Making the most of Retirement Benefit Counselling

Many of us – especially when we are younger – do not want to think about retirement, as financial planning and decisions for the distant future can seem overwhelming and complicated. It is for this reason that all retirement fund members should be made fully aware of the value-added free services offered by retirement benefit counsellors. All members should be reminded to contact a counsellor before they submit any forms or paperwork when exiting the fund due to resignation or retirement, to ensure that they make informed decisions with their best interests in mind for the long term.

Counsellors can help members in a number of ways:

Counsellors can also refer members to a reputable financial advisor should they need further assistance.

Understanding your employee benefits

Employee group benefit packages can include a suite of products and services that provide holistic financial and health support for you and your family.

It’s important to note that not all benefit packages are equal. While most people see salary as one of the most important employee benefits to consider for any job, it certainly isn’t always the case.

Evaluating your employee benefits

When considering a new position, it’s important to evaluate the benefits offered by the company together with the salary because you may find that a lower salary offer with great benefits can put you financially ahead when compared to a higher paying job.

Employers can also personalise benefit packages to meet the needs of their employees. It’s always important to understand the benefits offered by your employer as not all benefits are compulsory.

Different employee benefits

Retirement fund

Providing retirement benefits is essential to an integrated employee benefits package. Retirement funds aim to provide an income when you retire and are no longer able to earn a regular income.

Many retirement funds in South Africa target a retirement income between 60% and 75% of the salary before retirement.

Group risk benefits

The Covid-19 pandemic has brought unprecedented challenges and there has never been a more important time to ensure that you have group risk benefits. Group risk benefits include life and disability cover and are generally priced at institutional rates, meaning that you, as an employee, benefit from lower premiums than you would pay as an individual.

Medical aid

Access to high-quality healthcare is important in preventing diseases and improving quality of life. Your employee group benefits could include a suite of healthcare options, from which you could select an affordable option tailored to your and your family’s requirements.  The employer could also offer advice, which is important to help you make a decision and review your options annually.

Education benefit

Some group risk insurance policies cover the education and possibly living costs of your minor children in the event of your death before retirement age. It’s good to know if your group risk insurance includes this type of cover, as it protects your children’s future.

Life cover for your spouse

Some employers offer life cover for your spouse. This means that if something should happen to your spouse, your family will be protected.

Mental and emotional support

The COVID-19 pandemic has negatively affected the mental health of many people. It is now more important than ever for employers to offer assistance programmes which support emotional, financial and physical well-being, providing access to confidential counselling and other support.

Should you have any questions, please do not hesitate to contact your dedicated NMG consultant. Alternatively, you can reach out to us by completing the short form available on our website and we will contact you.

The information in this communication is for information purposes and is not intended to be detailed advice described in the Financial Advisory and Intermediary Services Act. The fund, administrator and trustees cannot be held liable for damage or loss suffered as a result of any action that you take based on the contents of this communication.

NMG Employee Benefits (Pty) Ltd is a licenced Financial Services Provider (FSP number 33426 and registration number 2007/025310/07).

The great resignation – retirement or relocation?

The “Great Resignation” alludes to many employees around the world quitting their jobs owing to the pandemic’s underlying repercussions. In September 2021, for example, 4.4-million workers in the US quit their occupations, up 34% over the same month in 2020. Over the same time period, LinkedIn examined the number of members globally who recently moved jobs on their LinkedIn accounts and discovered a 54% year-over-year rise.

It should be mentioned that the rate of resignation varies significantly between countries. There are many variables involved, including demography, employment conditions and even fertility rates. For example, some statistics regarding the number of employees leaving the workforce appear inflated due to a significant portion of the baby boomer generation retiring.

This article considers if retirement statistics and ageing populations, among other factors, have contributed more to the reduced workforce size than previously considered, and how this relates to South Africa.

Globally ageing population

People are living longer. Globally, countries are experiencing a rise in the proportion of older people in the population. It is estimated that by 2030, one out of every six people will be 60 or older. In South Africa, population estimates show that the proportion of people aged 60 and up increased from 7.6% in 2002 to 9.1% in 2020. This age group grew by 3% between 2019 and 2020.

South Africa’s median age was 27.6 years in 2020, up 1.28% from the previous year. In line with this increase, the working-age population rose by 146 000 in the third quarter of 2021 from the previous quarter, and by 578 000 (or 1.5%), from the third quarter of 2020.

In the fourth quarter of 2020, the most active age group in South Africa’s labour force was aged 35-44, reaching 77.1%. The 45-54 group followed this with 73.3%, and the 25-34 group with 71.4%. In comparison, according to Statista, the average age of the world’s working population was 39.1 years in 2021, correlating with South Africa’s data.

An ageing population indicates a greater retirement trend. However, even though there is a slight increase in the 55-64 age group in South Africa since the second quarter of 2020, there has also been an increase in the working population.

This means that South Africa still has a sizable and growing working-age population. In South Africa, external factors such as remote employment and a desire to relocate may have played a more significant role in people’s decision to leave their jobs.

Unemployment rate

In the third quarter of 2021, South Africa’s unemployment rate reached a new high, with job losses in nearly every sector. The rate increased to 34.9% from 34.4% in the previous three months. This is one of the world’s highest unemployment rates. The retail, community services, and social services sectors cut the most jobs, owing to tougher containment efforts to prevent the outbreak of the Covid-19 third wave.

The pandemic and the current financial climate have hurt businesses and decreased hiring capacity. Thus, job seekers have become more discouraged, and this group has increased by 545 000 during the same period. Notably, the state bears a substantial financial burden to maintain a large portion of the population that are not employed, an additional 988 000 people in the quarter alone. These economic limitations have largely impacted the working population in South Africa.

Fertility rate

According to the latest Organisation for Economic Co-operation and Development (OECD) data, a stable population necessitates a fertility rate of about 2.1 children per woman. Fertility rates have been continuously reducing since the 1970s, with the OECD average falling to 1.6. South Africa’s current birth rate is also dropping. In 2022, the birth rate is estimated to be 1.9, down by 1.7% from 2021.

As a result of the pandemic, it is predicted that countries in sub-Saharan Africa and Latin America are likely to experience a short-term increase in birth rates, although long-term fertility rates are unlikely to be affected. A large part of the increase will be due to unintended pregnancies and reduced access to reproductive healthcare.

Although South Africa’s population is declining, it is doing so at a considerably slower rate than the rest of the world. The country continues to have decent population growth and fertility rates.

South African work trends and relocations

The pandemic has deeply shaped the dynamics of office work. As more employees opt to work remotely, employers have had to adjust and establish a detailed strategy to remain appealing to their staff. Studies indicate that the remote working trend prevails in South Africa. Respondents expressed a desire to retain flexibility, with more than 45% preferring a combination of fixed and flexible hours.

The recent financial climate has hindered economic recovery with rising interest rates, fuel price hikes and other budgetary pressures. The combination of high unemployment rates and increasing financial pressures will result in little choice but to hunt for work in other markets.

Relocation trends indicate that many South Africans expressed a readiness to relocate for work, with the US, Australia, and the UK being the most popular destinations. In the long term, if South African citizens choose to formally emigrate rather than just relocate, retirement fund withdrawals will likely increase.

The bottom line

South Africa has not been directly exposed to the global “Great Resignation” or “Great Retirement” trends, however, they have been impacted by significant unemployment rates and pandemic related economic pressures. South Africans have indicated a desire to relocate and work remotely.

A decrease in population growth rates imposes a bigger strain on the working class in the long run. The working class often supports family members without any savings, as well as younger family members, therefore increasing their financial burden.

T&Cs apply. NMG Consultants and Actuaries is an Authorised financial services providers t/a NMG Benefits.

What to consider when choosing a beneficiary

By Craigh Chidrawi, Head of Retirement and Nico Burger, Head of Personal Financial Services at NMG Benefits

It seems simple. You fill in a name on your pension plan or retirement fund form, and you’re all sorted with naming a beneficiary. But it’s a more important task than that. Naming the right person, or people, to receive the proceeds of your death benefits is a decision that could have effects on your loved ones long after you’re gone.

A beneficiary is someone you name to receive all, or some, of the money in your retirement account. You can nominate one or more people and the percentage you want each beneficiary to receive. 

It’s important to get this right. Ensuring your beneficiary nomination reflects your wishes eliminates any uncertainty when administering your inheritance. This is a vital element of estate and succession planning. 

The law says your retirement fund’s board must decide how to distribute your lump-sum death benefit between your dependants and your nominees if you die while you are a member of a retirement fund. The board has a duty to share the death benefit fairly and focus on providing for your dependants. To do this, it will find out who your dependents are; look at who you have nominated to receive the death benefit, and then decide how to pay the benefit fairly. 

The board must decide who to pay, how much to pay each person and how to pay them. It will use your beneficiary nomination as a guide when it shares out the death benefit, but it does not have to follow your wishes if it finds that you have excluded some dependants, for example. That’s why it’s critical that your spouse or partner, children, and anyone financially reliant on you should all be included as beneficiaries.

Things to consider when choosing a beneficiary

Before you nominate a beneficiary, ask yourself the following questions:

Simply naming ‘my spouse and children’ as beneficiaries can cause misunderstandings. Be specific. Include the names of the individuals and how much of the benefit you would like each beneficiary to receive.

Nominating a minor as your beneficiary

Parents frequently name their children as beneficiaries on their life insurance plans. But if your child is still a minor, the policy proceeds will often be paid to the child’s guardian – which means they may never see the money. Other insurers insist on distributing the proceeds to a trust established for the child’s benefit.

A trust is basically a relationship that involves a grantor (the person leaving the money), a trustee (the person looking after the money), and a beneficiary (the person benefiting from the money). It can help ensure that your assets are safely transferred to your heirs and that they get the most benefit from the assets you have worked so hard to achieve. 

Trusts have several advantages. They can protect your family’s assets in the event of bankruptcy

themselves or manage their own finances. Most of all, they provide financial stability to your loved ones, as the governing board will act on behalf of your beneficiaries after you die or are unable to manage your own affairs.

Don’t ‘set it and forget it’

Things change in life. Like a will, it’s essential to update your beneficiary nomination form after any significant life events like getting married, having a child, getting divorced, or if one of your nominated beneficiaries passes away. That way, you ensure the people that you want to benefit from your assets do so.

T&Cs apply. NMG Consultants and Actuaries is an Authorised financial services providers t/a NMG Benefits.

The content in this communication is for information purposes and is not intended to be detailed advice, you should seek the advice of your physician or a qualified healthcare provider with any questions you may have regarding a medical condition.

Time to push back against Group Insurance price hikes

The insurance industry has had a ‘good pandemic’, with many people becoming more aware of the value of protection. Life insurance has increased as a priority among consumers worldwide, and while new sales were lower due to economic uncertainty, we’ve also seen lower rates of policy cancellation and lapsation. This is certainly good news for the industry, where traditionally life insurance is sold, not bought.

But while the worst of the pandemic seems to have eased, we’re still seeing its effects in key areas. One of these is Group Insurance – that is, the purchase of life, disability, critical illness, funeral and other risk policies, sold on a group basis to a retirement fund, employer group, or other group.

What’s happening is that the excess deaths caused directly or indirectly by Covid have seen insurers incur greater claims and higher mortality rates than normal. As a result, we’re seeing premium increases – and some of them are dramatic.

Our own staff policies incurred a 30% increase in premiums, and we had no choice but to accept the large increase to retain the current benefit structure. As we are a ‘cost to company’ business, which means employees pay for these benefits themselves, our staff have effectively experienced a drop in their take-home pay.

And we got off relatively lightly. Some large retirement funds have seen their premiums doubling, or in one case, even tripling. Our clients find these situations unacceptable and unfair, and we agree with them. It certainly feels like an overreaction on the part of the insurance industry. As one large retirement fund pointed out, more than 90% of their membership is fully vaccinated, and they can’t understand how their insurer can justify a doubling of the Group Insurance premiums on a forward-looking basis.

So, what’s going on?

The South African Group Insurance market is usually highly competitive. Many brokers and intermediaries earn their keep simply by getting other insurers to quote for a particular group or scheme. There’s almost always someone that’s trying to grow market share or taking a more positive view of the risk characteristics of the particular scheme. So, the cover moves to a new insurer (or the incumbent matches the lower price), the scheme saves money, problem solved. That’s not happening right now.

As intermediaries, we’re remunerated mostly by commission on the premiums paid. So, if we do nothing, our income goes up when premiums go up. This creates a misalignment of our interests and those of our clients and members. 

The enormous increases we’re seeing right now are impacting the Group Insurance market much more than the Individual market, where premiums are guaranteed, at least for mortality risks. This is concerning, because the payers of Group Insurance premiums are ultimately the ordinary members of Retirement Funds and the employees of companies.

What are we doing about it?

For a start, we won’t simply accept higher commissions from insurers because of premium increases without doing extra work.  

Secondly, we are requiring insurers to justify their increases actuarially through historical claims experience and forward-looking projections. We carry out our own Covid-modelling, using our actuaries’ models, but with assumptions on vaccination rates and prior infection based on the client’s situation. We will need a lot of convincing and detailed analysis before we accept that premiums need to be increased to the extent being quoted.

We are also providing these services in collaboration with smaller intermediaries and third-party brokers, so that their clients get the same level of assistance.

Thirdly, we are working closely with the larger funds and clients to implement a much greater degree of self-insurance or alternative means of transferring risk. In normal times, the Group Risk market works well, and it’s often not worth the effort even for large schemes to establish a self-insurance or risk transfer mechanism. With premium increases of hundreds of millions of Rand, however, that equation changes dramatically.

One of the greatest challenges facing the South African retirement funding industry is the fact that few employees accumulate enough savings to be able to retire with the same lifestyle they enjoyed during their careers. With risk costs increasing drastically - and in our view, excessively - it’s our duty to ensure that our members’ interests are protected, ahead of those of the shareholders of enormous financial institutions.

Disclaimer: The information in this communication is for information purposes and is not intended to be detailed advice described in the Financial Advisory and Intermediary Services Act. The fund, administrator and trustees cannot be held liable for damage or loss suffered as a result of any action that you take based on the contents of this communication.