What can Netflix teach us about retirement?
More and more people around the world are working differently when compared to 50 years ago. Job-hopping for better positions and pay is common (some might even say beneficial to your CV) and self-employment is the order of the day. In fact, having more than one income source has become so commonplace that it's led to new words and concepts like 'gig economy’ and ‘slashers’.
In South Africa, new legislation and rules continue to improve retirement fund industry regulations and provide greater protection to retirement fund members. Some examples include the Financial Sector Regulations Act of 2017 was signed into law in 2017, while legislative changes to the Policyholder Protection Rules were enacted in January 2018.
To stay abreast of changes in the world of work, regulators and the retirement fund industry should keep the following concepts in mind:
1. INDIVIDUALISATION Many employees no longer want to be told which investments, contribution levels and benefit structures are available for their retirement savings simply because they appear to fit a certain profile. Everyone increasingly wants to be seen and treated as individuals. Netflix does this for its employees by giving them the maximum choice when it comes to employee benefits. They could, for example, take 100% stock options instead of pay, or 100% guaranteed pay, and can choose how to cater for their own retirement, healthcare and other needs. It is interesting, although unrelated to retirement funds, that Netflix doesn’t even have a formal leave policy – employees take leave as they see fit.
2. INFORMALISATION Workers increasingly opt out of traditional, full-time employment arrangements and the gig economy in South Africa is already huge and continues to grow. It is made up of people who have different gigs and do contract work, freelance or sign up for specific projects only. Added to this, are the slashers, people who do more than one job, for example, a stylist/photographer/blogger – not always because they need the income but because it suits their lifestyle and their desire for variety.
Like traditional full-time workers, people in these sectors still have to save for retirement, but traditional employment-based retirement funds do not always accommodate them seamlessly. For instance, there are retirement funds and umbrella fund participations set up for permanent employees with full-time contracts only or don’t allow someone to take a contribution holiday or make a lump sum contribution followed by a break.
3. UMBRELLA FUNDS Multi-employer funds have been in use in South Africa for about 30 years but only began growing rapidly in the last 10 years as market and regulatory forces drove fund consolidation.
Looking at the Pension Funds Act, however, there are a number of points that need to be clarified with regard to umbrella funds, for example, where the fiduciary duty of trustees ends and that of management committees begins. The concept of a managing committee doesn’t even exist in the Act, yet such committees make the most of the benefit structure and investment choices in commercial, sponsored umbrella funds. That said, National Treasury did announce that legislation is in the pipeline to amend the Act to take umbrella funds into account. It’s an area where Old Mutual will actively provide input.
4. OUTCOMES-BASED REGULATION In South Africa, as in the rest of the world, there is a growing awareness of the need to monitor the effectiveness of financial products. This is evident in the concept of TCF – treating customers fairly.
In terms of TFC, regulators do not ask product providers to comply with certain criteria only but to ensure that certain outcomes are reached for consumers. It ranges from fairly soft ideas to concrete matters such as fair fees, prudential asset allocation and regulations around disclosure.
Hopefully this awareness will continue to grow for the important reason that it signifies a slow but steady move to a situation where regulators are legislating around the outcomes they want financial products like retirement funds to achieve. How the funds achieve those outcomes, should be up to them.
Only in this way will market-based innovation be encouraged. The alternative is an environment where there is little room to deviate from prescriptions which will ultimately regulate the industry into stagnation.
THE WORST-CASE SCENARIO Uber provides a prime example of regulations that do not keep up with changing times, technology and the way people live, work and interact.
Customers have flocked to this e-hailing service, yet many countries or cities are trying to regulate it in the same way as normal taxis. Regulations are unable to keep up, leading to perceived unfairness and clashes between Uber and metered-taxi drivers, and even blanket bans on Uber in some cities.
Just like Uber users, people working and saving for retirement want choices that are easy to understand and use, and our current set-up of retirement funds and regulations don't always provide this. The industry therefore has to shift further to provide for the modern workplace and economy while at the same time continuing to support fund members in their decision-making. The world is rapidly evolving and so should our industry.