Working together will achieve financial well-being for all
The financial services industry, private-sector employers and the government need to work together to help South Africa attain a state of well-being. This is the theme of the Alexander Forbes Benefits Barometer 2018, which was released last week.
The Benefits Barometer, which is in its sixth year, has traditionally been concerned with employee benefits – benefits that most employers provide for their staff above remuneration, such as a retirement fund, group risk cover and medical scheme cover. But this year’s publication goes well beyond this. It provides a practical vision of a way forward for South Africa – to close the inequality gap, get the economy working again, and reach a state of well-being.
Anne Cabot-Alletzhauser, who heads the Alexander Forbes Research Institute and is responsible for the Benefits Barometer, says her staff grappled with what constitutes financial well-being and how could it be better secured for South Africans. She says a paper, Social stratification, life chances and vulnerability to poverty in South Africa, by Simone Schotte, Rocco Zizzamia and Murray Leibbrandt of the University of Cape Town, caught their attention.
The paper acknowledges a link between the middle class and financial stability: “Being middle class entails being free from poverty, which means being able to afford the basic things in life – not only today, but also tomorrow. It is actually this very confidence that many people will name first when being asked what makes them identify as middle class. It is about the freedom they have to decide what to spend their money on, and the stability needed to engage in mid- and long-term planning. It is also about the opportunities they are given to move ahead in life ... and about the financial cushion that allows them to take risks and to cope with adverse shocks.”
The crux of the problem, the authors of the paper say, is that, for the average South African, this type of financial stability is still highly fluid.
Cabot-Alletzhauser says: “Evidence from psychological and health literature has shown that … it is not only current income or consumption that matter for actual welfare, ‘but also the risks a household faces, as well as its (in)ability to prevent, mitigate and cope with these’.”
The Benefits Barometer, which constitutes a weighty 460 pages, and has a number of contributors, covers barriers to well-being, a multi-stakeholder approach to overcoming these barriers, well-being in the workplace, and the role of the financial services industry.
Exploring this concept in the Benefits Barometer, Ayabonga Cawe, the managing director of Xesibe Holdings, argues that to measure a country’s development, you need to look beyond the traditional quantitative measures beloved by economists, such as gross domestic product.
He quotes Helliwell, Huang, Wang and Shiplett in the World Happiness Report 2018: “If we understand well-being to narrowly involve expanding the production of goods and services and their consumption, we have a different set of priorities and trade-offs from those that derive from a definition of well-being as expanding the freedom people have to make life choices relevant to them.”
Well-being, Cawe argues, is about having freedom of choice, but it’s also “about the well-being of the planet and the importance of accounting for the negative externalities of production and the impact they have on our finite resources”.
There is a means to measure the social aspect of this broader definition of development. The Social Progress Index, Cawe says, “is an aggregate index of basic human needs (nutrition, water and sanitation, safety and shelter), foundations of well-being (access to information and communication technology, basic knowledge, health and wellness, and environmental quality) and opportunity (personal rights, freedom of choice, inclusion and access to advanced education)”.
Barriers to well-being
Cawe says many barriers to well-being and social mobility have their genesis in our country’s polarised and segregated past. Factors such as unequal skills, unequal distribution across territories, and labour mobility interact with “global dynamics”, such as low commodity prices, decentralised global value chains and the disruptive influence of technology.
“The result is a growing reliance on low-wage employment and social welfare, and ... choices increasingly conditioned by [having an unpredictable income], social exclusion and limited access to the labour market.”
An important feature of the South African economy, says Cawe, “is the concentration of income in the hands of a few, and the implications this has had on barriers to entry in key markets ... as well as the development of small business”.
The Benefits Barometer identifies several areas in which the private sector and the government can collaborate in improving the lives of South Africans and providing employment opportunities:
- Development in under-developed areas through targeted investment. Professors Marianne Mathee and Waldo Krugell of North-West University propose the development of “secondary cities, which could become investment drawcards and development hubs”.
- Small-business development. Amanda Khoza, the group empowerment executive at Alexander Forbes, says it’s unlikely that the government will meet its National Development Plan goal of 11 million jobs coming from small, medium and micro enterprises (SMMEs) by 2030. Solutions may include distinguishing between different types of small business: some are merely looking to be sustainable, she says, while others need support through the dip of a J-curve before achieving success. SMMEs require access to funding, but also to skills and to markets, Khoza says.
- Long-term care – the ageing problem (see below).
- Impact investing. Cabot-Alletzhauser and Mark Lindhiem, the head of strategy at Alexander Forbes Investments, say that the asset management industry is “singularly focused on a shallow pool of listed stocks. The alternative lies in a new generation of asset managers driven by investment in businesses with ... the potential to provide a significantly greater multiplier effect for society.”
Well-being in the workplace
Cabot-Alletzhauser says: “At some level, employers have come to accept that it is in their interest to promote physical, financial and emotional well-being among their employees. The logic is fairly straightforward: keep employees functional and engaged, and this should reduce the kind of payroll wastage caused by employee absenteeism, presenteeism, stress and disengagement.”
The Benefits Barometer identifies the following areas of focus, among others:
- Financial well-being. Shelley van der Westhuizen, the head of corporate financial well-being and engagement at Alexander Forbes, says the traditional emphasis by employers and financial services providers on a long-term financial goal, such as retirement, is unrealistic in the South African context – employees’ short-term needs must also be considered (see infographic above). Employees also need access to financial advice at key points in their lives.
- Mental health in the workplace. Depression and stress, often caused by financial problems, have a major impact on productivity.
- Cultural diversity and gender equality.
- Skills development and education through programmes that encourage lifelong learning.
Actuary Rob Rusconi of Tres Consulting argues that most financial services companies are failing to contribute meaningfully to South Africa’s well-being (see “Financial sector should be doing more for society”). He says financial product providers can enhance social mobility and individual well-being by providing appropriate products that meet people’s needs and provide value for money. Savings, which enable, and insurance, which protects, should be the areas of focus. Greater emphasis on financial literacy and education is imperative.
EMERGENCY SAVINGS AS AN EMPLOYEE BENEFIT
In the Benefits Barometer, Vickie Lange, a best-practice specialist at Alexander Forbes, and Michael Prinsloo, the executive head of institutional research and product development, posed the question: “If a financial crisis is one of the contributors to poor preservation, why aren’t we doing more to make saving for an emergency a focus and even an automatic process for employees?”
Lange and Prinsloo say the key issue addressed through an emergency savings regime is that if a financial crisis occurs, the employee can deal with it without destabilising any long-term savings strategies.
“But how can we create a solution that both allows someone to save for retirement while also accumulating an emergency savings cushion?”
They say you can achieve this by splitting off a portion of a member’s pension fund contribution into an emergency savings vehicle. Then over subsequent years, the member’s pension fund contribution is increased each time they get a salary increase. What effectively happens, they say, is that the member achieves long- and short-term targets without having to incur a dramatic shift in his or her consumption.
They give an example of 4% of salary going into an emergency fund until the age of 49, with the contribution towards retirement savings increasing as one gets older, from 10% to 20% (see table). In this scenario, if you earn R7 000 a month, after five years you will have saved R20 000 in the emergency fund, or almost three times your monthly salary. Unused emergency savings would revert to long-term savings.
Lange and Prinsloo suggest that the emergency savings option should be the default one, with members needing to actively opt out if the option was not to their liking.
If they leave the company, Lange and Prinsloo say, employees will have achieved at least two things:
1. They will have accumulated some short-term and long-term savings.
2. They will have learnt about savings and developed a savings habit, and could continue saving in their personal capacity, because the savings vehicle is in their name, not the employer’s name.
AGEING AND LONG-TERM CARE
Ageing has been put on the back burner, because the present focus in the country is on youth unemployment, says Anne Cabot-Alletzhauser, the head of research at Alexander Forbes.
“Although South Africa doesn’t have an immediate ageing problem, particularly compared with developed economies, projections suggest that the percentage of our population over 65 will triple to 15.52% in 2060,” she says (see graph).
“The real crisis South Africa faces,” Cabot-Alletzhauser says, “is not about ageing as such, but whether we have an adequate and cost-effective way to provide long-term care for those who no longer have access to family caregivers, whose care may be beyond the capabilities of family members, or whose families can no longer afford to fund that care.”
At a workshop in March, hosted by Professor Jaco Hoffman of North-West University in collaboration with Alexander Forbes and the Gauteng Department of Social Development, a community-based solution was proposed:
- Create a model of in-place community caregiving that recognises that the home or community is the best place for caring for older people.
- Train young people as caregivers.
- Provide community caregivers with monitoring technology with remote links to doctors and hospitals.
- Create affordable frail-care facilities through hybrid private-NGO models that allow the sale of life-rights homes to wealthy retirees, to subsidise lower-cost solutions.
- Stimulate entrepreneurship in caregiving and related services.
- Involve older community members who are still healthy, who could take care of the infirm in return for being cared for when they themselves become unwell.
- Fund these projects through impact investment vehicles that could be accessed by pension funds, with possible “usage rights” being conferred on pension fund members.
- Promote a new breed of asset manager that would specialise in and develop this form of impact investing.
The Benefits Barometer 2018 is available in pdf format on the Alexander Forbes website.