Connect with us

Wealth Management

Compound interest is why employees must keep retirement saving invested between jobs

Published

on

Wealth management

By Vickie Lange, Head – Research, Best Practice & Academy at Alexander Forbes

 

Millions of South African employees rely solely on the money saved in their employers’ retirement fund to earn an income in retirement. However, for most, this money is insufficient to sustain them.

Alexander Forbes Member Insights 2021 reveals trends and statistics on close to one million members and their saving for retirement. It was published in October, highlighting that only 6% of members can expect to replace the generally accepted target of 75% or more of their final salary when they retire. This means that the majority of individuals are not expected to achieve an income in retirement needed to sustain their standard of living.

 

Research, Best Practice & Academy at Alexander Forbes

Vickie Lange

Low replacement ratios at retirement

Low preservation rates of savings on changing jobs and low contribution rates are two of the main reasons for members not achieving being able to sustain their standard of living in retirement.

The minimum rate members need to contribute over a 40-year period to achieve a 75% replacement ratio is 17%. However, only 6% of our total membership can expect to achieve this. Members aged 60 and above have the worst projected replacement ratio outcomes: only 2% of these members have a projected replacement ratio of above 75%.

A total of 65% of members aged between 20 and 30 are expected to have a replacement ratio below 60% of pensionable income. The average member’s shortfall in rands between the required fund credit as a multiple of salary and the actual average fund credit as a multiple of salary was R833 179.

 

Why preservation rates are so low

Only 9% of members preserved their retirement savings when changing jobs. Financial distress is one of the reasons, with almost 20% of millennials having loans in default.

However, a common reason given by members for not preserving their retirement savings is that they are too low to warrant the trouble and expense of a preservation fund. A total of 58% of those who chose not to preserve had retirement savings of between R0 and R25 000. People need to be aware of the longer-term impact of not preserving even relatively modest amounts when they are younger because of the power of compounding.

The reality is that the amounts contributed in the early years of accumulation add the most to your benefit at retirement. Thanks to the impact of compound interest the first 10 years of your savings can contribute as much as half of your savings at retirement.

 

What can be done to improve retirement outcomes?

Regulations have been put in place to improve low preservation rates. Default preservation rules will automatically allow retirement savings to be made paid up in the fund when a member leaves their employer and doesn’t make a payment election. Our experience is that funds that members have benefited from the default rules being implemented.  The number of members preserving has increased from 8.8% in 2019 to 9.6% in 2020The proportion of assets preserved has remained almost unaffected at 48%, despite the challenges in 2020 in relation to the Covid-19 pandemic.

Retiring at 65 rather than 55 can almost double your replacement ratio.

Members should review their retirement savings to see if they are on track by seeking retirement benefit counselling or meeting with a certified financial adviser, and making additional contributions if required. In addition, they should preserve their savings when changing jobs to increase their probability of meeting their retirement goals.

 

Banking

Wealth Managers and the Future of Trust: Insights from CFA Institute’s 2022 Investor Trust Study

Published

on

Author: Rhodri Preece, CFA, Senior Head of Research, CFA Institute

 

Corporate responsibility is more important than ever. Today, many investors expect more than just profit from their financial decisions; they want easy access to financial products and to be able to express personal values through their investments. Crucial to meeting these new investor expectations is trust in the financial services providers that enable investors to build wealth and realise personal goals. Trust is the bedrock of client relationships and investor confidence.

The 2022 CFA Institute Investor Trust Study – the fifth in a biennial series – found that trust levels in financial services among retail and institutional investors have reached an all-time high. Reflecting the views of 3,588 retail investors and 976 institutional investors across 15 markets globally, the report is a barometer of sentiment and an encouraging indicator of the trust gains in financial services.

Wealth managers may want to know how this trust can be cultivated, and how they can enhance it within their own organisations. I outline three key trends that will shape the future of client trust.

 

THE RISE OF ESG

ESG metrics have risen to prominence in recent years, as investors increasingly look at environmental, social and governance factors when assessing risks and opportunities. These metrics have an impact on investor confidence and their propensity to invest; we find that among retail investors, 31% expect ESG investing to result in higher risk-adjusted returns, while 44% are primarily motivated to invest in ESG strategies because they want to express personal values or invest in companies that have a positive impact on society or the environment.

The Trust Study shows us that ESG is stimulating confidence more broadly. Of those surveyed, 78% of institutional investors said the growth of ESG strategies had improved their trust in financial services. 100% of this group expressed an interest in ESG investing strategies, as did 77% of retail investors.

There are also different priorities within ESG strategies, and our study found a clear divide between which issues were top of mind for retail investors compared to institutional investors. Retail investors were more focused on investments that tackled climate change and clean energy use, while institutional investors placed a greater focus on data protection and privacy, and sustainable supply chain management.

What is clear is that the rise of ESG investing is building trust and creating opportunities for new products.

TECHNOLOGY MULTIPLIES TRUST

Technology has the power to democratise finance. In financial services, technological developments have lowered costs and increased access to markets, thereby levelling the playing field. Allowing easy monitoring of investments, digital platforms and apps are empowering more people than ever to engage in investing. For wealth managers, these digital advancements mean an opportunity for improved connection and communication with investors, a strategy that also enhances trust.

The study shows us that the benefits of technology are being felt, with 50% of retail investors and 87% of institutional investors expressing that increased use of technology increases trust in their financial advisers and asset managers, respectively. Technology is also leading to enhanced transparency, with the majority of retail and institutional investors believing that their adviser or investment firms are very transparent.

It’s worth acknowledging here that a taste for technology-based investing varies across age groups. More than 70% of millennials expressed a preference for technology tools to help navigate their investment strategy over a human advisor. Of the over-65s surveyed, however, just 30% expressed the same choice.

 

THE PULL OF PERSONALISATION

How does an investor’s personal connection to their investments manifest? There are two primary ways. The first is to have an adviser who understands you personally, the second is to have investments that achieve your personal objectives and resonate with what you value.

Among retail investors surveyed for the study, 78% expressed a desire for personalised products or services to help them meet their investing needs. Of these, 68% said they’d pay higher fees for this service.

So, what does personalisation actually look like? The study identifies the top three products of interest among retail investors. They are: direct indexing (investment indexes that are tailored to specific needs); impact funds (those that allow investors to pursue strategies designed to achieve specific real-world outcomes); and personalised research (customised for each investor).

When it comes to this last product, it’s worth noting that choosing advisors with shared values is also becoming more significant. Three-quarters of respondents to the survey said having an adviser that shares one’s values is at least somewhat important to them. Another way a personal connection with clients can be established is through a strong brand, and the proportion of retail investors favouring a brand they can trust over individuals they can count on continues to grow; it reached 55% in the 2022 survey, up from 51% in 2020 and 33% in 2016.

 

TRUST IN THE FUTURE

As the pressure on corporations to demonstrate their trustworthiness increases, investors will also look to financial services to bolster trust. Wealth managers that embrace ESG issues and preferences, enhanced technology tools, and personalisation, can demonstrate their value and build durable client relationships over market cycles.

Continue Reading

Top 10

The customer expectations driving insurance change

Published

on

By

Carl Strempel, CFO and co-founder, Imburse

 

Customer expectations are continuously evolving, with simplicity and speed a significant priority in the current market. These expectations have been driven primarily by well-executed technology advancements in eCommerce. For example, many eCommerce platforms allow for instant payment and transparent tracking and delivery. Customers also have the option of availing of a chatbot, allowing for problems and issues to be solved quicker than relying on telephone customer support.

The best examples of these customer engagement solutions are integrated across multiple channels so that customers can switch from the chat-bot to a phone call to an email seamlessly, with the context and conversation retained. Companies and providers understand that there is nothing more frustrating for customers than having to explain the issue multiple times to multiple service representatives.

Customer expectations are continuously changing as mobile technology continues to make advancements. The growing prevalence of super apps that can do it all, from booking food deliveries to ordering taxis, is massively impacting customer expectations. These enhanced offerings mean that individuals are now also expecting this level of detail and personalisation from banks and insurers. Whether buying personal insurance for yourself or your family, or a CFO or risk manager purchasing commercial insurance for a business, customer expectations are rising. There is no longer an excuse for insurers to deliver a poor customer experience.

Insurers, especially in the retail and SME business, have scrambled to overhaul their customer experiences to meet modern consumers’ demands. For example, if an insurance company cannot turn around a quote for a comparison website within a few seconds, they won’t win any business. In fact, if they are not in the top three quotes with a competitive price, they are most likely irrelevant.

Carl Strempel

As a result, insurers need to think about their technology stack and how they can deliver the best possible experiences for their customers, to generate sales and improve retention. In this case, real-time API integrations into comparison websites.

Other areas of innovation are the ongoing migration to the cloud, which allows for the building of scalability and resilience in insurance carriers, as well as enabling technologies such as document ingestion, workflow automation, A.I., and payments technology delivering a better customer experience with a reduced Total Cost of Ownership for the enterprise.

First and foremost, insurance companies need to understand their customers and how they expect insurance interactions to be delivered. Following this, a technology strategy must be formed to enable them to deliver in an agile way. Being agile is significant because customers’ expectations evolve over time, and technology also changes. As a result, insurers need to understand their customers and be able to deploy relevant technologies in an appropriate time frame to meet demands.

Many insurance providers partner with innovative technology companies to deliver solutions that will support the needs of the end customer. By offering relevant payment checkout experiences, similar to those by large eCommerce platforms, insurers can increase their top line and keep more customers satisfied. Insurers can further reduce payment site costs by using external partners to manage integrations with the global payment ecosystem. This makes the configuration of payments more cost-effective and quicker than what existing IT integrations allow for. This technology can deliver a 90 percent saving on payment integration and configuration.

The advantages of technology in the insurance industry are clear. Technology enables insurers to improve coverage for customers, enhance customer experience, reduce costs and improve product-market fit. There are several new insurance business models being deployed, including embedded insurance, parametric insurance, and soon “open insurance,” which are all designed to make the customer experience more seamless and provide the right cover at the right time. When deployed in the right way, technology is a critical enabler for insurers to deliver to their customers and avoid becoming irrelevant capacity providers.

There are numerous opportunities for insurers to embrace innovation in the industry. The challenges with enterprise payments, however, are primarily transforming traditional IT systems, and maintaining multiple IT integrations with different payment technologies and providers. The impact is not only on top-line income and bottom-line costs, but inadequate payment capability also inhibits insurance innovation. Payments need to meet the needs of the modern consumer and the insurance product. These are the barriers preventing insurers from pursuing their digital transformation journeys. It is for these reasons that third-party innovative solutions prove valuable, enabling insurers to completely optimise their payment systems, for a fraction of the cost, resources, and time.

 

Continue Reading

Magazine

Trending

News6 hours ago

Rivery Raises $30M B Round of Venture Funding from Tiger Global

With data needs growing and data talent scarcity, there is huge demand for Rivery’s 100% SaaS solution to create an...

Banking2 days ago

Wealth Managers and the Future of Trust: Insights from CFA Institute’s 2022 Investor Trust Study

Author: Rhodri Preece, CFA, Senior Head of Research, CFA Institute   Corporate responsibility is more important than ever. Today, many...

Interviews2 days ago

Q&A with Andréa Jacquemin, founder and CEO of Beamy

Beamy is a fast-growing scale-up that focuses on pioneering a new approach to SaaS management for large companies. Founded in...

News4 days ago

How to reignite your store with streamlined operations and a distinctive customer experience

Colin Neil, MD, Adyen UK   Retailers know that prioritising customer experience is vital to success today. This, amongst the...

Business4 days ago

5 tips to ensure CSR efforts come across as genuine

By Mick Clark, Managing Director, WePack Ltd   Corporate social responsibility – or CSR – is playing an increasingly pivotal role...

Business4 days ago

How to Build Your Credit Up Safely

by Taylor McKnight, Author for Compare Credit   What Is Credit? Credit is money owed by a person that allows...

News4 days ago

PCI DSS Compliance in the Cloud – Everything you should know

Introduction PCI DSS 4.0 is the latest and updated version of PCI DSS that was introduced on March 31st, 2022....

Banking5 days ago

2022 ESG Investment Trends

Jay Mukhey, Senior Director, ESG at Finastra   Environmental, Social and Governance (ESG) themes have been front and center throughout...

Business5 days ago

PROTECT THE VALUE OF YOUR SAVINGS AND AVOID RISING INFLATION PRESSURE

Planning for the next financial year? Former Bank Manager and successful whisky investor, Roger Parfitt, tells us why cask ownership is...

Technology5 days ago

UK Organisations turn to artificial intelligence to fight sophisticated cyberattacks

New research by cybersecurity expert Mimecast finds that email attacks are becoming more frequent and sophisticated More and more companies...

Finance5 days ago

The power of diversity: The need for female role models in FinTech

By Isavella Frangou, VP of Sales and Marketing, payabl.   As our world is constantly evolving, it’s easy to believe...

Business5 days ago

Securing BNPL Platforms for Merchants

By: James Hunt, Payments SME at Feedzai   The buy now, pay later (BNPL) market has boomed because it offers...

Technology5 days ago

Addressing the talent gap within cybersecurity

By Merlin Piscitelli, Chief Revenue Officer, EMEA at Datasite   Rising geopolitical tensions and increasingly sophisticated cyberwarfare tactics have meant...

Uncategorized5 days ago

Biometric payment card FAQs with Michel Roig, Fingerprints’ President of Payments & Access

We sat down with Michel Roig to answer your frequently asked questions regarding biometric payment cards – their benefits, current...

Banking5 days ago

Opportunities for UK Challenger Banks to address AML Compliance

Author: Gabriel Hopkins, Chief Product Officer, Ripjar   UK challenger banks have revolutionised the banking sector with innovative products and...

Finance5 days ago

HOW GOING DIGITAL COULD HELP CHARITIES OVERCOME THE CHALLENGES OF INFLATION

By Shaf Mansour, not for profit solutions specialist at The Access Group.    The topic of inflation and its impact...

Business5 days ago

How to manage transformational change successfully

Adrian Odds, Marketing and Innovation Director, CDS 2020 accelerated change in the business landscape significantly. Many were already considering –...

Finance5 days ago

Why the pandemic has put the pressure back on fintechs

Ben Walker, Partner & CTO, Airwalk Traditionally, the only genuine threats to the incumbent banking giants were macroeconomic instability and...

News5 days ago

Neobank Fi launches new feature ‘Connected Accounts’ allowing users to sync multiple bank accounts on a single app.

Neobanking app Fi launched its ‘Connected Accounts’ feature to become one of the first fintechs to build a product on...

Finance5 days ago

Accounts Payable fraud: Do you know who’s accessing your finances?

Mark Blakemore, CFO at Compleat Software   The use of social engineering and phishing attacks on accounts payable (AP) departments...

Trending