LAURA DU PREEZ: Retirement advice may persuade flighty millennials to save
Many millennials don't want to hear about retirement. Yet they are the generation most at risk when it comes to securing an income for the later part of their lives, says Viresh Maharaj, the CEO of client solutions at Sanlam Employee Benefits.
You are a millennial if you were born between 1981 and 1996 - or are aged between 22 and 37 this year.
Generalising about an entire generation will always be problematic, but if you recognise these traits in yourself or a millennial close to you, take note.
Despite mostly being highly educated, millennials are often not financially savvy and many - according to the statistics in Sanlam's Benchmark retirement fund survey, released this week - have squandered what they have saved for retirement while changing jobs.
Maharaj says the average value of millennials' savings in the Sanlam Umbrella Fund - one of the largest umbrella funds in the country - is less than R42000. Even the oldest members of the generation have less than R90000 in the fund.
He says a middle-of-the-range 2018 starting salary for a university graduate is R250000 a year - as determined by PayScale, the site that publishes data about compensation for employers and employees. Maharaj used this to determine that a 37-year-old would have started in 2000 on R75000 a year.
He used this salary, adjusted each year for inflation, and determined that by saving 14% of their salary (7% by the employee and 7% by the employer) and earning a 9% return after costs each year, the average 37-year-old should have saved around R730000, or about three times their annual salary, by now.
Using the same method and assumptions, Maharaj says a middle-earning graduate millennial now aged 28 should have about R330000 saved, or 1.4 times their annual salary.
He warns, however, that these are based on averages, so should not be used to measure your own progress but rather as a yardstick for millennials as a group.
Millennials are not incapable of saving - there is evidence they save for goals like a holiday, Maharaj says. But people of this generation often associate retirement with ageing, and as a result saving for retirement is a grudge purchase.
As you would expect, being the generation at the start of their working lives, millennials typically have lower after-inflation earnings and much more debt than other generations.
The value of the South African mortgage bond market
They are also expected to have between 12 and 15 jobs, sometimes with the same employer but often with different employers, Maharaj says. Changing jobs so frequently gives them many opportunities to get at their retirement savings, as savings in employer-sponsored pension or provident funds or umbrella funds can be withdrawn in full when you leave your employer.
Compounding their problems, millennials are often confident they can deal with their finances themselves using tech-enabled tools, and they distrust financial services companies, Maharaj says.
It may be good to interrogate information about financial products, but staying away from saving and insurance because of a few bad practices in the financial services industry is, alas, one of the worst things you can do to your financial health.
And some people are just not interested enough in, or capable of, researching how to invest or take out life cover, and need guidance.
No administration system, star asset manager or low-fee product can make a difference to your retirement savings if you do not preserve them, Maharaj warns.
But he is cautiously optimistic that the "counselling" that retirement funds, as of March, will be obliged to provide when you leave such a fund, will help.
Counselling doesn't mean full financial advice, but rather providing information that will help you make an informed decision about what to do with your retirement savings when you move jobs or retire.
Most trustees, principal officers and employee benefits consultants hope this counselling will improve preservation of retirement savings and ultimately improve the income you can draw from those savings in the form of a pension in retirement.
Sanlam has decided to provide counselling to members of funds it administers (without charging these funds) by way of call centres, robo-advice, and individual and group sessions with salaried advisers.
For millennials, there may well be a retirement benefits counselling channel on YouTube, as Maharaj says millennials are 2.7 times more likely to learn things from this platform.
The Sanlam Benchmark survey unfortunately shows that a high percentage of trustees, principal officers and employee benefits consultants (29% of those surveyed) believe that written communication, which is often unopened and left unread, is the way to provide this benefits counselling.
It will be possible for retirement funds to comply with the requirement that they provide retirement benefits counselling by simply producing written material. But it will be a sad day if the industry misses this opportunity to do something about poor retirement savings records by opting for a tick-box approach to compliance with the regulations rather than adopting them in spirit and coming up with innovative ways of encouraging fund members to preserve their savings.
• Du Preez is Money editor at Tiso Blackstar