Millennials – individuals born between 1981 and 1996 – are most at risk of achieving poor retirement outcomes, as this group tends to change jobs more frequently than previous generations and generally cash out their retirement benefits when they do.
Statistics suggest millennials will have between 12 and 15 different jobs in their working life on average, says Viresh Maharaj, CEO of Client Solutions at Sanlam Employee Benefits. This was at a media briefing ahead of the official release of the 2018 Sanlam Benchmark Research, its annual retirement study.
“Our contention is that the number one baseline, foundational reason people don’t have good retirement outcomes is a lack of preservation. It doesn’t matter what investment strategy you’ve got, what costs are in play, what type of advice is there, the counselling, annuitisation, nothing. Nothing else matters if you don’t preserve.”
Maharaj said if millennials were changing jobs more often due to the changing nature of work, it meant that they were far more exposed to the risk of non-preservation.
According to Statistics South Africa, this age group represents upwards of 50% of the employed labour force. This is mirrored in Sanlam’s own Umbrella Fund data – roughly half of its members fall into this category.
Apart from the lack of preservation, other factors are also at play.
During focus group sessions that were conducted with millennials as part of the broader research project, one could almost feel the temperature drop when the topic changed from digital engagement to retirement funds, Maharaj said.
Millennials associated retirement funds with negative concepts such as “old” and “aging”, suggesting that they couldn’t relate to the concept or the products they were being sold.
“Millennials do not relate cognitively [or] emotionally with retirement because of the negative associations… and therefore they don’t engage with the process.”
The age group is generally also highly sceptical of the financial services industry as they have seen first-hand how their parents have suffered from poor outcomes brought about by hidden fees and jargon (among other factors).
Maharaj said most millennials started working just prior, during or after the global financial crisis and have had a completely different experience with regard to returns, volatility and institutional reputation.
“They have been fundamentally shaped by living through that experience.”
The controversy surrounding president Jacob Zuma and allegations of state capture and corruption during his term in office, have also fuelled a significant amount of scepticism in government and institutions.
The research showed that millennials believe things would work out, that they tend to be optimistic and that they had a high degree of belief in their own ability to make a plan, Maharaj said.
Of those who indicated they don’t need a financial advisor, 60% said they could do things themselves based on their own research and available resources, but this had to be seen in the context of generally low levels of financial literacy. Even highly educated professionals who are specialists in their field, often had very little understanding of specific issues such as budgeting, debt and compound interest.
While the general advice line seems to be “speak to your advisor”, millennials aren’t targeted by financial advisors, as they generally have a relatively low asset base.
Figures from Sanlam’s Umbrella Fund show that the average millennial has accumulated retirement assets of R42 000. The average value for 37-year-olds is just under R90 000. This is primarily due to non-preservation.
“[Millennials] are typically left to their own devices. They don’t receive financial advice, are untrusting of financial services, have a low degree of financial literacy, are overconfident in their own abilities [and] are disengaged with the retirement fund. It is a perfect storm that we’ve got going on for 50% of our members.”
To improve the situation, there should be on-going engagement with millennials aimed at empowering them to make better financial decisions. In this regard, technology could be used as an enabler to improve otherwise tedious transactional processes, Maharaj said.
Retirement benefits counselling (as required in terms of the new default regulations aimed at improving retirement outcomes) also presented an opportunity to actively engage millennials at certain important points along their savings journey, for example when they changed jobs.
Maharaj said millennials want to be at the centre of their life decisions, and an approach that appreciates this provided the best possibility of improving retirement outcomes. They do not want to be told what they can and cannot do. Millennials want insight that empowers them to self-evaluate what is in their own interest and gives them the ability to make better decisions.
There is a significant onus on the financial services industry to play an engaged role in helping to create positivity and confidence, he said.