not making adequate provisions for retirement. It was for this reason that the Sanlam Employee Benefits research team decided to focus on factors enabling members to achieve better retirement outcomes, as opposed to relying on the perceptions of the members alone, said Mayuri Reddy, Market Strategist for Sanlam Employee Benefits Investments.

A shared responsibility
Three key decision making parties are typically involved in ensuring good outcomes for members: the member themselves, their employer and their retirement fund. The system is also influenced and supported by financial service providers, financial advisers, National Treasury and the Financial Services Board. National Treasury and the FSB set up and monitor the guidelines and structures required to be able to offer members a reliable route to good retirement outcomes. Members are responsible for the overall outcome itself – this includes monitoring measures such as net replacement ratios. Employers and funds between them need to construct specific structures and solutions appropriate to their membership.

Arguably, employers and funds have the biggest role to play in assisting members with achieving their retirement goals, given their unique position which allows for aggregation and access to a group of individuals. Indeed, the vast majority of employers feel they have responsibility to enable good retirement outcomes for members: 9.0% say they feel completely responsible, 38.5% say they feel responsible to a large extent, and 39.5% say they feel responsible to some extent. Only 39% have a financial wellness programme in place, however, and even fewer (2.5%) of employers incentivise or measure their HR departments on how they’ve contributed to favourable retirement outcomes for their staff staff.

Blurring the lines of responsibility
This means that a large part of the responsibility for good retirement outcomes falls onto the fund. Typically, this responsibility is carried out by putting in place targets and defaults. A problem does arise, however, when the areas of responsibility between employer and fund are not clearly articulated and defined. If each sees the other as being accountable for the decisions and actions required to ensure good outcomes, responsibility is diluted and neither will be effective. In such cases, the body responsible for the monitoring and governance of structures may impose more stringent or well-defined guidelines.

A good example of this is on the topic of preservation, where we saw National Treasury proposing industry-wide changes to ensure that the lack of preservation was addressed. Both employers and funds may experience secondary benefits from a member preserving their retirement savings. An employer may benefit from fewer hours of lost productivity due to financial stress close to retirement (47% of respondents said that the financial stress of their members was somewhat to highly problematic for the employer). In addition, funds may benefit from the size of their assets and individuals served, allowing them to leverage this scale to negotiate with service providers. Neither party, however, has the explicit obligation, although both feel they are in part responsible for good retirement outcomes. 77% of standalone funds and 68% of participating employers in umbrella funds simply provide members with information on preservation. Indeed, when we asked respondents who was responsible for encouraging members to preserve, 29% felt it was the employer’s responsibility, 22% felt it was the trustees responsibility and 37% said members should take responsibility for themselves.

The broader (social and economic) impact of saving
Adequate retirement savings are not only important for the individual retiring (the member). This also has a significant impact on the family or community who may need to support them should their savings not be adequate.  Equally so, the economy as the bigger system is impacted as savings are essential for sustainable capital investment. For this reason, t we should not automatically assume that the person who should take primary responsibility for retirement decisions is the person directly impacted (the member).

This is particularly true as members may not be best equipped to deal with these decisions. As an example, 69% of the pensioners we surveyed who had withdrawn from their retirement fund (and taken the benefits in cash) at some point during their working lifetime, did not understand the impact on their overall retirement outcome. 57% did not understand the tax implications of doing so.

Members must assume ultimate responsibility
As much as technology can enable members to engage better and more frequently with their retirement decisions  and understand the implications of certain decisions more clearly, this will not solve all the current shortcomings. Members should still retain the ultimate responsibility for their overall retirement  outcomes. Having said that, just as a driver is responsible for ensuring their car is serviced and maintained, this should not imply that they need to know every detail involved. Drivers cannot be expected to have the same level of understanding of their car as a mechanic does.  Similarly so in the retirement process, members cannot be expected to know everything. This is where funds and employers still play an essential, collaborative role in ensuring good retirement outcomes for their members.

Sanlam is a licenced financial services provider.