JOHANNESBURG - Jeff Bezos has plenty of reasons to smile. Amazon, the company he started in 1994, today has a market capitalisation of $559 billion (R7.6 trillion). If Amazon were a country, it would be the 23rd largest country in the world, ranking just below Switzerland.
Not that it is even a glint in the corner of his eye, but Bezos’s retirement plan couldn’t be in better shape. His 16% shareholding in Amazon is valued at $91bn. If Bezos were a sovereign state, he would rank as the 66th largest country – somewhere between Ukraine and the Slovak Republic and larger than Sri Lanka.
But could Bezos, having secured his own retirement, help to secure the retirement of millions of his customers? And could Amazon catapult its market capitalisation to the next level by bringing about an Uber-style revolution in the world of pensions?
Retirees find that their retirement income depends mostly on how disciplined they were at saving during their working lives.
Millions of savers are facing an uncertain retirement because of a once-in-a-generation shift in investment risk from companies to employees. The closure of defined-benefit (DB) retirement funds and the transition to defined-contribution (DC) arrangements means that DC retirees can no longer assume that their income in retirement will approximate the income they earned just before they retired, or that it will shielded from the effects of inflation. The shift to DC funds means that the adage “what you put in is what you get out” has never been more apt when it comes to pensions.
In the United States, the figures are telling: 33% of Americans have no retirement savings, 23% have savings of less than $10 000, while 26% have between $10 000 and $200 000. Only 18% have $200 000 or more.
When it comes to Millennials, 42% have not started saving for retirement.
We may blame this on the values of Millennials, or the culture of instant gratification. Either way, many people are not saving enough to ensure a comfortable retirement.
And to compound matters, when people do save for retirement, they tend to start later in life.
Most of us wake up to the need for a retirement plan only when we start a family or hit middle age. The power of compound interest, while still effective at this age, would have been even more effective if our saving habit had kicked in earlier. To make matters worse, people are marrying later (if at all) and having children, often a catalyst for future planning, later in life.
How do we get people to save more, and from an earlier age, to provide for their retirement? The answer may lie in the simple, yet powerful, observation, that saving and spending are two sides of the same coin.
Human nature seems to pre-dispose us to spending on items that meet our immediate needs, often at the expense of saving for a longer-term goal. What if we could tap into this natural propensity to spend and turn it into a savings plan? What if, for each rand spent, a little bit of that rand could be automatically squirrelled away?
Amazon, one of the most recognisable sales platforms, could be turned into the world’s most powerful savings platform in two simple steps:
• By allowing users to establish an Amazon profile that automatically, at checkout, added, say, 10% to cost of the basket; and
• By automatically directing that 10% into a retirement-savings account, either a default account administered by Amazon or a plan chosen by the user.
Simple, yet effective.
We could develop this concept further, and rethink the savings ecosystem. The other possibilities are:
• At the customer’s election, Amazon could link up with the local tax-collection authority (for example, the US’s Internal Revenue Service or the South African Revenue Service) so that, at the time of tax filing, the tax credit emanating from the pension contribution was identified and paid directly back into the retirement-savings account, rather than refunded into a bank account.
• If other retailers offered their customers the option to set up their online buying profiles in a similar way, Amazon, having built the plumbing to facilitate and track savings, could grant these online retailers access to the default Amazon savings platform.
Revenue at Amazon last year was about $135bn, of which $90bn was attributable to retail sales. With a 20% take-up rate of this “auto-pilot” retirement-savings option, and a 10% contribution rate, Amazon could be helping their customers to squirrel away $1.8bn every year.
This amount could be multiples higher, if customers saw Amazon as their primary retirement-savings vehicle.
It isn’t hard to imagine Amazon building a retirement-savings business that, in a short time, accumulated assets under management in excess of $100bn. It would also make Amazon a Top 200 asset management firm, ranked by assets under management – something that Amazon’s shareholders may come to appreciate.
If you think this isn’t part of Amazon’s core business as an online retailer, it may be worthwhile pointing out that Amazon’s core profit-making business is not its online retail business. Although most of Amazon’s revenue comes from online sales, Amazon’s profits come mainly from a more obscure part of its business: Amazon Web Services, which provides cloud computing services.
So if Amazon wanted to add a revenue stream by providing financial services, it could do worse than consider exploring retirement saving.
The more general point is to question our current paradigm of separating spending and saving. The exception may be rewards programmes, such as earning air miles for spending, but it could be argued that even this does not go nearly far enough towards integrating the two ecosystems.
More specifically, by looking at innovative ways in which we can redesign how we link our savings ecosystem directly to our spending ecosystem, we may stand a better of chance of introducing a disciplined and consistent approach to saving for retirement – one that begins with the very first pay cheque.
Shalin Bhagwan is the head of fixed income at Ashburton Investments.
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