By Avishal Seeth, Head: Sanlam Umbrella Solutions
Forty years of Sanlam’s Benchmark research has shown that change is the only constant.
Back when this research started in 1981, nearly one billion people watched Princess Diana and Prince Charles get married, the oldest Millennials were twinkles in their parents’ eyes and defined benefits ruled the roost.
Four decades later, Princess Diana’s kids have kids, Millennials are grappling with how to adequately prepare themselves for their looming retirements and umbrella funds are now the kings of the castle.
How did we get here?
The intervening 40 years have seen us move from defined benefit funds being de rigueur, thanks partly to lower staff turnover, to umbrella funds being the preferred option. The two could not be more different.
Defined benefit funds saw the employer take on all the investment risk and members secured good outcomes by staying at one company for their entire careers.
As time passed, employers – and indeed the industry as a whole – transitioned away from defined benefits and experimented with a variety of other options. What everyone missed during this time was the obvious transfer of investment risk from the employer to the member. There should have been a significant education and information exercise around this specific point. It should have been better communicated that members also needed to start taking responsibility for their retirement savings. Eventually, a balance was found in the form of umbrella funds, which is where we find ourselves today.
Umbrella funds slant more strongly toward fund consolidation and member wellbeing and reflect a more holistic consumer focus.
A gap in the market
With the oldest among them now entering their 40s, Millennials comfortably make up the largest proportion of the working-age population in the country. The media reports that while this generation may be the most populous and educated in the workplace, they are also the least wealthy and most likely to have little or no savings.
South African youth unemployment is at an all-time high (46.6%), which means that Millennials and their younger siblings, Gen Z, are bearing the brunt of its effects. Without a job, how are the future retirees even going to contemplate retirement? Especially when they are also called on to care for families and make their money stretch between a multitude of different priorities.
This leaves a gap in the market for product providers to achieve better outcomes for Millennial members by helping them improve their financial wellbeing and retirement readiness. It is pivotal to provide educational tools and resources – and to encourage employees to use these.
We have seen an actual improvement in member outcomes because of proactive benefits counselling.
One such initiative, which was born because of the pandemic that forced the industry to reflect on how we add value to our members’ lives, is the Sanlam Virtual Doctor, for example. With the intention to increase access to healthcare for all members, irrespective of whether they are part of a medical scheme or not, members get access to quality healthcare in the form of GP and nurse consultations via a virtual platform, without having to be concerned about consultation fees.
The big fix
The one advantage we have now that was not available 40 years ago is the availability of data. Not just data on salary levels, contribution rates or choices at withdrawal, but more personal and behavioural data. Companies know the actual human nature of their members. This is the most powerful tool they have at their disposal if they are going to do anything to improve their members’ outcomes at retirement. The winners over the next 40 years will be those who are able to seamlessly integrate the information this data provides into their existing employee value proposition.
This article was originally published by FA News on 1 February 2022.