The impact of the ‘great resignation’ on retirement

Can employers still use enticing retirement saving schemes to retain and attract talent?
Focusing on net take-home pay when contemplating a job change could have costly consequences for an employee, with the employer also losing out. Image: Shutterstock

Spurred on by Covid-19, recent news reports point to an alarming global workplace trend of job hopping and ‘en masse’ resignations. This trend is likely to continue, and is expected to have a significant impact on employers in South Africa.

Employer value propositions are more critical than ever in attracting and retaining talent. With no single company having the monopoly on talent, South African businesses competing for the same talent will need to find elements of differentiation.

The PwC Global Workforce Survey 2022 found that one in five individuals plans to change jobs or switch employers in the next year.

Workers resigning and seeking better opportunities is nothing new. What is different is the pace at which it is happening.

New opportunities, or right-now cash?

A key risk factor in light of these new trends is that employees, on resigning, opt to withdraw their accumulated savings.

What we are seeing is that pension coverage is decreasing. Most companies  offer employees membership to a pension fund, with the intention that this will allow employees to fund their retirement. However, with employees changing jobs more often, there is a risk that they fail to choose to preserve their savings, taking the cash instead.

In a country in which the retirement savings rate is already so dire, South Africa cannot afford for the preservation rate to drop.

Another problem is that employees who job hop, or move employers a number of times, could lose track of all their preservation pots if they do not transfer their ‘paid up’ fund to their new employer.

Read:

Retirement portability could become a solution to this problem down the line.

The positive takeout is that in today’s upside-down world where retaining talent is becoming increasingly complicated to navigate given changing trends, group retirement saving schemes can play a role in retaining talent.

Tax incentives

The tax incentives to save in a retirement vehicle – whether it is a group retirement annuity, company pension fund or an umbrella fund – are still extremely attractive.

The pension fund legal framework in South Africa is robust, and the impending two-pot system will strengthen the overall retirement framework in the country.

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The proposed system, to be implemented from March 2023, will allow retirement fund members to access up to a third of their net retirement fund contributions if they need it for short-term relief, provided that the remaining two-thirds are preserved over the long term, which will improve retirement outcomes for the majority of fund members.

Also, the recent relaxation of the investment limits in terms of offshore allocation, allowing investors to allocate up to 45% of their portfolios outside of SA, will be good for investors over the long term as it allows for greater diversification and flexibility to benefit from a larger investable universe.

Read: It’s official: Retirement funds can move 45% offshore

I encourage those who are thinking of quitting or changing jobs to engage with their retirement benefit structure, to get a sense of the full picture of the benefits offered by the prospective employer.

Know what you might be giving up

Some of the things employees can do is to take time out to understand their benefit structure better. While it is understandable to focus on net take-home pay in today’s high inflationary and cost-conscious environment, it is also important to try and move beyond this.

Here are some tips for employees:

  • Understand your pension contributions, especially the breakdown of your current contributions versus your employer’s contributions. This should be disclosed on a pro forma payslip.
  • Look at who covers the cost of administration: Is it your employer? If so, this can go a long way over the years and help you retain more of your retirement money, rather than it going to costs.
  • Understand what your underlying investment choices are within the pension fund that you are invested in.
  • Look at the healthcare benefits offered by your company.
  • Unpack whether your employer offers you any employee assistance programmes – especially on wellness and mental health assistance.

These are often quite easily overlooked, but in the long run can make a massive difference to how you view your connection with your employer.

Saleem Sonday is head of group savings at Allan Gray.

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