By Kanyisa Mkhize, 21 June 2021
For 40 years, the Sanlam Benchmark findings have helped the retirement industry navigate the complexities of the sector and guide members through the challenges they experience in planning for
Amidst the economic devastation and uncertainties presented by the COVID-19 pandemic, the 2021 Sanlam Benchmark report will shed light on how the industry fared during this period that was characterised by retrenchments, company liquidations and salary cuts – all of which have a significant impact on members’ long-term savings.
The Benchmark Survey has been at the forefront of identifying and analysing trends for over four decades. Kanyisa Mkhize, who was appointed Chief Executive Officer (CEO) of Sanlam Corporate in 2020, says this year’s findings are some of the most important ever. “We are seeing the devastating impact the pandemic has had on our industry and on employees and pensioners. We will need to work together with our peers and stakeholders to find urgent solutions to minimise these negative outcomes.
“With unemployment at an all-time high – and since funds and the broader retirement industry are dependent on the economy creating and maintaining jobs – we are in a very pressured position indeed. We’ve also seen death and funeral claims at levels that we could never have imagined, adding great pressure to funds.”
She says, with the storm still raging, uncertainty remains around COVID-19 and the impact on risk pricing. “There are several views on future pricing, but our commitment is that we will ensure that our pricing is both fair and sustainable, so that we can keep to our promise of providing protection to families when they need it.
“In a crisis, it is very easy to focus on surviving the short term (sometimes making decisions that are – in the long run – very costly). As an industry, we need to keep our clients focused on the long term – and help our members and employers stay the course.”
Some additional themes that emerged from the research include:
Mkhize says the Sanlam Benchmark Survey has driven thought leadership and collaboration in the industry for many decades. “It has provided guidance for regulators, trustees, employers, product providers and advisers. Many of the big and small innovations (including legislative changes) have been as a result of research insights.
“Over the years, the research has expanded to bring the voice of the pensioner, member, intermediary, employer and trustee into boardrooms and product factories, so it gives a view of the state of retirement from all perspectives.
“Ultimately, we believe that this is how we will enable people to live with confidence. We’re investing in member engagement to make sure that our members have a good grasp of their financial circumstances and the benefits they have available. This will empower them to make the right decisions that will help protect their families and improve their retirement outcomes,” says Mkhize.
Register for the 2021 Sanlam Benchmark Symposium or email
Shannonsimon@atmosphere.co.za for media briefing details.
The 1980s were characterised as the “struggle” years while the 1990s resembled political freedom and reconciliation. Then came the 2000s – the consolidation years. In the 2010s, we saw the increased role that technology plays in how financial institutions operate, and now in the 2020s, it is only with knowledge (built on information retrieved from reports such as the Sanlam Benchmark surveys) that we can navigate our way through this uncertain time.
The 1980s was a time of conflict, lack of freedom and discriminatory laws, which was also evident in the retirement fund industry. In our first survey in 1981, only 75% of funds were open to all races. This eligibility was limited in other ways too, such as different benefit conditions for men and women.
Retirement benefits were provided on a defined benefit basis, where retirement sums were defined according to your final salary and years of service to the company. A very paternalistic structure, this approach gave members little choice, but carried limited risk. Interestingly, no legislation forced employers to provide retirement benefits, but most decided it was necessary for the benefit of their employees and to attract talent.
Near the end of the decade, the influence of trade unions saw a shift from pension to provident funds, driven by restrictive withdrawal conditions in defined benefit pension funds.
The 1990s brought political freedom, empowering all South Africans with the opportunity to vote, and a new constitution to guarantee their rights. Similarly, retirement fund members were granted the same rights through the shift to defined contribution fund structures, where the retirement benefit depends on the accumulated contributions in the retirement fund. Retirement fund members could now make their own choices pertaining to their fund structure, as well as the right to vote for half of the fund trustees.
However, while some members thrived on this freedom, many found the range of options bewildering and, instead of looking for help, disregarded the idea of
saving for retirement. Furthermore, many South Africans still maintained a defined benefit mindset, assuming that as long as they belong to a retirement fund, it is someone else’s problem and they will be fine.
This was not helped by the fact that most trustees now viewed their responsibility as over when a member retires or withdraws from the fund. This is best illustrated by the fact that 84% of trustees/employers polled in the 2011 survey expressed concern about how members use their retirement benefits, yet only 22% wanted any further involvement with retired members.
The 2000s saw increased legislation and enhanced fund governance to protect members, as well as a focus on driving down administration costs. To achieve economies of scale in our fragmented industry, smaller retirement funds increasingly moved into umbrella fund arrangements, standardising the benefits and allowing more efficient administration of these funds.
With half of members admitting they were not on track to meet their
financial goals, this has been largely attributed to poor member decisions such as taking retirement funds in cash when changing jobs rather than
preserving them. 71% of funds estimate that members who withdraw, take their full fund value in cash. The industry responded by focusing on communication and education, with 56% of funds polled this year having a formal advice strategy and 76% providing pre-retirement counselling.
However, this doesn’t seem to have made a significant difference. The 2011 survey showed that 76% of members who did not preserve their retirement savings when changing jobs understood the tax consequences of taking retirement funds in cash and a further 85% understood that they may not reach their retirement goals as a result. Hardly surprising then that 71% of these members do not believe they are on track for retirement.
It is becoming increasingly evident that this breakdown between knowledge and action is no longer just a case of poor education, but a result of behavioural issues. There is a global culture that tends to encourage consumption and immediate gratification rather than long-term saving. There are also certain behavioural biases such as the fact that the South African youth often discount the future, especially as many are not expected to survive until retirement given our country’s low life expectancy rate.
Trustee meetings are increasingly dominated by ensuring adherence to legislation and governance, instead of focusing on producing a decent income for members in retirement. Perhaps it is time to start fund design with the end in mind by focusing on adequate
retirement income, objectively measured by a replacement ratio (members’ net income after retirement relative to net income before retirement).
Particularly since 2016, we have seen the increased role that technology plays in how financial institutions operate, and how we engage with members.
And now the latest report looks back at one of the most profound events in recent human history, coming at a cost to members and financial institutions. It is only with wisdom – built on information gleaned from reports such as the Sanlam Benchmark surveys – that the industry can navigate its way through these unchartered waters, and again restore members’ confidence in their financial futures.