This is the second instalment in a three-part series where Momentum Corporate explores the evolving world of work, sharing the latest trends and insights – revealing how it is reshaping employee expectations and demands.
PART 2 Retire temptation
Editor’s Note:
In Part 2 of this series, we explore the behavioural changes associated with retirement in terms of achieving goals, the science of finance and being prepared for retirement. Through our research, we also collected valuable expert insights from both retirees and authors regarding the overall wellbeing, including the concept of health span and wealth span of retirees. We also provide some practical guidelines that speak to ways to reach a happy and healthy retirement stage.
R etirement and behavioural change
Behavioural change to achieve goals
Behavioural finance
Science-backed savings advice
E xpert insights
Advice from retirees
Advice from authors
Practical guidelines for retirement
R etirement and behavioural change 06
In Part 1, we asked: how do you respond to change? In this series, we unpack this further by examining how our respondents intend to change their behaviour to achieve their overall wellbeing goals, as well as outlining the three attitudes towards money management.
In general, humans follow three stages as we deal with and react to change. First is reconciliation, the letting go of current ways of doing things and behaving, which can be a time of uncertainty and anxiety. Next is reorientation, exploring new ways of working and behaving aligned to what is changing. Lastly, there is recommitment, a time of acceptance of and commitment to what is changing.
Behavioural change to achieve goals
To better understand our clients and how they respond to change, we asked them to highlight the positive actions they planned to take over the next year to improve their finances,
health and general wellbeing. Some 58% of employees said that they were planning to be more physically active and more than half of this group mentioned that they would like to start saving more and spending less. Further, 54% of employees said that they would like to continually upskill themselves to remain relevant in the evolving workplace.
Retirees revealed similar goals, with 61% of respondents saying that they were planning to be more active. Of this group, 37% of respondents said that they planned to act proactively about their mental and emotional health and another 37% indicated that they would like to have more open conversations with their families regarding their financial situation and the goals they want to achieve.
Goals to improve overall wellbeing
These findings show that respondents are aware of the actions they need to take to make a difference in their overall wellbeing. The significance of the link between physical and financial health is clear, with over half of the respondents expressing a desire to improve both these aspects of their lives.
When we look at this in the context of financial services and insurance, change often means gaining new products, benefits or experiences that potentially enhance our lives. It is the early adopters that see the value first and enjoy the rewards because of it.
Behavioural finance – the science behind better outcomes
Despite the prevailing concerns around financial insecurity, employees are demonstrating awareness and a willingness to adapt for their future wellbeing. But, given the financial vulnerability of many South Africans, we recognise that it is challenging to make the changes required to achieve our goals.
So, what does behavioural science say? How do attitudes towards money impact financial success?
As part of our research, we applied a psychometric assessment tool for insights into how clients really feel about money-related topics.
Developed by the Head of Behavioural Finance at Momentum Investments, Paul Nixon, the 3 Money Attitudes Assessment (3MAA) tool helps individuals to understand how they feel about money.
The tool measures financial sentiment and rates people on a scale of one to ten across three metrics: money prudence, money prestige and money anxiety.
1. Money prudence
The prudence measure indicates how disciplined we are in terms of saving versus spending and the extent to which we plan for the future. Money prudence can either be too low (excessive use of debt) or too high (excessive money retention).
Prudence is a balancing act and reflects skill and judgement in using, and retaining, resources. Our sample scored an average of 6,9, which reflects a high medium rating, indicative of individuals who generally exhibit a healthy balance of spending and saving.
When comparing prudence among the income segments, the higher the income segment, the higher the prudence rating. When comparing this across age groups, we see that, as individuals grow older, their prudence rating rises. The Silent Generation had the highest rating (8), which reflects high money retention. This is understandable given that these individuals are already retired and have a more pressing need to protect their savings. Millennials scored lower (6,5).
2. Money prestige
Money prestige is a measure that shows the extent to which people view money as a symbol of success, influence, status and respect. This is the connection we make between our net worth and our self-worth. Interestingly, the average score on this dimension was low (1,1). Low prestige means you are not particularly impressed with money
and tend not to associate money with success or status. These individuals are also less likely to spend money in an expressive manner, that is, to show their wealth.
When considering prestige across the various income segments, we see that the lower the income, the lower the relative prestige rating. We conclude that the higher the income earner, the higher the connotation with money as a symbol for success and status. Conversely, the younger generations prioritise financial status and prestige more so than their older colleagues, with Millennials ranking the highest at 1,6. It is worth noting, though, that even the highest score for this sample is still within the low category.
Money personalities across income segment
3. Money anxiety
The last measurement in the 3MAA is the anxiety rating. This shows the extent to which respondents worry about their financial situation. It reflects how money, or the lack of money, makes them feel and how often they think about this. The average score for this dimension is a medium rating (6), which shows that money is somewhat stressful for our sample of respondents. While the respondents do tend to spend less to save for a rainy day, they are not hyper-vigilant about this.
We see that all income segments have some form of money anxiety, with a medium to high rating. When considering generational differences, Millennials had the highest rating (6,9), followed by Gen X (5,9), Boomers (5,8) and, lastly, the Silent Generation (5,4). This shows us that younger individuals worry more about their financial situation than the older generations.
Income per month
Science-backed savings advice
When it comes to your savings – money prudence –our advice is to follow a 50:20:30 approach:
• 50% (maximum) of after-tax income spent on fixed expenditure (house and car).
• 20% (minimum) straight into your savings.
• 30% (maximum) on discretionary spend (living expenses, holidays, entertainment, cellphone).
On top of this, make sure you always have an emergency fund in place.
This advice is consistent with the research themes of spending less, saving and investing more and offers some structure to help people put these themes into practice.
It is also important to discuss your financial goals with your loved ones. You are more likely to achieve financial success when you and your partner or family have aligned values and common goals.
Preparing for retirement
According to Paul Nixon:
“Financial education is necessary but not sufficient to elicit real behavioural change. As the world moves into the ‘empathy economy’ where psychology becomes as relevant as economics in solving the world’s problems, a better understanding of our ‘factory settings’, such as our personality and cognitive style, makes us more equipped to change our financial behaviour.
In fact, the American Psychological Association found that we are three times more likely to change behaviour when using techniques rooted in financial psychology when compared to financial education. It’s not just about the numbers (income statements and balance sheets) but about the behaviour that got us to those numbers in the first place and the roots of this behaviour in our childhood, relationships and even our DNA”.
Paul Nixon Head of Behavioural Finance
E xpert insights07
At Momentum Corporate, we have an impressive network of specialists and advisers in the retirement space to support clients with the complexities of their finances. In this section, we delve deeper into retirement advice from two key stakeholder groups: current retirees and researchers/authors, to assist our members in achieving their overall wellbeing goals and experience a seamless retirement when they reach that milestone.
Advice from retirees
Who better to advise employees than former employees?
This is why we start off with advice from our beenthere-done-that group: current retirees.
With experience comes wisdom, and so we asked retired people to reflect on the process of retirement and what advice they would give younger generations.
We also asked them about their retiree habits to understand the role that healthy habits and promoting overall wellbeing plays in retirement.
Most of our retirees said they start their day with exercise in the morning:
• They go for walks.
• Hit the gym or play sports.
After that, it is household tasks and/or gardening.
Some retirees continue to work part-time, handling administrative tasks such as:
• answering emails,
• engaging in volunteer work or
• helping with DIY projects.
Meanwhile, afternoons are spent:
• reading,
• catching up on the news,
• watching TV or
• spending time with family members or pets.
In their own words, these types of activities help retirees to stay healthy, keep to a routine and enjoy their days:
“Early cycle with group, breakfast then work for the day.”
“Get up early around six, breakfast, walk around the block, do some PC work.”
“Exercise three times a week and walking, doing volunteer work.”
“Cook supper, see a friend, help out at frail care, chatting.”
“Watch TV, listen to news.”
We found that retirees who feel they are in excellent health typically either work full- or parttime or manage their own business. They exercise daily or participate in sport and have hobbies such as reading and gardening. This reflects a holistic caretaking of their finances, health and emotional wellbeing.
work
The graph below shows that there is a close relationship between retirees’ physical health and how they feel about other aspects of their lives.
Those who feel poorly rate all other aspects poorly. Consistent with this, those who rate their health excellently rate other aspects as either ‘good’ or ‘excellent.’
Retiree physical health scores relative to other wellbeing attributes
We then considered the impact of finances on other wellbeing attributes. We found that finances are significant because those who rate their finances as ‘poor’ or ‘neutral’ have lower scores on other wellbeing attributes than those who rate their finances as ‘good’ and ‘excellent.’
However, we see the gap between financial health and other wellbeing attributes is wider than the gap between physical health and other wellbeing attributes.
This shows that the relationship between physical health and other aspects of wellbeing is much closer than that of financial health. For example, if your finances are poor, you may still be healthy and emotionally well, whereas if you are physically unwell it has a greater impact on other wellbeing aspects.
Retiree financial health scores relative to other wellbeing attributes
Our next question was:
What should people start, stop or continue doing to improve their lives?
“... financial planning early in your life and do proper homework if you do decide to invest in any business.”
“Appreciate how you value something vs. how society values something.”
“Always put away some funds for emergencies.”
“Save where life allows.”
“Cut loose non-value-add, begin saving/investing soonest.”
Start now
When asked what people should start doing, retirees emphasised the importance of money management. This includes setting up a budget, financially planning for the future, spending less than you earn and saving money early.
Saving for retirement, being prepared for unexpected costs and goal-based investments (matures in the future) were also rated as important. Respondents also spoke about starting their own businesses, ongoing education and skills development.
“Stop buying things to impress others.”
“Stop buying frivolous things that have no material value.”
“Excessive spending on things with no value. Take-away’s, luxuries, eating out, drinking, etc. Don’t become consumer hungry. You don’t need 20 pairs of shoes and 10 handbags.”
Stop today
With regard to advice on what to stop doing, respondents emphasised the importance of avoiding unnecessary spending and not wasting money on frivolous items to impress others. They also warned against chasing after possessions and worrying about things you cannot control.
Continue with
When asked for advice on what to continue doing, the retirees gave responses consistent with the above recommendations. To ensure a more comfortable retirement, retirees suggested a holistic approach to retirement preparation. This includes proper financial planning, as well as taking care of your health and personal wellbeing. Continuous learning and self-improvement were often mentioned as these create opportunities to improve your career. Enjoying life and nurturing your relationships were strongly encouraged.
Advice from authors
Would you like to live longer? And better? For most of us: that’s an easy yes.
In the best-selling book Outlive: “The Science and Art of Longevity”, researchers/authors David Attia and Bill Gifford highlight that too much of our healthcare focus is on life span compared to health span, which refers to the quality of our lives as we grow older.
Outlive compiles the latest science on health and longevity, combined with practical advice on how to live better today across four pillars of good health: exercise, nutrition, sleep and emotional health.
It is worth noting that life expectancy in South Africa is on the rise, having improved by 8,1 years from 58,4 years in 2010 to 66,5 years in 2024.
But what happens to our finances when we live longer (life span) in better health (health span)? Having access to sufficient financial resources to ensure that we can provide for ourselves for longer is, in simple terms, dependent on our wealth span, the life expectancy of our finances.
Maya Fisher-French, well-known South African personal finance journalist and author of “Money Questions? Answered!”, stresses that
“time is the most valuable asset when it comes to saving and investment and the earlier you start saving, the more money you will have invested – it is not just the money saved but the growth on the funds that you are putting away.”
Now that we are living longer in better health, it is even more important to take the necessary actions as soon as possible to accumulate the right savings and investments for the long term. The topic of life span and longevity will be unpacked in more detail in a later series.
Practical guidelines for a happy, healthy retirement:
Financial
• Have a budget and a financial plan and stick to it.
• Save as early as possible and cater for emergencies with an emergency fund, investments and retirement savings.
• Improve your ability to earn more through upskilling and reskilling yourself and/or pursue entrepreneurial ventures (if financially viable for you).
• Do not spend on unnecessary things simply to impress others.
Physical
• Take care of your physical health by eating well, getting active and prioritising sleep.
• Exercise at least five times per week for 30 minutes at a time.
• Switch up your exercise regime with some fun strength sessions.
• Quit smoking and reduce your alcohol intake.
Mental
• Take care of your emotional and mental health by seeking out strategies for work-life balance.
• Develop authentic relationships and prioritise your social connections with loved ones.
• Try not to worry about things that you cannot control.
• Pursue hobbies and DIY projects as you get closer to your retirement years.
P roduct innovation08
Our ambition at Momentum Corporate is to be the best digitally led employee benefits business in the country, and to make employee benefits accessible to all employed South Africans.
The starting point is to offer a strong, relevant, needs-based employee value proposition (EVP), of which employee benefits are a critical component.
“An employee value proposition is the unique set of benefits which an employee receives in return for the skills, capabilities and experience they bring to a company. An EVP is about defining the essence of your company – what makes it unique and what it stands for. It encompasses the central reasons why people are proud and motivated to work there, such as the inspiring vision or distinctive culture. When integrated into all aspects of business, a strong EVP will help to retain top performers and attract the best external talent.”
Michael Page | Specialised Recruitment Consultancy
In this section, we provide an overview of the main financial products held by employees, and whether these are provided through their employer or standalone. South Africa’s most recent financial reform – the two-pot retirement system – is also discussed, together with its impact on retirement funds.
Financial product insights – what the research shows
When comparing financial products from an employer’s employee benefits provider to products bought outside of employment (standalone), there is a similar distribution in terms of the percentage of employees holding benefits across death, disability and funeral cover.
Significant differences are, however, seen in the number of employees having long-term products such as critical illness benefits and retirement annuities. This is most likely due to these benefits either not being available through the employer or bought as top-up cover.
Further significant differences were seen with investment and savings products, emergency savings, short-term insurance such as car and home insurance, emergency services and pet insurance.
Financial products held by employees
Reasons for products outside of an employment contract?
These include peace of mind and to meet an individual need, but this often means individual premium rates, which are likely to be more expensive.
In Part 1 of the series where we explore trends and challenges, our research showed that almost one in four employees struggle with significant unplanned expenses. Emergency savings could be a lifeline to prevent financial hardships or deepening of debt, as well as to obviate the need to dip into the savings component of retirement savings.
Only 5% of employees have access to emergency savings products through their employer, resulting in many employees buying the product on their own (59%) . Our research also shows that employees would prefer to have contributions taken off their salaries as this ensures disciplined savings towards their goals.
Lastly, more than half of employees buy death, disability and critical illness benefits, and just under half buy funeral cover on their own. This is clearly a need, and buying this at group rates offers real value to employees.
Meeting employees’ needs: From an employee benefits perspective, our clients recognise the importance of traditional benefits such as medical aid, retirement savings, group insurance and access to affordable financial advice to successfully meet their employees’ needs. These will continue to be important and relevant. Our research also reveals that several employers believe they should be offering these benefits, but do not, due to various reasons, including limited awareness of products, affordability and access, and the impact of administration on their operations.
The workforce is rapidly evolving, with a growing employee demand for flexibility, convenience and personalisation. As a result, modern employee benefits are being developed by the employee benefits industry to meet new needs, or to meet needs more holistically. Examples include initiatives that aim to educate and empower employees to make smart decisions and to make virtual doctor consultations.
Our research also reveals that almost half of employers recognise the importance of a onestop digital platform from their employee benefits provider, for all employees’ financial needs. Online retirement tools and personalised education opportunities were some of the suggestions made by employees to educate and empower them.
Through our client engagements, we have learned that employees need assistance to find the appropriate solutions, but not all want or have access to formal financial advice. Online searches offer too many choices, and employees prefer to receive referrals to trusted brands endorsed by their employer. They also prefer premium payments deducted from their salary, for peace of mind, convenience and payment consistency.
A notable research insight is the continued importance and focus on holistic employee wellbeing, with the need for an employee assistance programme that provides employees and managers with support services designed to assist with day-to-day, as well as any out of the ordinary circumstances. Services required include psycho-social counselling, trauma support, family care, debt restructuring support, legal advice and financial advice (debt and court cases, financing your house and car, retirement planning, etc.).
The two-pot retirement system, South Africa’s latest financial reform, came into effect on 1 September 2024.
Quick recap: The aim of the two-pot system is to help employees to retire more comfortably by preserving some of their retirement savings, while also giving them flexibility to access the money in their savings component for financial emergencies. The challenge is that most South Africans are not saving enough, so withdrawing prematurely can leave people vulnerable to significant shortfalls in their later years.
Some 86% of our employee sample contributes either to a retirement fund or to a retirement annuity fund, and therefore qualify for this newly introduced system.
We tested the general sentiment around this new system ... and the findings are interesting.
Our survey reflects diverse employee opinions on the two-pot retirement system and diverse related financial behaviours. A significant portion of respondents (38%) said they are unlikely to fully support the legislation, while a similar number will (33%) . One in four employees want more information, indicating a gap in understanding. Some 38% say that their financial advisers or retirement funds have properly explained the twopot system to them, and 33% say they have not.
Notably, most say they are unlikely to withdraw money for non-emergencies (84%) or to pay off debt (64%) , suggesting an understanding of the importance of preservation. Of concern, however, is that a third are likely to resign for full access to their retirement savings. The findings reveal that 55% of employees support compulsory preservation, while 22% show a reluctance to embrace this, highlighting a desire for flexibility in accessing retirement funds.
I won’t consider resigning to access my full retirement savings as I can now access a portion every year.
My financial adviser and/or retirement fund have properly explained the two-pot retirement system to me.
I fully support the legislation and believe that it goes a long way to address my short- and long-term needs.
I still don’t understand and would like more information on the two-pot retirement system and how it will affect me.
I don’t support compulsory preservation of my retirement savings. I want to be able to withdraw all my retirement savings, eg if I leave my employer for any reason.
I am going to withdraw to pay off all/some of my debt.
I am always going to withdraw as much as I need for day-to-day expenses.
I am going to withdraw to buy an asset, eg a house.
I am going to withdraw even though I have no financial emergencies.
Statement: On a scale of 1 to 10, where 1 is ‘totally disagree’ and 10 is ‘fully agree’ . Average score 6,5 6,2 5,3 5,0 4,6 3,8 3,3 3,1 2,5
Input from financial advisers
We asked financial advisers how the employee benefits industry could support brokerages with the two-pot retirement system implementation.
Financial advisers strongly emphasised the need for educating and communicating with employees about the two-pot system. This includes keeping employers and members informed through clear and concise communication, providing simple explanations, hosting webinars, workshops and member sessions, and creating marketing materials such as brochures, information booklets and presentations to explain the system clearly.
Financial advisers further requested proper guidance on the withdrawal process and specifically the administrative tasks related to it. Suggestions were made to reduce paperwork, streamline processes and ensure that the claims process does not disrupt daily operations.
Latest two-pot update as at 31 October 2024
Our survey was conducted before the go-live of the two-pot system on 1 September 2024.
It indicated a potential average withdrawal rate of 23% if those who selected that they would withdraw and those who were still undecided at the time were both included. This average rate increased to 30% when the reasons were either to pay off debt and/or to pay for day-to-day expenses.
However, actual experience to date is more than anticipated. Momentum Corporate has been receiving and processing two-pot claims since 1 September 2024 and has seen more than ten times the normal monthly withdrawal claims in numbers. With 37% of eligible members submitting
a withdrawal claim, this is again a reminder of the financial vulnerability of many South Africans.
The increase in client interaction has also been significant, with an increase in the number of emails and phone calls of between three and four times the normal monthly average. However, we have seen an increase through all engagement channels, including our digital platforms, such as our website, app, WhatsApp and Smart Benefit Statement.
Currently, 80% of the claims received have been submitted digitally. This indicates that members realise that claims are processed and paid faster when using our digital capability.
However, we urge members to only use funds for financial emergencies and to understand the tax and fee implications of withdrawal, as well as the long-term impact on their retirement savings.
Members have the option to choose how to invest the money in their savings component of the two-pot system, including future contributions. They can either keep their savings component invested in the same portfolio as the rest of their retirement savings, or they can move it to the Savings Component Money Market Portfolio, which is a conservative portfolio with lower market volatility. This means it is not as impacted by market fluctuations and members will have more certainty about the amount they can withdraw in a financial emergency.
Members have increased their interactions with other products in the employee benefits space since two-pot, showing increased engagement and interest in financial matters.
In part 3, we look at the positive and negative impact of wellbeing and longevity in the workplace.
Note:
Please find references for the above chapter in the full insights paper on the Momentum Corporate website.