Are you getting retirement benefits counselling early enough to ensure you retire in comfort?

When you can no longer earn a living, you need to have accumulated sufficient savings to see you through your later years.

Retirement benefits counselling, which retirement funds must, by law, provide to their members, can make an enormous difference by ensuring that you are aware of and prepared for the costs of retirement.

Complying is not enough

But are funds doing enough to ensure you, as member, are prepared enough? Kagisho Mahura, a director of Gradidge Mahura Investments who hold the Certified Financial Planner accreditation, doesn’t think so. In a presentation on retirement benefits counselling titled “From compliance to impact” at the recent annual conference of the Institute of Retirement Funds Africa (IFRA), he said funds need to adopt a more holistic approach to counselling, embracing the spirit and not just the letter of the law.

The legal requirement to provide counselling states, essentially, that counselling may be written or verbal and it must explain your options when you leave an employer and your retirement options not less than three months before you retire (read more: What is retirement benefits counselling and how can it help you?).

Funds that genuinely strive for the best outcomes for their members should be doing more than complying with these basic requirements, Mahura says.

Common misconception

Mahura says there is a common misconception about how much money fund members need to provide for a comfortable retirement.

“One of the biggest problems we find among members is that, because their retirement capital is probably the largest amount of money they have seen in their whole lives, the dreams they have are much greater than what they can actually achieve with that money,” he says.

Mahura says when, about three months before retirement, counselling brings them to the realisation that what seems a large amount is not enough to fulfil their dreams, they experience “cognitive dissonance, the mental stress you suffer when your dreams don’t match the reality you are facing”.

He says counselling needs to happen far sooner than a few months before retirement – when members are still in a position to change strategies.

“We need to start at least 10 years before retirement. This means expanding it beyond what the law requires. We need to start communicating with members in plain language that they understand. Many members don’t understand the numbers they see. Counselling is about taking members through those steps and explaining things to them to prevent any psychological stress they may suffer when they get to retirement simply because they have not understood.” Mahura says.

Guidance throughout your membership

Justin Jacobs, lead of member experience, and Koketso Mahlalela, head of member-led outcomes at Sanlam Corporate, agree that retirement benefits counselling needs to be more holistic and educational.

Mahlalela says that, in addition to explaining members’ options when they exit a fund through resignation, retrenchment or retirement, counselling should provide guidance throughout membership.

Counselling has the best chance of maximising your capital at retirement if you receive holistic education about your fund and saving for retirement when you start a job and this continues throughout your membership of a fund, Jacobs says.

More than providing information

In addition to passively providing information, Jacobs and Mahlalela say funds should ensure there are regular, proactive interventions during a member's journey to retirement.

“By proactively communicating through various engagement channels, such as WhatsApp, telephone calls and group counselling sessions, in language that is well understood by members, the fund can meet members where they are,” Mahlalela says.

“Retirement benefits are complex. So to get the best outcomes, it is important that members put the right actions in place from the beginning. This includes having the right level of contributions, remaining invested at times of exit and engaging with the fund throughout the employment journey,” Mahlalela says.

Greater need under the two-pot system

The recent introduction of the two-pot retirement system necessitates the need for more education and counselling, Jacobs and Mahlalela say. Read more: What is the two-pot retirement system?

“The system has compelled funds to be more proactive with educational topics – to show the impact of savings pot withdrawals and educate members on the rules of the various pots,” Jacobs says.

Mahlalela adds: “The introduction of the system has shifted the focus of counselling to further detail the purpose of the different pots (vested pot, savings pot and retirement pot), and how best to make use of them to grow members’ retirement savings. The aim of retirement benefits counselling is still to drive maximum savings for the member.”

Making use of any retirement benefits counselling offered when you want to withdraw from your retirement savings pot, can help you make the right choice about whether to withdraw in the first place, and if you do go ahead and withdraw, how to get back on track to reach a savings goal that can provide you with the income you need in retirement.

Counselling limits

At the recent Actuarial Society of South African conference, a panel of industry experts noted that members will require more guidance when leaving a retirement fund as decisions now need to be made about three pots – the vested pot, retirement pot and savings pot.

Joanna Combrink, consulting actuary at Willis Towers Watson, said if as member of a retirement fund, you want some cash out of your vested pot and then you need to transfer your retirement and savings pots, a retirement benefits counsellor will not be able to advise you where to transfer your savings and you will need to get advice from a financial adviser.

But advisers tend to disregard to a large extent your retirement fund options in an employer-sponsored fund and this results in a gap that is not addressed by the current legislation, she said.

Combrink said feedback from members indicated that they preferred to be able to speak to a human so they can ask questions when they do not understand and they do not want to read articles or interact with a chatbot.

Michelle Acton, at Old Mutual, said at the same conference that the gap in advice posed a challenge when it came to containing costs and the industry would need to find creative solutions

Use it

At the IFRA conference, IFRA president Geraldine Fowler said the way in which the retirement fund industry communicates the complexities and the technicalities of the industry and its benefits to members was very important.

“If someone drops me off in the middle of the Kruger National Park and I need to track spoor to see where the lions are so they don’t attack me, I am not going to survive two days because I am not a game ranger. Yet we expect our members to understand and navigate the complexities of our industry,” Fowler said.

Good retirement benefits counselling can help you navigate the complexities, as long as you make use of it.