Loyalty programme membership is incentivising people to save more towards their retirement, making loyalty schemes a ‘new age’ problem-solver to an age-old problem. This important finding was shared at the 2019 International Actuarial Association (IAA) Colloquium by Nathea Nicolay, Head of Product at Sanlam Reality.
She says, “Our research into retirement savings by Sanlam Reality loyalty members shows South African loyalty programme members save, on average, 33% more towards their retirement than clients who are not linked to a loyalty program. This is significant, given that just 18,9% of South African retirement fund members will be able to maintain their standard of living in retirement – the lowest figure in five years.”
Nicolay says Sanlam Reality’s findings show that loyalty members, typically, save 16% of their salaries towards retirement, versus 12% saved by non-loyalty members. She argues that loyalty programmes use modern technology and behavioural science to achieve improved retirement savings in a world where traditional methods (government regulations, employer sponsored pension funds and trustees’ oversight) are not getting enough traction.
These kinds of new solutions are imperative. While the issue of saving sufficiently for retirement is not new, it is, arguably, more challenging than ever before. “Retirement is not a problem. Hardship in old age is a problem. Social dependency on state resources is a problem – SA has 18.6-million social grants beneficiaries, with state pensioners receiving just R1780 pm. Then there’s the risk of outliving our savings as we live longer. And the fact that retirement savings are all-too-often used as emergency funds due to our country’s high accidental risk rate and the rising unemployment rate currently at 27.1%.”
Nicolay elaborates, “Not only do we find that Sanlam Reality loyalty members save more of their salaries towards retirement, we also see that they save for longer periods and they actively grow their contributions towards retirement. Across three years, all our measured premium and age brackets showed the same result: loyalty members were less likely to stop or cash-out their retirement savings.”
From a behavioural science perspective, people’s propensity to value short-term rewards now, rather than bigger rewards later is a major problem and there have been countless attempts to highlight this shortcoming. The viral avo-toast example. The perils of the daily take-away coffee. But what if our short-term bias could be used to ‘trick us’ into better behaviour?
Using Sanlam Reality as an example, Nicolay says the programme has been able to incentivise members to not only save more for retirement, but also to save longer. This is, inter alia, done by helping members to keep finances top of mind through immediate discounts and rewards. This communication typically forms part of the ‘aha’ moments, which are linked to continuous and immediate exposure to information and benefits.
Nicolay says the ‘science’ works through a four-pronged approach: a reward, competition, daily treat and special offer. Loyalty programme tier systems incentivise people to compete with themselves. Competition, plus the fear of missing out on a good deal drives the need to move from bronze to gold. Then, the constant array of discounts and savings offers keep money matters top of mind.
“As new age problem solvers, we need to get even better at turning short-term bias into a way to protect people’s futures through gamification and awareness,” says Nicolay, “At Sanlam Reality, we do this by incentivising people to display ‘good financial behaviours’ like engaging a financial adviser or using a retirement calculator to ensure you are on track for a comfortable retirement and also earn the tier points to move up a tier. Once a gold tier status member, an individual will receive a 100% rebate on investment management fees on a monthly basis which will boost the tax free roll up of retirement contributions and returns even further.”
The key takeout for South Africans? Loyalty programmes can help you save better for retirement. But whether you join a programme or not, Nicolay says it’s imperative to find short-term ways to keep savings top of mind. “You can save up to 27.5% of your annual income tax-free! There are a myriad of strategies you can follow, like buying and growing your own recurring premium retirement annuity or increasing your pension contribution in your corporate pension scheme, for example. Take small steps in the right direction and set up your own ‘tier’ system, where you reward yourself for the positive financial moves you make.”