Employer schemes can enforce compulsory saving to improve South Africans' financial wellbeing

The average South African is struggling to manage their finances. The statistics on the savings landscape are shocking and saddening. Well before the Covid-19 pandemic and subsequent lockdowns disrupted businesses and families, the financial position of the average South African was precarious at best.

While commentators in the media and government focus mainly on the unemployment rate (now at 32.5% according to data from the October-December 2020 quarter), even those who are employed struggle to make their money stretch through the month.

Research by fintech platform PayCurve shows about 80% of South Africans take out expensive unsecured loans to cover their monthly financial obligations.

Household debt makes up 73.7% of disposable income. Eighty-four percent of people surveyed needed money before the next payday. And only 6% of retirees can afford to do so “comfortably”, according to the Alexander Forbes Member Watch 2020 analysis.

These statistics show that, left to their own devices, the average South African struggles to manage their finances. Interestingly, when the employer offers savings and financial planning assistance, savings rates improve dramatically. Research from the US shows that people are 15 to 18 times more likely to save when their employer has set up a workplace fund (Alexander Forbes Value of Group Arrangements Consolidation, November 2020). The same trend seems to hold true for SA, where about 90% of retirement savings are in workplace schemes.

Employers can help

Employers can therefore make an impact on their employees’ financial wellbeing by requiring compulsory saving, matching employee contributions and offering complementary services such as financial advice and planning.

Employee benefit programmes go beyond offering a savings product and financial advice. Medical aid, life, critical illness, funeral and disability cover, and counselling for mental and emotional distress, may all be included in the package. These are designed to help employees manage their personal and financial wellbeing to live within their means.

Often, these employee benefit programmes are the only access people have to a savings scheme, financial advice or medical cover. Employers need to select good benefits as part of a consolidated package that can look after their people.

Alexander Forbes partner with employers to personalise their employee benefits with solutions tailored to their needs. These are offered at fees for institutions when employees join through their employer. Training and support are also provided throughout employees’ working life to help them achieve financial wellbeing.

This article was paid for by Alexander Forbes.