Planning Effectively for Retirement

Planning Effectively for Retirement


Given that most South Africans neither plan for their retirement or put adequate insurance or death and disability cover in place  until it is too late, Alexander Forbes has designed a process  to help individuals plan more effectively for both retirement and death and disability. Called auto-targeting, the process aims to assist employees achieve good outcomes in respect of their retirement as well as death and disability cover – even if they make no effort to do so themselves.

“Think of it as auto-piloted financial planning, based on key information concerning member’s circumstances” says John Anderson of Alexander Forbes Financial Services.

In spite of the existing structures that are available to members and the increased focus on outcomes, observed evidence indicates that people do not actually bother to get advice even when this is offered, usually because of the effort required in doing so.

In short, “Human behaviour hinders successful retirement planning no matter how proactive an organisation may be in promoting an outcomes-based approach to members,” explains Anderson.

Assisting choices

This is why Alexander Forbes has designed an auto-targeting mechanism allowing individuals to benefit from strong default options, automatically selected for those individuals who do not make active choices.

Trustees and employers are already seeing the merits in shifting the focus of their retirement funds and employee benefit programmes away from merely outperforming their peer group or benchmark, to helping individuals achieve a comfortable retirement and meeting employees’ needs.

In other words South African employers have generally recognised that “An employee benefit programme needs to take into account the financial goals of individuals, and then help them achieve these goals,” says Anderson.

In brief, individual goal-based results look at what each employee hopes to achieve and whether he or she is able to achieve this or not. Certainly, this kind of information “is more relevant to employees than trying to show them that their portfolio outperformed its peer group or its benchmark” adds Anderson.

Treating customers fairly

This approach also aligns with the National Treasury’s intention to ensure that companies within the financial services industry treat their customers fairly, as it is focused on the needs, goals and ultimate outcome achieved by an individual.

As the benefit design industry evolves towards a more outcomes based approach “extensive efforts will need to be made to educate members so that they are empowered and encouraged to improve their retirement choices” says Anderson.

To meet these requirements Alexander Forbes’ auto-targeting mechanism reviews the goals of an individual, then calculates the most efficient allocation of their contributions between the various employee benefits to achieve those goals – putting them into the most appropriate benefit structure based on their requirements and budget. This could significantly improve the outcomes achieved by members and address some of shortcomings of existing approaches.

This approach to managing employee benefits is the first of its kind in the world. “The technology has been developed internally and we aim to implement and release it in the New Year for clients to start using,” concludes Anderson.

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