The retirement choices I didn’t know I was making

This article is about an average employee in an average business, receiving conventional communications about a conventional (and perceived boring by them) retirement fund.

In this scenario the HR department sends out and invitation:  ‘You’re invited to a member information session where our retirement fund benefit consultants will explain everything you need to know about your retirement fund.’  In the same scenario this employee declines the meeting in the belief that the benefit consultants can’t actually change anything anyway and that this person as a member doesn’t have any real latitude anyway, and in any event it’s about hypothetical outcomes that are still decades away, and none of this contributes to the KPI’s against which the member is measured in their real-world environment.

Most employees don’t skip these sessions because they don’t care, they skip them because work is busy, life is full, and the retirement fund feels like something that’s largely taken care of in the background.  And on average, these assumptions are both reasonable and true.

What average doesn’t consider however is how important the little nuances and individual choices are.  Almost without exception, this is noticed only after the fact.  The day that the ‘sometime in the future’ event actually takes place.

Perhaps even the name ‘retirement fund’ is misleading?  How can an average employee see this as being currently relevant?

But of course, a conventional retirement fund does cater for situations and events long before retirement.  When reading the brochure, the section entitled ‘Group life cover’ is easily ignored or overlooked.  Why tempt fate by planning for premature death or disability?  If you ignore this it’s less likely to happen.

It’s never in the staff presentations but did you know that collectively South African life companies pay out almost R1 trillion every year in life cover claims?  Few of these payments were actively planned to pay out by any retirement fund member or private investor.  The unexpected happened.  These payouts didn’t apply to the average employee – only those who lost their lives unexpectedly – without planning and long before they intended starting their golden years of retirement.

If these employees had attended (and concentrated) during these sessions, they would have been informed of the difference between approved or unapproved group life cover.  Understanding this tax related technical term may have made a 200% difference.  Approved group life cover involves the premium being deductible, with the member’s benefit being fully taxed.  Unapproved group life is the opposite. 

 

Either way, a significantly important fact that directly affects a member’s family for their lifetime, if impacted.

Non-average fund members (those who attended the presentation and actually listened) would also have understood the benefits that they are enjoying if the fund’s group life cover was subject to free-cover limits.  Or not.   Free cover limit is not just an ignorable industry term.  It’s the difference between whether a person – suffering one of many medical conditions – can receive cover regardless of this known fact.  Another significantly important factor in ones personal financial planning.  This considerable advantage is only available to members on a group scheme, and usually the larger the scheme the better the free-cover limits.

Perhaps attending that short session would have been worth the effort?

When good intentions overlap

A common mistake made by many retirement fund members is to personally purchase education insurance for their school going children. This mistake occurs when this same cover is provided as an integral benefit (without their knowledge) by their fund’s group benefits, usually manifesting itself only when the person doing the financial planning has died and their executors and family find out that only one of the insurances is allowed to pay (there always has to be legal insurable interest).

Years of futile contributions could have been avoided if that same person had spent the hour at the presentation.  Redirecting those premiums into retirement savings would have not incurred any additional cost, though would have strengthen future income without reducing protection.  It’s not a dramatic change – just a more informed one.

While we’ve mentioned two examples of specific member choice, the same can be said for several other insurance subtleties and member choices that are conventionally associated with a group retirement fund.

What tends to sit quietly in the background

A company-sponsored retirement fund is designed to work quietly and efficiently.  Contributions happen automatically.  Benefits are built in.  Investments are governed within sensible limits.  That’s a strength.  It also means it’s easy not to notice how many decisions are being made by default – or how much flexibility exists if-and-when a review becomes relevant.

Disability:  Planning for interruption, not theory

Disability benefits are often assumed to be in place and working as intended.  If disability occurred unexpectedly, it would help to understand:

• what income would be provided (together with tax consequences),
• whether the income would be sufficient until retirement,
• whether it increases over time, and
• whether there are conditions or features that haven’t been reviewed.

GTC, being one of South Africa’s leading benefit consultancies understands that a member’s uncertainty doesn’t imply inadequacy – it is usually just a consequence of a very busy employee choosing their priorities, which at that time doesn’t include their retirement fund.  A short conversation at the right time can replace uncertainty with clarity for when it matters most.

Investment choices that quietly shape outcomes

Most company funds offer a range of investment options, with default portfolios designed to be appropriate for the majority of average members.

Defaults are not ‘wrong’ but over time, personal circumstances change – age, income, family responsibilities, and time to retirement all matter.

Remaining overly conservative for too long (an inherent shortcoming of virtually every retirement fund, based on the risk mitigation that trustees almost always seek to cover) can quietly affect outcomes.

Lower growth today (a guaranteed consequence of a lower risk choice) compounds into less capital later, ultimately influencing retirement income.

Investors need the non-sugar coated reality check that contributing some 10% of their salary will not provide 100% of their required income during their anticipated thirty years of their retirement.  Even the most appropriate investment choice cannot compensate for contributions that are simply too low, particularly when members rely only on default contribution rates.

Actively enabled by prevailing Two-pot legislation, many members also do irreparable long-term damage by drawing from their retirement savings either whilst working or each time they change employment.  The consequences of this outweigh even multiple years of poor investment choices.

Why annual fund presentations matter

Annual fund presentations aren’t about compliance, technical detail, or testing financial knowledge.  They exist to share relevant updates, clarify benefits that may need review, highlight choices that have shifted over time, and remind members of the support available.

These sessions give members the opportunity to check that what’s in place still makes sense for their current circumstances.

A more realistic view of engagement

Your retirement fund supports you at different stages of your working life – while you’re employed, if you become disabled, when you retire, and if your family ever needs it.  Engagement doesn’t require constant attention or financial expertise.  It simply means checking in from time-to-time to confirm that what’s in place remains aligned with your current personal circumstances.  Durable outcomes are rarely driven by big moments, often shaped more by measured adjustments made over time.