The 2013 Sanlam BENCHMARK Survey confirms a long-standing disconnect between what retirement fund members expect to ‘earn’ in retirement and what they actually achieve. It also reveals that half of new retirees struggle to cover their monthly expenses post-retirement. Against this backdrop, National Treasury’s desire to ‘nudge’ savers towards better outcomes is understandable.
One of the central debates at the 2013 BENCHMARK Symposium was which industry stakeholder should be held accountable for poor retirement outcomes. Although Sanlam is on record as saying that employers must accept greater responsibility where their employees’ retirement is concerned, it is clear that trustees, financial advisers and regulators all have a role to play in positively influencing member behaviour.
A major challenge for these role players is to address the legacy of South Africa’s defined benefits system. ‘Members have an expectation that, once their retirement fund membership forms are filled out, their fund trustees or employer will take care of everything,’ says Van Zyl. ‘These individuals believe that someone else will see to it that there is enough capital for their retirement.’
Another myth is that individuals who neglect their savings during their early working years will be able to make up the shortfall in later years. This misconception arose from the fantastic inflation-plus returns earned across asset classes in the 15-years prior to 2009. Nowadays, the retirement funding industry must generate returns in a low-yield world.
Dawie de Villiers, Chief Executive Officer: Sanlam Employee Benefits, captures the present day retirement funding sentiment perfectly with the phrase: ‘Gone are the days when high returns would make up for inadequate savings.’ But fund members seem unaware of this.
Study after study confirms that the average retirement fund member is apathetic, lacks understanding of financial products, defers critical financial decisions and refuses to consider the long-term nature of retirement savings. The 2013 BENCHMARK Survey offers many examples of this apathy.
While only a third of fund members voted for their trustees – and even fewer could name a trustee – a staggering 80% of those surveyed were confident that these trustees would make sound financial choices on their behalf. When left to their own devices, fund members seem to make decisions that destroy value.
Major mistakes include contributing too little to their retirement fund, starting their contributions too late, and withdrawing their accumulated capital when changing jobs. Trustees also exhibit behavioural failings.
The latest survey suggests that trustees only expect 13,4% of their fund members to retire comfortably. But while 76% indicated that they were worried about how fund members would utilise their benefits upon retirement, only 24% wanted further dealings with members post retirement.
How can poor member behaviour be addressed? An important first step would be for employers and trustees to create more checkpoints along the road to retirement, and to communicate more effectively with fund members at each such opportunity.
‘Our research has shown that fund members are only asked to make choices when they join a formal retirement fund,’ says Van Zyl. ‘They fill out loads of forms and are then left alone in the hope that “one day” they will enjoy a great retirement.’ It is as if many retirement fund members go from limited assistance on ‘day one’ of their journey into retirement to ‘day one’ in retirement without any financial guidance along the way.
The current practice of suggesting a meeting between the fund member and a financial adviser a few months before retirement is nonsensical. ‘The typical trustee or employer response to a member’s cry for help is to refer them to a financial adviser,’ says Van Zyl. ‘This abdication of responsibility is one of the biggest stumbling blocks in making meaningful improvements in the retirement-funding landscape.’
At the 2013 BENCHMARK Symposium, it was suggested that the employer, through its Human Resources department, should facilitate and even fund financial advice workshops and one-on-one sessions with financial advisers for fund members.