How helping staff save is good for your bottom line

While many people find the prospect of retirement – not having to wake up early every day and deal with traffic, work, office politics and so on – appealing, a large number of people, especially those in their 50s and 60s, are extremely worried at the prospect of no longer receiving a monthly income from their employer.

The fact is that the bulk of South Africans retire with insufficient savings to maintain their standard of living during retirement. In fact, Treasury figures show that only 6% of South Africans are on course for a dignified retirement.

Often one hears people saying that they cannot save for retirement because they do not earn enough, yet we all know of those pensioners who live comfortably despite never having been big earners. Not to mention the others who took home substantial pay packages and “lived large”, but didn’t retire with enough saved to live in any comfort.

As Hilan Berger, Head of Institutional Business at 10X Investments, explains, it is not about how much one earns, but rather about how much one saves.

“More specifically,” he adds, “it is about how long one saves for, the return on the investment of one’s savings, and how much of one’s savings are lost to fees.”

National Treasury’s estimate that 94% of South Africans are not on course for a decent retirement is a national concern, even for those of us who feel they are well-prepared. There are many reasons the country faces this ticking timebomb of a large ageing population that is heading for a nasty surprise and a serious lifestyle downgrade.

“Socio-economics is a huge factor,” says Berger. “So many people in South Africa are not in formal employment, or simply do not earn enough to be able to save for retirement.”

Another worrying aspect is that there is no guarantee that things will be that much better for those who have been in stable, long-term employment for much of their lives if proper provision has not been made for their retirement. Adjusting to a life of penury in their old age will be an additional hardship for those who are used to a steady income.

There is no legal obligation on employers to offer a retirement savings plan to employees, or to make a financial contribution to their workers’ retirement funds but, says Berger, many feel a moral obligation to offer some support at least.

He says educating staff about savings is a great start, and facilitating saving in some way is a huge boost to workers that has a positive ripple effect beyond the families affected.

“It is a good thing for them and for the rest of the nation since saving and investing are significant elements in wealth creation, which South Africa sorely needs,” he says.

“Besides,” adds Berger, “it just makes good business sense!”

The impact of financial stress on worker productivity is significant. Many employers say high levels of absenteeism among their staff cost them a fortune, and that stress-related illness is one of the most frequent reasons for staff to be away from work.

“Even if employees are not away from the workplace many are less productive because they are focussed on sorting out financial difficulties while they should be working, or distracted by them.”

He adds that employers can do a few simple things to help their staff to develop a savings programme.

“Providing information and education is one big issue. Speak to a company that provides retirement and investment products, like 10X Investments, and they will share information with your staff about how to get their retirement savings off the ground,” says Berger.

Basic information about the range of savings products – including retirement funds and retirement annuities available – as well as tax savings tips and the like can be a huge factor in getting people into the right mindset.

Establishing a company retirement fund is another initiative that an employer can consider.

“If you’re a small or new business or struggling with revenue for another reason it does not have to involve a financial commitment from the business,” says Berger.

“It’s great when the business is able to make a contribution to the retirement fund, but just establishing the fund with a suitable provider is a big step in the right direction,” he explains. “Once you have created the fund and offered it to your workers as an investment opportunity for them there is much bigger chance they will start saving than if they have to do something on their own.”

Once an employer has decided to put in place a retirement fund it’s “absolutely critical” that they investigate which provider to engage with and choose carefully.

“Most retirement fund providers trumpet the returns they achieve but do not talk about the fees they charge,” Berger says. “You could have, for example, growth of 10% for a year but if the fees charged are 3% you won’t benefit from a return of 10%.”

He adds: “The employer should be asking about the return after fees in order to make a properly informed decision about which service provider to select. After all, you wouldn’t want to recommend a fund to your employees where they lost a large part of their savings to high fees.”

In the case of an existing retirement fund, employers should also keep tabs on charges. Most benefit statements from retirement funds are not particularly easy to read especially when it comes to the amount lost to fees. Berger says HR Managers should insist on a proper breakdown of the fees levied.

He urges those who have the power to improve things for workers to compare the fees they are paying with other providers. “The industry’s average fee for corporate retirement funds is 1.6%, but the 10X model allows us to keep our average fee down to 0.6%.

“Compounded over time, this apparently small difference can add 40-60% to employees’ savings at retirement.”

South Africa desperately needs to develop a savings culture, and to create more wealth among the working population. Employers have a responsibility to assist their workers where they can, even if it is only to help them initiate their own savings towards their retirement.