Help Your Employees Have a Better Retirement

By Viresh Maharaj, Actuary at Sanlam Employee Benefits

Cape Town, August 2013: We recently undertook research into South Africa’s retirement industry, which clearly showed that employers can play a far greater role in addressing the country’s growing retirement crisis. Employers have the infrastructure to communicate to their employees, they are best positioned to advise them on their choices when joining a fund and during the course of their employment, and they can guide them on the critical matter of preserving retirement savings if they leave the company before retirement.

But unfortunately, our research (the Sanlam BENCHMARK survey) indicated that many employers are not playing a big 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 their original retirement decisions made when they first joined their employer;
• 53% of employees are not aware that they have life cover via their funds or group schemes.

A key contributing factor in South Africa’s retirement crisis 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 shall 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 and National Treasury is currently hard at work to address the retirement crisis in SA.

But while the government works on retirement at a structural level, there are some relatively simple moves that you can make as an employer to improve the prospects for your employees’ golden years. As well as offering value to employees, it makes good business sense to take care of your staff’s 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 your 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 out – and they are able to get it free of charge as you pick up the costs.

2. Arrange retirement workshops to educate employees and their spouses about retirement planning and raise the profile of retirement planning among your staff. Make sure these are as effective as possible by:

• Aligning the workshops with life-stages so that employees receive appropriate info for their own circumstances;
• Providing the attendees with benefit statements before the workshops;
• Providing estimated replacement ratios based on their actual contributions;
• Providing employees with the ability to effect changes at the workshop itself e.g. contribution rates; and
• Bringing in actual retirees who worked at the company to speak to the employees.

3. Our research indicates that employees rely heavily on their human resources (HR) department to obtain not only information but advice on retirement itself (51% would contact HR for info on the fund, 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 already exists… the employer now needs to close the gap. This may be achieved by:

• upskilling HR to be able to provide accurate info on the fund;
• providing HR with trustee-approved schedules that they may use to provide guidance to employees; or
• empowering HR to be able direct employees to mandated financial advisors.

4. Finally, your 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. Managers themselves would also be assessed partly on whether or not their employees have reviewed their statements. Such an approach formalises the retirement conversation and would ensure that employees remain informed and engaged as doing so would affect their performance rating.

We truly believe that by making a commitment to improving retirement prospects for your employees, and starting a few simple initiatives, employers can play a big role in reversing the country’s retirement savings crisis.

Visit the Sanlam Benchmark website here.

Sanlam Life Assurance Company (Ltd) is a licensed financial services provider.