Creating a sustainable savings culture requires more than just retirement savings

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30 August 2016 | Quaniet Richards

By identifying with everyday financial pressures, employers are more likely to encourage employees to save for retirement.

In order to encourage South Africans to save more, employers need to focus on more than just retirement savings when it comes to employee benefits for South African employees.

This is according to Quaniet Richards, the new Head of Institutional at Nedgroup Investments. Richards says employee benefits packages that include introducing greater choice in terms of how employees pensions savings are structured and more flexibility to allocate funds to medium-term savings goals are more likely to win the approval of South African employees.

“The bottom line is that most of the employed population in our country are still struggling to meet their daily living expenses. Asking them to focus now only on saving for their retirement is unrealistic and is creating disconnect between financial services and would-be clients. It’s important that the industry shows an understanding of the financial struggles that many people are dealing with now, before they will be open to investing for the long-term,” he says.

Richards says many South Africans do not see saving for retirement as a priority because they can only focus on meeting their immediate financial obligations.

He believes that, to create a sustainable savings culture, financial services companies need to create opportunities for South African employers to allow employees to address more urgent financial goals before, or in conjunction with, retirement goals.

“By allowing employees to allocate some portion of their retirement savings towards other, more immediate savings goals, employees will be able to breathe easier every day. This can have a very positive impact on the workplace by creating goodwill with the employer which leads to easier financial negotiations when necessary and a higher likelihood that long-term savings will become a priority going forward,” he says.

Richards says retirement fund trustees can play a vital role in fostering a more holistic savings culture in South Africa.

“The financial industry is in the process of going through a huge change and many providers are starting to think out of the box in terms of how to identify better with the market. Trustees, by using their connection between employer and employee, can assess the employee benefit offerings available to them and consider savings structures that help foster overall financial well-being for employees. This could include considering ways to reduce the financial stress of employees on a daily basis,” he says.

Richards also recommends negotiating with service providers to find an optimal mix of retirement savings plans, funeral policies, and other shorter-term financial benefits such as tax-free unit trust investments and group banking benefits. “This sends a message to employees that their employer understands the pressures they are exposed to every day, and could go a long way to creating buy-in for other, less tangible investments such as retirement,” he says.

“Encouraging a savings culture in South Africa is paramount and government has made great strides towards enabling this. However, it’s unrealistic to force people to only consider the long-term goal of retirement without acknowledging that life today also comes with some very pressing financial stress. Employers who can offer benefits that help employees address both of these financial concerns, are laying the foundations for a sustainable savings culture in South Africa,” he says.