This statistic from the 2018 Sanlam Benchmark Survey is indicative of why Millennials commonly feel disengaged from the retirement planning process and overlooked by the retirement industry.
A recent report by the National Institute on Retirement Security, based in the US, found that only one third of US Millennials have retirement savings. This statistic is likely to be worse in South Africa.
How can the retirement industry address this?
Millennial members are likely to respond better when they feel that they are being guided by financial advisers and boards of trustees who understand their needs. At a minimum, pension funds should look at whether their boards of trustees are a fair representation of their membership base.
Preservation is paramount
Millennials are likely to change jobs more frequently than previous generations, and are more likely to cash out their pension fund savings when doing so (Sanlam Benchmark Survey 2018, Deloitte Global Millennial Survey 2019). This is perhaps the most critical issue the retirement industry needs to address. Although Millennials may be highly educated, they often have low levels of financial literacy with regard to savings, investments, managing debt, and budgeting.
Retirement benefits counselling Recent amendments to the Pension Funds Act recognise this important decision node. The amendments make it mandatory for retirement funds to ensure that their members receive retirement benefits counselling before making decisions on their post-retirement options.
Address the trust gap
A 2019 Millennials survey by Deloitte found that 83 percent of respondents in South Africa believe business is driven by profit, not by considerations of what is good for society. Some 29 percent of respondents in the Deloitte survey indicated that climate change, environmental protection, and mitigating against natural disasters were important considerations in deciding how to invest. In South Africa, 53percent of respondents indicated that companies needed to address inequality.
Re-think retirement solutions
Niche and focused products, which are aligned with their preference for ESG factors, are more palatable to millennials. They are also more accepting of new technology, including the use of artificial intelligence, machine learning and robo advisers alongside human knowledge to structure and implement their investment portfolios. Millennials, much as previous generations, do not wish to be faced with multiple decision nodes and complex solutions. The move toward default options and toward in-fund annuities is therefore a step in the right direction.
Millennials are expected to have longer retirement years, as medical advances and lifestyle changes continue to prolong our lives. If we can't convince this generation to start saving, the state faces a significant burden in supporting an ever-growing generation of retirees with longer life spans.
Fran Troskie is an investment research analyst at RisCura.