The chief savings vehicles for employees in the workplace are employee benefits models. The globally accepted models at this time are those that place emphasis on the single financial need of compulsory retirement savings funded by contributions from both employer and employee on an agreed proportionate percentage basis. This is regarded as the top priority, regardless of the individual’s personal financial circumstances.

Contrary to this, recent exploratory research in South Africa challenges this one-dimensional historic employee benefits model — especially for lower end earners, who constitute the bulk of the population.

Bloomberg/file photo

A leading financial services group in South Africa, Alexander Forbes, conducted the research, Re-Think Africa Retirement Survey. Findings show 80% of employees deem long-term retirement savings as high value to them. However, they remain conflicted as to exactly how important receiving a monthly retirement income is. To achieve desirable financial outcomes typically associated with retirement savings, such as improved quality of life and a secure future for their children, respondents were open to other methods of spending their work-acquired wealth accumulation, such as purchasing property or paying for education.

Researchers argue that compulsory retirement savings through the workplace should not be ignored. However, the study suggests a model could be created that provides greater flexibility and more choice in terms of allowing individuals to address their overall financial needs. By allowing employees to prioritize how best to apply their compulsory savings during their working life, policy makers might better address the more important issues of both social and financial protection as well as social and financial mobility.

First-world savings limitations
The research found compulsory long-term savings could be better suited to first-world countries where one finds adequate employment and wealth generation opportunities. The report states, “Financial imperatives suggest that when retirement fund members have greater priorities than their retirement income, they will in many cases look to cash in their retirement for their more urgent needs. The belief is that by understanding these needs better, models can be built to help mitigate such risks and accommodate the actual areas of need.”

Also see:20 companies with the best benefits.”

Researchers proposed a new employee benefit model as the first real step in truly recognizing that financial well-being is about the journey and not the end game: The creation of a new form of employee benefit platform or program that helps individuals control when to shift from one savings priority area to the next. Such priority areas where employees expressed interest in long-term savings commitment included covering family funeral costs, getting a lump-sum at retirement, access to emergency funds, buying or building a house, paying for education and paying for medical expenses, as well as the traditional method of accumulating a monthly income to be used in retirement.

The model provides a way for South African workers to map their own way to financial stability for their families. If this succeeds, it could reduce future dependencies on government-provided grants and social protection. A non-differentiated one-size-fits all model such as the traditional workplace retirement savings vehicle has limitations. With an open mind, this approach could be applicable to other regions and countries, such as the United States, as well.

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Pravin Thakur

Pravin Thakur

Thakur, CFP, is a 16-year life and qualifying member of the Million Dollar Round Table and the chairperson of the MDRT South African Committee.