Blue Chip Issue 81

RETIREMENT How shared

RETIREMENT How shared value can solve retirement problems Making sense of today’s retirement landscape. Part 4 In this series we’ve explored how the global retirement savings landscape is being transformed in the wake of two rapidly advancing global phenomena: the Workplace Revolution and the Ageing Revolution. As these unstoppable trends intersect with our complex local context and the reality that we are already faced with a retirement savings crisis, it is abundantly clear that we are going to need new solutions to tackle an age-old conundrum. An age-old conundrum meets the modern revolutions South Africa’s retirement savings industry has failed to solve the problem that motivates for its existence. According to the National Treasury, only 6% of South Africans have enough savings for retirement. This suggests that most of our people simply do not have enough money to live out their lives in retirement without having to rely on their families, communities, the state or, at worst, extractive debt for survival. While modern investment strategies and digital efficiencies have allowed investment managers to lower their fees, this is nowhere near what is needed to tackle a problem of this magnitude. We When people invest earlier, invest more, and withdraw wisely in retirement, they do better. would, therefore, be naive to think that this situation is simply going to resolve itself. This age-old conundrum is now colliding with the twin metamorphoses of population ageing and workplace insecurity. As people live longer, they are spending substantially less time earning an income as compared to their time spent in retirement. As machines disrupt the workplace, those incomes are becoming less secure. We would be incredibly naive to think that these global phenomena will not exacerbate the local situation. Clearly, we need to shift paradigms when it comes to helping people achieve financial freedom. Shared value is the solution Shared value is the idea that when companies align their purpose and strategy with societal needs, they can become more profitable while simultaneously unlocking economic value for everyone. There are, of course, various complex and fluid structural, societal and economic dynamics at play that inform retirement savings in South Africa. Yet, when focusing our efforts to solve for the problem, the key insight we have found is that, in most cases, the problem is behavioural. 96 www.bluechipdigital.co.za

RETIREMENT As the Discovery model for shared value works by inspiring positive behavioural change, there is a solution. Inspiring healthy financial and physical behaviour through shared value Historically, in South Africa, people’s savings behaviours have been poor. In fact, the primary driver behind the dismal retirement outcomes is mostly driven by poor investment behaviours, namely: people are starting to save for retirement too late and retiring too early; when people start saving they are not saving nearly enough; when South Africans change jobs they by and large do not preserve their retirement savings and finally, when in retirement, South Africans are drawing far too much out of their savings for income than is sustainable. Yet, when people invest earlier, invest more, and withdraw wisely in retirement, they do better, thereby solving for the problem of inadequate retirement savings. Through powerful behavioural incentives, that are layered in addition to a best-of-breed investment offering, we help inspire these behaviours. These incentives include substantial investment boosts for clients who engage in these healthy financial behaviours. The quantum of these boosts is then amplified when our clients additionally adopt healthy physical behaviours. This is because when people are healthy, they not only enjoy, and are rewarded for enjoying, a better quality of life and improved economic output pre-retirement, but they live longer, healthier lives in retirement. It works In the few years since introducing the shared-value investment model in 2015, our retired clients who have engaged with the Vitality programme have received on average 20% to 46% in boosts to their retirement income. Withdrawal rates have dropped markedly, and our clients are far more likely to remain invested and on track for their retirement. For society, this reduces the financial burden on families and the state, thus enabling wealth creation and much-needed investment into the economy. In this way, it helps to break the cycle of the Sandwich Generation. Kenny Rabson, CEO of Discovery Invest www.bluechipdigital.co.za 97