Publications
Partners
We can all agree that South Africa is going through difficult economic times. The economy is barely growing, salaries (in the private sector, at least) are not keeping pace with inflation, and few new jobs are being created.
In these circumstances, many people are treating their pension or provident funds as piggy banks, a source of cash to tide them over until things improve.
At the same time, recent moves by the government to reform the laws relating to retirement funding have also caused confusion and even panic. Some people even thought that they would no longer have access to their pension or provident funds, or that government was “taking” their money.
The unions’ opposition to the forced preservation of provident funds, an important part of the reforms, only added to the sense that retirement savings were under threat. We even saw people taking the drastic action of resigning in order to access their retirement savings – and then failing to be re-employed at the same level, or at all.
These are instances of individuals taking action to access their retirement savings. We should also not lose sight of the fact that as company growth stalls, the number of retrenchments is growing.
When this happens, people can access a portion of their retirement funding and, without a job and bills to pay, many do so in order to tide them over until they find work again – which may be later rather than sooner, in reality.
Whatever the reasons behind these moves to access retirement funds prematurely, the important point is that such actions have extremely negative, long-term consequences for individuals’ chances for a happy retirement unless they are thought through carefully.
This is particularly serious because the people who tend to make these questionable choices are typically blue-collar workers who are least likely to be able to repair the damage when times improve.
The pressures driving people to plunder their retirement savings are real and, for many, the choices are hard. But there is a big difference between making an informed decision that is geared towards minimising the financial impact, and simply taking the first option that comes to mind.
In my experience, the input of a truly independent financial planner can help individuals make the right decisions even when they find themselves in a difficult position.
In the case of the confusion and even misinformation around the reform of the retirement funding regulations, which has been exacerbated by the mistrust that seems to exist between companies and unions, a neutral and expert voice can be very helpful in giving employees sound information and offering reasonable advice.
The company would also benefit because it would be seen to be providing a genuine employee benefit, and the shop stewards, too, would not have the responsibility of advising union members in an area in which they are unlikely to be knowledgeable. Guiding members towards expert, objective help can only make the union look good.
An independent financial planner can also play a valuable, proactive role in helping employees, especially those at the lower end of the salary spectrum, to budget better.
Understanding how to budget properly is an invaluable tool in helping people to cope when inflation outpaces their salaries – in part, at least, by ensuring that they are not overburdened by debt.
For responsible companies, providing access to financial planning does not only benefit employees, it can help reduce the demand for pay increases that cannot be met.
Financial planning will also ensure that employees make the right investment decisions for well-funded retirement.
In the case of retrenchment, too, a financial planner can play a vital role in helping the individual make wise decisions, balancing short-term and long-term needs and goals. Labour lawyers could even consider offering financial counselling as a value-add to their clients.
It’s also worth mentioning that financial planners are governed by their own professional body and the Financial Services Board. This means that they can be held accountable for the advice they offer, and thus can be trusted by employees, employers and unions.
Retirement funding is designed to ensure that people can enjoy their golden years. By working with a financial planner, people are much more likely to be able to prevent the demands of the present from compromising their future.
*Alex Cook is CEO of GCI Wealth.
