While difficult economic conditions have forced South African consumers to live more frugally, there appears to be a renewed appreciation for employee benefits, which are becoming more holistic in compass.
These themes, among others, emerged in the findings of Sanlam’s 2022 Benchmark Survey, an annual survey of the state of the employee benefits industry. The research found that 55% of retirement fund members had experienced reduced household income as a result of the Covid-19 pandemic, 58% had started living more frugally and cutting out luxury items, and 18.5% had accessed a long-term investment. On the plus side, 30% had reduced their debt levels coming out of the pandemic.
Against this tougher new reality faced by South Africans, the survey sought to establish the changing requirements of South Africans in formal employment who are members of retirement funds and assess how the industry has adapted to meet these needs.
The 2022 survey polled 83 principal officers of stand-alone funds (funds linked to a single employer or employee organisation), 100 participating employers in umbrella funds (large commercial funds housing multiple employers), 15 asset consultants, 15 healthcare consultants, six top umbrella fund sponsors and 500 consumers.
Kanyisa Mkhize, chief executive officer of Sanlam Corporate, said the objective of the 2022 survey was to look ahead and establish how the retirement industry could adapt to a rapidly changing world. “The retirement industry is in a uniquely strong position to impact the lives of South Africans, as it is the largest source of invested assets in the country. We hope the findings will start the right conversations in South Africa to ensure our industry can play a massive role in economic recovery and, ultimately, help kick-start growth.”
Mkhize said that, on balance, the findings definitely suggested a change in behaviour among retirement fund members. “People seem to be placing more value on the role their employee benefits play in their lives, and we think the industry is responding, by introducing more holistic offerings. We hope the focus on benefit counselling and financial education will remain a key focus to help South Africans make the right decisions for their current and future selves.”
Among the key findings in the survey were:
- The pressurised business environment has led to a slight decrease in contributions from employers in both stand-alone and umbrella funds. Member contributions have risen somewhat to compensate for the shortfall. On average, stand-alone fund employees are contributing 17.53% of their salary (including the employer contribution) to employee benefits while members of umbrella funds are contributing 14.65%.
- The take-up of flexible risk benefits has increased significantly with 38% of standalone funds (2021: 29%) and 29% of umbrella funds (2021: 16%) offering flexibility in their benefits packages to employees.
- Investment in infrastructure by retirement funds has increased considerably. Umbrella funds have increased their allocation from 4.7% to 15.5% while stand-alone funds are up to 10.6% from 6.6%.
- Retirement funds are increasingly taking environmental, social and governance (ESG) factors into account when investing. Stand-alone funds appear more active than umbrella funds in this regard: 40.5% of stand-alone funds are investing between 1% and 10% of assets in ESG portfolios and 15.5% are investing more than 10%, whereas 35% of umbrella funds are investing between 1% and 10%, and only 4% and investing more than 10%.
Two-pot system for retirement savings
Regarding Treasury’s proposal that employees’ retirement savings be split into a larger, inaccessible pot and a smaller one accessible in emergencies, industry insiders said they did not believe that implementing the system by March 2023 was realistic.
Just over half of members (consumers) who took the poll were aware of the two-pot system but 56% said they did not agree with it, with 29% saying that if the law was changed they would “definitely not” access their retirement funds early and 20% saying they would “probably not”. In addition, 62% of respondents said, if they could, they would increase their retirement savings. “A lot of the responses in the consumer study suggest a more conservative and financially conscious South African has emerged from the pandemic,” said Mkhize.
Healthcare and holistic solutions
The survey put renewed focus on healthcare and, for the first time, included healthcare consultants in the study.
- 51% of members wanted their employer to offer free doctor or nurse consultations;
- 49% of employer funds and 53% of umbrella funds believe an integrated health and wellness programme delivers higher productivity and staff happiness;
- 13 of the 15 healthcare brokers reported that employers’ priorities had changed in the past two years in terms of what they were looking for regarding healthcare solutions for their employees. Changes included the increased importance of gap cover, a greater focus on mental health, and more emphasis on hospital cover over day-to-day benefits.
Communication and financial education
The consumer study showed some progress in terms of effective communication and financial education, showing that employees leaving their jobs who had received retirement benefits counselling were less likely to cash in their retirement savings than those who hadn’t. However, of the members who had withdrawn their retirement funds when changing jobs, 63% had received no counselling from their human resources team and had been given a withdrawal form to sign without the implications being explained.