Changing saving plans to suit the current landscape
30 September 2016
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On mobile, on digital, on demand, this is Old Mutual Live Money Coach edition. Hello and welcome, my name is Chris Gibbons. There’s one thing that nearly all of us agree on and that is the need for all South Africans to save more. Saving for a rainy day, saving for the unexpected expense, saving for something special like a new car or a holiday.
On the other side of the equation, the power of savings to mobilise the economy. But how best to encourage us to save more? What role could be played in this by our employers? Old Mutual Live Money Coach is joined now by Quaniet Richards, Head of Institutional at Nedgroup Investments. Quaniet, welcome to Old Mutual Live Money Coach, thanks for joining us. First off, you believe that we need something more than just the traditional company pension plan?
Quaniet Richards: Yes, I do. I think the government has done quite a bit in terms of encouraging savings, retirement savings and increasing the savings pool in South Africa. But I do think that pension fund members are struggling to cope on a day to day basis. I do feel that more could be done in that regard by employers. By encouraging savings through their retirement fund schemes. I do believe that members will be encouraged to save if they do, for their long term saving. If they do have options for short term saving solutions as well.
What options can we look at?
CG: What are the kind of variations of products that you have in mind?
QR: For example, in your retirement fund savings, we offer clients a simple solution. The solution is basically where we’ve partnered with Old Mutual Umbrella Fund, called Old Mutual Super Fund. If you’re contributing to your savings on the Super Fund, we do have a risk benefit.
We are looking at including tax free savings on the platform as well. So members can save for a particular retirement goal. Your child’s education, be it for a holiday, be it for a new home, so that’s sort of what we’re thinking of encouraging. Of how we can encourage members to save, by adding savings benefits.
CG: Isn’t it very difficult to do this in an environment where many of us are just battling to stay afloat?
QR: And that’s the conundrum, where consumers are struggling. Every day people are struggling to make ends meat. Yet we are told to save more, increase your contributions to your retirement savings, so you can retire in prosperity. But what’s the use if you’re retiring in prosperity if you’re not going to survive on a day to day basis. Put food on the table, provide your kids with a better education.
We all know what the education system is like in South Africa, lots of challenges. It is a challenge for consumers and members of retirement funds, to survive on a day to day basis. Yet we are told to increase our contributions to our pension funds. Therein lies the challenge for us as service providers. To assist members and in that way we could encourage long term savings and a better retirement savings culture.
Long-term & short-term savings combination
CG: Are you suggesting that we should allow employees to divert some portion of their long-term retirement savings towards other, perhaps shorter term goals?
QR: Yes, that is a solution. You know Chris, we were at the RFA conference last week held in Durban. It’s an annual conference, it’s a coming together of trustees, principle officers. We discuss the industry challenges. For me the key takeout was exactly that. Where principle officers and trustees are saying how do I provide my members with a better retirement solution. Whereby they can afford to maintain their current lifestyle and improve their current situation, financial situation. It’s a challenge for us as an industry and one of the solutions that were put on the table was exactly that.
How can we assist our members by diverting some of the retirement fund savings to shorter term saving goals. That is a big challenge for us as an industry, as a financial services provider. Because I do think the employer, on their own cannot do this. I think we need to start thinking out the boxes as financial services providers. Start listening to our clients. Our clients are the members and trustees of retirement funds.
CG: I was going to ask you; what role is played in all of this by the pension fund trustees?
QR: So, the pension fund trustees are engaging with providers at the moment. If I just once again refer to the RFA conference last week. There was a huge debate, huge engagement around how we solve this problem. At the same time I do believe that there’s an educational element that needs to take place. Because some of the trustees of the pension funds are saying; I want my member to retire with 100% of their income.
That’s, as you and I know, that’s virtually impossible. Our solution that we’ve at Nedgroup Investments and Nedbank have come up with, in partnership with Old Mutual Super Fund is where we’ve done the research. We’ve done the calculations where our solution allows members to retire with 80% of their income.
Which is, in technical terms, called the ‘net replacement ratio.’ That’s based on a number of factors. One is fees, one is performance of our solution. So we are working towards achieving that goal where we can assist pension funds.
A whole new approach to the problem
CG: You’re listening to Old Mutual Live, the Money Coach edition, on demand, visit dogreatthings.co.za. With me on the line is Quaniet Richards, Head of Institutional at Nedgroup Investments. Quaniet, are we seeing, are we going to see a much more, what’s the right word, sensitive array of products. Not just retirement planning, but also funeral policies, tax free investments, a whole different approach to this problem?
QR: 100% correct Chris and I’m happy to say that we’ve identified these risk benefits and we’ve packaged them. So if you are a client of Nedbank or Nedgroup Investments and Old Mutual, part of the solution that we provide members is an app.
On the app you have access to funeral cover. You have access to all the risk benefits that we offer, including tax-free savings on this particular app. We are slowly making progress, we’ve identified that retirement savings is more than just saving for the long term. We are trying to assist members to achieve their short term goals as well in the process.
CG: And there we will leave it. This has been another edition of Old Mutual Live Money Coach, my name is Chris Gibbons. With me on the line has been Quaniet Richards, Head of Institutional at Nedgroup Investments. Remember, please feel free to get in touch any time if you have any questions or topics you would like covered here on Old Mutual Live Money Coach. Please feel free to send them direct to me at firstname.lastname@example.org. I’d be delighted to hear from you. Until the next time, thank you for listening, Old Mutual Live, on mobile, on digital, on demand.