MOMENTUM CONSULTANTS & ACTUARIES: Expert Opinions: Edition March / May 2020


Empower fund members to save enough for retirement

Heed the advice of Rob Southey, head of asset consulting at Momentum Consultants & Actuaries.

Many members of retirement funds don’t know whether their savings are on track to reach their retirement goals. Even those who suspect their savings for retirement may be inadequate often bury their heads and hope for the best, unaware of steps they can take to improve their retirement outcomes.

Empowering education and ensuring members have access to the appropriate information at the right time are potent tools for helping them to make smarter financial decisions, leading to better retirement outcomes.

Funds’ trustee boards and management committees try their best to improve outcomes by creating appropriate investment defaults. However, defaults are typically designed around the “average” member. The reality is that the “average” member does not exist. This is particularly apparent when members reach their pre-retirement phases when investment portfolios ideally need to align with the individual member’s specific annuity choice.

Informed decision-making

The retirement-fund industry can be complex and confusing. Members need to be educated around how their funds work, how annuities work and what they can do to increase their retirement savings to receive an adequate income during retirement. Some actions members can take to increase their retirement incomes include:

• Increasing their contribution rates;

• Choosing the investment portfolio that best matches their personal circumstances and investment horizons;

• Keeping their retirement savings invested when changing jobs;

• Starting to save as soon as possible (if their employer doesn’t provide a retirement fund);

• Retiring later in their working lives.

Tap into technology

The practicality of educating members can appear overwhelming to trustees and employers. However, advances in technology and the ability of people of all ages and demographics to use technology like smart phones, tablets and laptops makes empowering education and communication far more possible than previously.

YouTube, podcasts, animated Whatsapp videos and easy-to-read articles on the employer’s staff website are a few of the many channels that can add tremendous value.

Consistent communication

For education and communication to have a significant impact, it is important to translate improved knowledge and awareness into action. Persistent communication, focusing on the same message across various communication channels and an escalating sense of urgency, are effective in getting people to start putting knowledge into practice.

Members need to be continuously informed of how their retirement savings are doing relative to their targeted goals. Where savings are falling short, they need to be informed of the actions they should consider.

While much of this information may be available on the employer’s staff website or in annual benefit statements, members often don’t prioritise a retirement ‘check-in’ until they’re nearing retirement. By then the impact of actions to improve retirement outcomes is limited. This is why a professional, wellorchestrated communication strategy designed to turn awareness into action is vital. The strategy should:

• Show members how potential actions can make a big difference to their desired outcomes;

• Clearly explain the options available to members when they need to make key decisions. These include choice of an appropriate investment portfolio at different life stages, choice of annuity at retirement and what to do with their retirement savings when changing employers;

• Highlight the factors that need to be considered when making choices;

• Inject a sense of urgency, but not panic, andencourage members to take control of their financial destinies.

It is also important that the demographics of members — particularly factors such as age, income and education level – are taken into account and communication is tailored accordingly.

Member apathy

There is a tendency to underestimate members’ apathy and overestimate members’ understanding of the retirement industry and terminology. Momentum Corporate’s research shows that members have a basic level of financial literacy. Yet there is general discomfort, regardless of age or income, around the industry’s terminology.

Education of, and communication with, fund members must become more top-of-mind for trustees. Effective strategies can have a significant impact on members’ retirement outcomes.

As a team of unbiased professional retirement-fund consultants, Momentum Consultants & Actuaries is positioned to assist with development of such strategies.