Employment benefits are usually the last thing on the minds of SMEs and entrepreneurs. Running their factory and covering monthly overheads is what they’re really preoccupied with.
However, most come to recognise the benefit once they see that the ability to offer employees a suite of benefits puts minds at ease and typically improves operational performance. At the very least, it helps with attracting and retaining a better quality of employee.
It’s good that this is so, because retirement savings and a national savings scheme are likely to become compulsory for all employees in time, and employers should start planning now. Currently, only 50% of employed South Africans belong to a retirement fund, and government is considering regulations to increase this dramatically.
As to why: the country’s savings rate at 16% falls well behind even similar developing countries such as Russia (28%), India (34%) and China (53%).
Social security reforms
As part of its proposed social security reforms, government wants to bring about a compulsory savings scheme. The current proposal is that all employed individuals should pay to a compulsory fund a contribution of their annual income, up to a cap of R150 000 a year.
The contribution will be directed toward funding retirement savings, as well as a death benefit and a disability benefit. Current thinking is that the level of contribution would be 10% of earnings.
This contribution would go into the National Social Security Fund (NSSF). A pension received from the NSSF would amount to at least 40% of the annual income of the individual before retirement. Individuals could top this up with further tax-deductible contributions into either their own retirement fund or a defined contribution section of the NSSF.
For those individuals not currently belonging to any retirement fund, it’s likely to be onerous to find the additional money to save. Government is considering addressing this with a form of contribution subsidy to lower income individuals to assist and encourage them to contribute to the NSSF, but employers may want to soften the blow for other employees (and their own company contribution) by phasing in a scheme over the next few years.
National Treasury lists three broad objectives of retirement reform: firstly, to improve our rate of savings; secondly, to ensure retiring individuals have a reliable income; and thirdly, it has to be fair and low cost.
The first issue involves increasing the number of people contributing to retirement savings, and secondly introducing compulsory preservation so that those who have saved towards retirement cannot access their savings to spend it.
At the moment, members have three options when they leave an employer: they can take their retirement savings in cash, transfer it to a new employer, or transfer it into a preservation fund or retirement annuity. Invariably people take the first option.
The impact of this is that at retirement, members who ought to get a benefit equal to 70% to 90% of their final salary, in fact get only 30%.
To address this, National Treasury has proposed that some level of preservation of retirement become a default option when employees change jobs.
Access to retirement savings
As the new arrangement cannot be retrospective, compulsory preservation would not affect current retirement savings, which would still be available when an employee changes jobs. Further, Treasury is proposing that the unemployed be given some access to their preserved retirement savings and that access will also be allowed in cases of demonstrated medical need.
Post-retirement is also being addressed. Most people use their pension savings to purchase an annuity on which to live in retirement. Treasury’s proposal is to reform the annuity market, having identified the level of costs of some retirement savings products as an issue. By far the largest component of costs is the charge for financial advice, with the other two components being asset management fees and administration.
Treasury is also seeking to simplify taxation of retirement savings. Employer contributions will be included in employee’s remuneration as fringe benefit. Individuals will be permitted a deduction of up to 22,5% of income if under 45, and 27,5% if over 45 on all contributions made to pension, provident and retirement annuity funds.
Three papers have been released by National Treasury so far, one in May covering ‘Strengthening retirement savings’, and two in September covering preservation, portability and annuities. As of the time of writing, a further two were expected to be released in October.
(Infographic) The Financial Advice Millennials And Gen Zers Want To Know
Having a grasp on your financials is tricky, but it’s crucial if you want to be successful. And that starts with getting the right advice.
Whether it’s saving for retirement or paying off credit card debt, money management can be a challenge. Of course, different people have different concerns – and that often comes with age. While a 60-something baby boomer might be organising their savings for retirement, your 20-something millennial might be focused on paying off student loans.
In a recent study, financial intelligence company Comet surveyed more than 1 000 people to uncover the top financial concerns of various age groups, as well as the financial advice millennials and Gen Zers want to know and what they hear instead.
Overall, saving for retirement was the top concern across all age groups, with saving for an emergency and affording monthly bills following in second and third. However, it’s no wonder these are some of the most pressing worries – according to the research, 23 percent of people admit they don’t have a savings account, and 43 percent reported not being on track towards their retirement goals. Perhaps that’s because they didn’t hear the right advice growing up. At least that might be the case for Gen Zers and millennials.
According to the research, these young people want to learn things such as how the stock market works, how to manage an investment portfolio, how to invest in real estate and how to build credit. Instead, they’re simply told how to create a budget, save for retirement and pay credit card bills in full every month.
Having a grasp on your financials is tricky, but it’s crucial if you want to be successful and comfortable. To learn more, check out Comet’s infographic below.
This article was originally posted here on Entrepreneur.com.
14 Ways To Make Quick Cash On The Side
If you need money quickly, here are some solid ideas.
Need to make some fast money on the side, whether it’s to pay off a credit card or to make your rent?
Keep in mind, making quick side cash isn’t about making a lot of money or getting rich. It’s about getting a shot of capital to help tide you over and put something extra in your pocket. However, some of these side-income ideas can build up your wealth over time. There’s many ways to accomplish this: By participating in the gig economy, the sharing economy, online sales networks, passive income techniques and more.
If you’re looking to make extra money in a relatively short period of time, check out these 14 slides.
Take Advantage Of Financial Democracy Made Possible By The New Stock Exchanges
Why should financial democracy matter to entrepreneurs?
Because it creates a society able to afford products and services. Without it, even the innovative products and services that are entrepreneurs’ bread and butter will fail.
What is financial democracy, exactly?
It’s both the right and the ability of the (wo)man in the street and business people to make the decisions that affect their financial circumstances.
Financial democracy does not automatically follow political democracy. For almost 25 years after South Africa’s political transformation, the exclusiveness of our financial markets continued to deprive the vast majority of South Africans of the means to invest, save, and build wealth. South Africa has, therefore, never developed a retail stock exchange environment. So, it has deprived the majority of small and medium sized business of access to capital.
For entrepreneurs to truly flourish, they need a mechanism that easily and seamlessly connects the investor pool with every size of business. And, they need affordable ways to enter both the retail and institutional market.
In short, they need stock exchanges. Ones on which listing takes weeks rather than years, doesn’t break the bank for listing fees, and provides the shortest route to the largest possible potential investor base.
That’s not been possible in the stock exchange monopoly that existed for six decades. Now, it is.
We now have four new stock exchanges. The resulting competitive environment will significantly reduce the cost of listing – and the cost for investors of buying and selling shares.
Instead of restricting share trading to people or organisations who already have tens of thousands of rands to invest or millions to spend on listing, by licensing four new stock exchanges, the Financial Services Conduct Authority (FSCA, formerly the FSB) has recognised that most financial decisions do not call for high levels of education.
Most people know how to spend their own grocery money. Most know that it’s better to keep their R1 000 monthly income in a coffee jar than spend R50 of it on bank account fees. People who can barely read and write are immensely skillful at manipulating air time deals to their advantage.
There is significant financial savvy in all social strata.
In the same way, although the mechanics of bookkeeping and accounting may be unfamiliar territory to many entrepreneurs, most have a clear understanding of the difference between profit and loss.
The FSCA has therefore enabled democratisation of the financial markets by enabling the broadest possible spectrum of entrepreneurs and investors to use stock exchanges to participate in and contribute to the economy – on their own rather than prescriptive terms.
How do you take strategic advantage of this democratisation?
- Base your business strategy on people’s instinct for making decisions in their own best interests. Trust financial decentralisation, such as one sees in crowd funding and in digital environments such as block chain, where people would far rather trust one another than institutions and governments. This is democracy innately at work in the financial environment and it’s accelerating organically as digital technologies give people more means and the confidence to help themselves – to information and opportunities. Ride the wave.
- Tap into people’s desire to innovate. Consumer organisations have proved that letting people interactively help them develop products is a powerful growth engine. Apply the principle by letting people grow your business by buying shares in it, giving you capital and themselves a platform on which to build wealth.
- Remember, the ultimate loyalty reward is equity.
Your financial democracy business plan
Look to list on an entrepreneurial stock exchange; one that was founded by entrepreneurs on entrepreneurial principles.
That means: A stock exchange that is already built on financial democracy and decentralisation. One that has, at its core, a single operational concept that keeps things simple for you, automatically gives you an immediate competitive advantage, and, ensures that no matter what your business needs in terms of attracting capital, the exchange can provide all the options in the same, consistent way.
What does such an exchange look like?
It has fintech capabilities. So:
It slashes your listing costs. It achieves this, among other things, by enabling you to populate an electronic prospectus, demonstrating your financial viability, and self publish.
It gives you control by having the granularity and agility to impose relevant governance right down to the individual investor. You get to decide the types and quantities of investors you want to attract. This also enables you to achieve black economic empowerment in perpetuity.
It leads the world by clearing and settling trades in T+0. No-one in the value chain has to hold large sums of money for days following a transaction. Small transactions become profitable. Investors don’t have to risk their life savings on a single large trade. A retail market is opened. An investment and savings culture is entrenched. The economy expands. Your business grows steadily.
It enables anywhere, any time trading via a mobile app that allows investors to see share value in real time. See economy expansion point above.
It integrates processes and procedures, simplifying them and ensuring rapid onboarding of issuers and, therefore, speed to market with new concepts and alignment with the digital economy.
It operates a principles-based regime. So:
It treats you, as an executive, with respect. It’s not prescriptive. It does not insist on excessive oversight, allowing the Companies Act to guide you to sustainability.
It does not attempt to squeeze your company into a pre-defined business or listings format. It recognises and works with your uniqueness.
It obviates the need for expensive specialist listings advisors.
It focuses on financial inclusion and access. So:
Shares can be bought and sold for no more than R1 000. See economy building point above.
The new world of stock exchanges is integrated, synergistic, holistic, organic, self-fulfilling
Decentralisation of financial control, democratisation of opportunity leads to a whole new economy. One in which, for instance, a taxi operator can finance a minibus through a company in which his purchase gives him shares. A single purchase gives him two benefits: a vehicle on which to found his business and a longer-term investment in shares that he can trade. The funding company gains liquidity through access to a wider base of investors while being able to control who buys and sells and the conditions on which trading takes place. Increasing black equity in business becomes an organic, natural, self-perpetuating process.
Everyone wins in a decentralised, democratised financial market. And it’s the stock exchanges that drive the process.
As an entrepreneur, can you afford to ignore the acceleration that listing could give your business growth?
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