Comment by Walter van der Merwe, CEO at FedGroup Life
Increasingly, the SME sector is recognising that if it wishes to attract and retain staff, employee benefit (EB) offerings need to be made a part of their overall packages. Additionally, many recognise the role EB plays in eliminating the cycle of inter-generational poverty – by ensuring more of South Africa’s historically poor savers gain access to formalised, efficient retirement savings, while also giving the uninsured majority access to benefits that will increase their financial security.
Integrated employee benefit schemes, which often combine medical aid and retirement annuities or provident funds with group life, critical illness and disability insurance, are commonplace among large corporations. Finally, we are seeing this big-business norm filter down into the SME sector.
Weak communication weakens value
However, as the number of those with formal employment gain access to employee benefits, few are aware of what they’re getting, or even that many funds offer some degree of flexibility in terms of employee fund contributions and cover. This includes umbrella funds targeted at the SME market, which are able to offer both standardised cover and some degree of customisation and choice due to the economies of scale the funds achieve.
In these instances, the onus lies with the employer to ensure that if a fund structure that offers flexibility is selected, their staff are adequately informed and educated on the options available and the impact this will have on their benefits, income tax and take-home pay. Employers may also select to forgo the flexibility option due to the associated increase in admin and management requirements, which directly impacts on cost, but there is still a duty on the employer to explain this to staff.
Done with the assistance of the service provider or a financial adviser, the employer has the opportunity to include basic financial literacy and financial advice to ensure all employees understand the need for benefits, particularly the need to save towards retirement.
With an adequate base of financial literacy and knowledge established, employers and advisers are then required to share scheme and fund information with their staff on a regular basis. Ideally, this needs to be presented in a user-friendly manner that is easy to understand, preferably in the staff’s home language. This makes person-to-person engagement the best option. In terms of the broader knowledge and information sharing requirements, group sessions are often best as it offers a platform for engagement.
Uplifting the workforce
During these engagements, the importance of maximising retirement savings can be emphasised, and individualised financial advice dispensed according to the fund member’s specific requirements.
With this dual education and advisory approach, employers are also helping to boost fund preservation rates, which is a major issue in South Africa. When staff leave one job for another, the trend is to cash in their annuities as many feel that they’re entitled to that money. While Government is looking to address this through proposed retirement reforms, there is a critical need for employers to encourage preservation, particularly upfront as there is often no opportunity or benefit to offer advice when an employment is terminated. It is also often easier to administer fund withdrawals than is preservation, which means many companies may not promote this step. It is therefore ideal to have a financial adviser engage with staff during the process of leaving, both from a good governance and moral perspective.