By Cindy Frantzeskos is Director, and Lesego Mpete is a consultant at BDO Employee Benefits
South Africans are feeling the financial stress of stagnant salaries and rising cost of living. With our country’s current junk status, we’re also bracing for rates hikes on top of this, all while some of us are lucky enough to be earning a regular salary. The real tragedy of the financial pressure working people face is that most of us will not have enough to retire on.
Against a background of a weak social security system, professionals have only our working years and our monthly salary to utilise to build a retirement nest egg. The same applies to areas of risk – disability cover, dread disease and life cover. The working person’s salary resources are their only means of ensuring their security in a dangerous world.
However, employees are not alone. Their employers can be a strong partner in securing group deals on risk and insurance products, which can be provided as group benefits to all their employees.
Complicating this is the short-term perspective taken by most South Africans, exacerbated by our tight financial position. Given the choice, we are likely to minimise our salary deductions (such as payments towards disability, dread disease or life insurance) all to free up income for current expenses.
Our advice for companies offering group benefits is that where you do provide choice, one should also offer financial advice. Employees should have access to a financial planning professional who can offer advice and help plan for retirement.
The fact is, we need to put away a minimum of 15% of our monthly salaries for at least 35 years as a basic retirement saving to be able to survive once our working years are over.
From a human nature point of view, enforced deductions as part of an employment package are often the only way employees can be encouraged to save enough to mitigate risk and provide for retirement.
We all adapt our lifestyles to our fit the cash component of our salaries. A deduction that comes off our salary before it even hits our bank account tends not to be felt. The converse is that whatever cash we do earn is spent down to the last rand. Saying that we will purchase life insurance and retirement products from our take-home pay is wishful thinking. Reality is that any life cover we do purchase will be more expensive than the cost through an employer group scheme.
As far as companies are concerned, purchasing prudent group cover and pension and provident funds for their employees shows concern for the wellbeing of their staff and also positions the company as an employer of choice.
An employer that offers benefits for their employees demonstrates that they are not only there to extract profits from the labour of their employees, but also to look after them as individuals. These benefits might comprise a provident or a pension fund, disability, dread-disease cover, an income replacement benefit or an educator fund that school one’s children if you pass away.
That is something job seekers should consider when evaluating a job offer. In fact, the long-term employment benefits can have a deeper impact on one’s life that your cash salary.
We believe the term “cost to company” should be relooked to highlight the real employee benefits contained in a remuneration package. It is potentially a powerful selling point that can give a company the edge over other possible employers.
In terms of retirement benefits, we are firm believers that large companies should offer pension or provident funds instead of retirement annuities (RA). Pension or provident funds give employees access to their money whenever they leave a place of employment, whereas an RA is only accessible after the age of 55.
At 55 one can access a third of one’s RA savings and then use the remainder to purchase a pension.
If one loses your job and you have a provident fund, those funds can be used to set up a business or other money-making enterprise while you’re younger and still have the energy to start work afresh.
Unfortunately, the way insurance broker remuneration is structured, it is sometimes in the insurance broker’s interest to recommend an RA over a pension or provident fund. A provident fund can be cashed out at any time, whereas with an RA, the employee is locked in until at least 55, while the insurance broker earns a monthly commission.
With a pension and provident fund, brokers like us will only earn an admin fee, and a consulting fee on contributions.
I think we downplay the impact that financial stress has on people. Companies are aware of it, but sometimes they’re reluctant to get involved. One way in which an employer can do that is by offering a comprehensive employee benefits programme.
Employee benefits are tightly regulated under the Financial Advisory and Intermediary Services Act and the Financial Planning Institute of Southern Africa (FPI) can help identify reputable finance professionals to provide these services.
An employee who knows their employer is looking after them will be able to focus on their job, free of financial stress, which makes for higher morale, greater efficiency and a more productive workforce.
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