Funds geared for Millennials?
Characteristics that will shape the retirement funds of
the future are outlined by Nomha Kumalo, public sector
executive at Momentum Corporate.
Kumalo . . . necessary adjustments
Workplace representation of Millennials (25- to 34-year olds) is growing rapidly. This group is expected to make up almost a quarter of the global workforce by 2020.
Based on data analytics, Momentum Corporate is already seeing the generational shift in the profile of retirement-fund membership. Some 52% of members are Millennials, an increase from 39% in 2013.
To keep up with the changing world of work, the retirement-fund industry needs to reconsider its offering and adapt. The shift in our member profile has given us unique insight into this important demographic which is set to shape the workplace for many years to come.
It is critical that employers, consultants, principal officers and trustees understand the psychographics of this generation. There are certain broad characteristics:
# 1 Health, wellness and technology
Millennials prefer to pursue their dream careers with employers whose missions match their values. They also place high premiums on their health and wellness, and on having a healthy work-life balance.
Millennials embrace technology in every sphere of their lives. They expect highly personalised customer experiences from the brands with which they interact.
#2 Job-hopping impacts retirement outcomes
Millennials are inclined change jobs every two to three years. Job-hopping is their norm, unlike Baby Boomers and other previous generations.
Millennials seek immediate gratification and view retirement as a transition phase, not necessarily a set end-date of their formal working careers. This means that they access their retirement savings more than once during their working careers to pay off debt or to pursue international travel. Such behavior severely compromises the likelihood of Millennials maintaining their standards of living during retirement.
Only 2% of Millennials save enough for retirement. The majority may only be able to replace 31% of their last pre-retirement salary. However, Millennials have a better potential of reaching their retirement outcomes because they have a longer period to save. They can change the outcomes by making sure that they start saving when they are young, ensuring their retirement contribution is appropriate and that they keep their retirement savings invested when they change jobs instead of taking cash.
#3 Low levels of financial literacy and savings drive high financial vulnerability
The Momentum/Unisa Consumer Financial Vulnerability Index reveals that, for the last two years, SA consumers’ finances have been under severe pressure. While Millennials are the most financially vulnerable age group, a lack of financial literacy is a key driver of continued financial vulnerability in addition to low savings (see #2) and high debt levels. These factors are exacerbated by a weak local economic environment.
The lack of financial literacy is of particular concern. Momentum Corporate’s employee-benefits terminology research reveals that only 16% of Millennials understand the concept of a retirement replacement ratio. Fewer than 44% are aware of investment-related terminology such as investment allocation, future contributions and fund credit.
Funds must be geared for Millennials
This growing demographic will require flexible and innovative product solutions from retirement funds to address Millennials’ specific needs. In addition, service experiences and engagement must create tangible value in the eyes of the Millennial in the present.
Vital for reducing Millennials’ financial vulnerability is financial education. Retirement funds should offer financial education and benefit counseling through a multi-channel approach. These include digital platforms such as access to live webcasts or video content.
Also, it is not only about what you provide but how you engage. It’s imperative that retirement funds offer smart, intuitive and personalised digital services across a range of touch points, from medical underwriting to assistance to members when they change employers.
It is particularly important that these smart digital platforms facilitate more informed decision-making at the time of resignation. This increases the probability that Millennials will preserve their savings, ultimately helping them to be financially independent when they retire.
Retirement funds that offer Millennials a programme which rewards healthy lifestyles, creates platforms for meaningful engagement and ultimately demonstrates value, will be successful in attracting Millennial members.
Our new buzz word at Momentum Corporate is #YORO – You Only Retire Once. We cannot sufficiently stress the importance of planning for retirement and want Millennials to understand why it is never too soon to start.
Retirement funds must ensure that the solutions available to Millennial employees are appropriate. Communication about the value of retirement savings must be engaging and meaningful. One size has never fitted all, and it definitely is not going to fit in the future.
Momentum is a part of MMI Group, an authorised financial services and registered credit provider. MMI Holdings is a Level 1 B-BBEE insurer.