Retirement security and insurance amid Covid-19


How can employers and employees ensure financial resilience?

This webinar was sponsored by Sanlam in association with the Institute of People Management and was hosted by the Mail & Guardian. It featured Viresh Maharaj, Managing Executive, Corporate Distribution, Sanlam and Dr Matete Lerutla, Managing Executive, Human Capital, Sanlam Corporate. It was facilitated by Gushwell Brooks, 702 radio talk show host.

In times of financial stress, a focus on the long term begins to diminish, as people tighten their belts. For employees, cash flow is number one priority, according to the poll conducted in the webinar. For all of us, finances and getting old are both stressful topics that are difficult to broach at the best of times, and are even more stressful when survival is top of mind.

The emergent theme from the 2020 Sanlam Benchmark research is individualisation of institutional retirement funding. Covid-19 has exposed many fault-lines, particularly in retirement and financial plans. Very few people are able to retire comfortably and many employees do not have emergency funding available to help them through the tough times. As such, it is important that the occupational retirement funding industry reviews its offerings to continue to remain relevant. The new generation entering the workforce has different needs; they want relevant information, and they want it as fast as possible. They need to be engaged with on a more individualised basis via a spectrum of channels.

Dr Matete Lerutla, Managing Executive, Human Capital, Sanlam Corporate

Benefit consultants, employers and retirement funds were polled as part of the Sanlam Benchmark research to explore their experiences of the lockdown and their expectations of the future. They reported that members of retirement funds were querying their investment value and returns due to the Covid-19 crisis and its effect on the markets, and several requested access to their retirement funds to survive. A number of employers have asked to suspend payments temporarily towards retirement funds to enable more cash flow as a means of providing financial relief to employees.

The market movements brought into focus the risk that employees in the pre-retirement stage of their lives can enhance or destroy their wealth due to market volatility, and there is increased interest in structures that provide investment guarantees at this life-stage. There is also widespread interest in investing in infrastructure to help rebuild South Africa’s economy.

About half of employers don’t provide access to financial advisors and thus employees are exposed to making poor investment decisions. Millennials were found to only start to considering retirement planning when their parents actually retire, and often need help with debt, which ultimately affects their retirement outcomes.

Ideally, one needs to plan for retirement with a 35-year horizon in order to retire comfortably. However, options do exist for the majority of South Africans who have not yet done so. The challenge of balancing long-term savings with short-term survival is sharply in focus and people need to take well considered decisions.

Employers and retirement funds have the responsibility to ensure that their employees and members consider how to react to the present situation in a rational, individualised manner. The Covid-19 crisis is exposing the fault-lines in formalised retirement funding, as it opposes the need to invest in one’s future with the imperative to survive right now. In this context a holistic support system from employers makes sense, to address pressing issues such as debt management.

Gushwell Brooks is a presenter on 702 and CapeTalk

The number one obstacle to decent wealth accumulation at retirement is that people cash in their retirement when changing jobs, which happens in South Africa about every four years. “As individuals we need to take ownership for our own retirement journeys and stay invested. If you stay invested, then you will benefit in the long term,” said Viresh Maharaj.

South Africa has introduced retirement benefit counselling to provide accurate information to employees thinking of cashing out, with certain providers including the tax impact of such a decision. Research shows that people who receive proper retirement benefits counselling are less likely to cash out their retirement funds when changing jobs.

It does help to be financially literate, said Dr Matete Lerutla, and members of funds should have access to financial advice so that they make appropriate decisions. As with many consequential life choices, it is best to act after consultation with specialists who are well-versed in the field.

Retirement fund capital can be deployed for for wider societal benefit and is an area of intense exploration given the economic impact of the lockdown. South Africans wish to retire into a country that is stable and thriving, so such capital can be put to work for sustainable and inclusive benefit.

Most people find financial affairs intimidating; they should be educated on this topic from an early age so that they make the right calls regarding their investments, among other financial needs. The terminology of the industry is exclusive but the industry is now transforming to make this information more widely available, due to various regulations.

Ultimately the individual must take responsibility for investing wisely for their retirement, although many young people see it as “something old people worry about”. Occupational retirement funds start this process by default, and its best to stay on this path and not cash out.

Employers must engage with the workforce to find out which aspects of retirement planning they would like to understand, so that the offerings made are relevant, said Lerutla in her closing statement. Maharaj said that we should pause and reflect, and make use of the data that is available on the Benchmark website so that we can all make decisions that help us to achieve greater financial resilience in this stressful time.

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