By: John Anderson, Head of Strategic Development, Alexander Forbes Group
Financial stresses are becoming a bigger problem for South Africans:
- An average pensioner can replace only 28% of their income when they retire.
- Two out of five credit-active South Africans have impaired credit records.
John Anderson, head of strategic development at Alexander Forbes, says: “Our research has found that on average, employees are spending between 13 to 20 hours a month worrying about finances.”
It makes a big difference when employees get the right information and advice at the right time. “Low financial well-being ultimately has an impact on the employer’s balance sheet because financial stress leads to absenteeism, poor work performance, a lack of concentration, increased safety hazards, and fraud,” says Anderson.
Employers therefore have a vested interest in improving their employees’ financial well-being. Anderson says: “We have estimated that the overall cost to employers for low financial well-being can be as high as 35% of the company payroll.”
Anderson outlines five ways to improve the financial well-being of South Africans and actions employers can take:
- Use digital innovation to improve employee engagement
Our research shows that until now, most processes companies use when onboarding individuals do not facilitate good decision-making. For example, on joining a new employer, most employees select the lowest contribution to their retirement fund. This is often because they do not receive easily understood and accessible information when they join.
The same is true while they work for, leave or retire from the company.
The good news is that we have found that when companies engage with employees on their benefits, giving them the right information and tools, their employees make better decisions. This means:
- giving them easily understood and accessible information
- making information relatable by predicting retirement income in today’s terms
- connecting people with their future selves because they tend to expect instant gratification and underestimate their future needs
Where companies have taken this approach, we have seen employees increasing their benefits and selecting higher contribution rates to save for retirement – ultimately assisting them in improving their financial well-being.
- Engage proactively with employees at key life events
Our research shows that people need adequate time to engage with the benefit decisions they need to make when joining, working for, leaving or retiring from a company.
Poor decision-making usually results from individuals being rushed to make choices at these critical moments. For example, when buying a new house, an individual would typically research options extensively, look at many different houses and often spend a significant amount of time before making a decision. However, when joining a new employer, a new employee is often rushed to decide within a few minutes how much they should contribute to their retirement fund – even though the decision has significant long-term implications.
Therefore, engaging earlier with individuals is important to facilitate better decision-making. When joining an employer, it requires a proactive approach to provide information up front so that on the first day at work new employees can make informed benefit selections.
- Optimise the role of the human resources department
An employer’s HR department gives critical support to employees on company benefits. However, given the significant changes to the regulatory environment and other demands, we have found that HR departments need more support to make it easier to provide the right information to employees.
- using digital tools to reduce the administrative burden
- obtaining the right support for areas outside their expertise, such as investment portfolio selection
- Deal with barriers to financial well-being
Employers need to pay attention to factors that hamper employees’ ability to make good financial decisions. Over-indebtedness and a lack of emergency savings have a negative effect on their ability to preserve their retirement savings. Not only do these factors affect their financial well-being, but they also result in reduced productivity and engagement.
Employers need to look holistically at their employee benefit programmes and incorporate all the elements – and not just the traditional employee benefits – to make sure the whole arrangement works well.
- Use data, analytics and insights to optimise the use of employee benefits
Data, analytics and insights help companies and employers know more about employee financial well-being and track the results so that they grow more. We can use sophisticated data analytics to gain insights into the areas affecting employees’ financial well-being. By applying this knowledge, employers can focus their efforts on key interventions to improve their employee benefit programmes in order to achieve better outcomes.
“The reality is that for financial well-being interventions to be successful, they need to be part of an ongoing process, requiring ongoing intervention and engagement across all income groups and throughout a person’s lifetime. A comprehensive approach is required, incorporating human capital development, debt management as well as the traditional financial services such as wealth management, health and insurance,” concludes Anderson.