Characteristics that will shape the retirement funds of the future
Millennials’ (25 to 34 year olds) representation in the workplace is growing rapidly and 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 the retirement fund membership – with 52% of members being Millennials, up from 39% in 2013.
Speaking at the annual Batseta Winter Conference, Nomha Kumalo, Public Sector Executive at Momentum Corporate explained that in order to keep up with the changing world of work, the retirement fund industry needs to reconsider their 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.”
“We believe that it is critical that employers, consultants, principal officers and retirement fund trustees understand the psychographics of this generation,” said Kumalo.
Kumalo highlighted some of the broad Millennials’ characteristics which must be considered in order to keep up with a rapidly-evolving workplace:
# 1 Health, wellness and technology
Millennials are value-based and therefore prefer to pursue their dream careers with employers whose mission matches their values. They also place a high premium on their health and wellness and having a healthy work-life balance.
Millennials embrace technology in every sphere of their lives and expect highly personalised customer experiences from the brands they interact with.
#2 Job-hopping impacting retirement outcomes
Millennials change jobs every two to three years. Job-hopping is the norm for them, unlike Baby Boomers and previous generations before them.
“Millennials seek immediate gratification and view retirement as a transition phase and not necessarily a set end date of their formal working careers. Kumalo says that this means that they access their retirement savings more than once during their working careers to pay off debt or to pursue their international travel dreams. “This behavior severely compromises the likelihood of Millennials maintaining their standard of living during retirement,” she said.
#3 Low levels of financial literacy and savings drive high financial vulnerability
The Momentum/Unisa Consumer Financial Vulnerability Index revealed that for the last two years, South African 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 all exacerbated by a very weak local economic environment.
The lack of financial literacy is of particular concern. Momentum Corporate’s employee benefits terminology research revealed that only 16% of Millennials understand the concept of a retirement replacement ratio and less than 44% are aware of investment related terminology such as investment allocation, future contributions and fund credit.
Retirement funds need to be geared for Millennials
This growing demographic will require flexible and innovative product solutions from retirement funds to address their specific needs, said Kumalo. In addition, service experiences and engagement must create tangible value in the eyes of the Millennial in the present.
“At Momentum Corporate we believe that it starts with financial education, which is vital for reducing Millennials’ financial vulnerability. Retirement funds should offer financial education and benefit counseling through a multi-channel approach, which includes digital platforms, such as access to live webcasts or video content, to cater for Millennials.”
Kumalo went on to emphasise that it is also not only about what you provide, but how you engage. “It is 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.”
She believes that retirement funds that offer Millennials a programme that rewards their 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 stress the importance of planning for retirement enough and we want Millennials to understand why it is never too soon to start.”
Trustees, principal officers and consultants have an important role to play to ensure that the retirement fund solutions available to Millennial employees are appropriate. They must ensure that communication about the value of retirement savings is engaging and meaningful.
“One size has never fitted all, and it definitely is not going to in future,” she concludes.