How employers can ease workers’ retirement worries

Companies cannot require employees to follow guidelines about personal savings for monthly bills or retirement, but they can provide education and a needed nudge, which benefits workers and organisations alike.

Around the world, some workers are not thinking much about retirement, a phase of their lives they view as too far away to worry about. Others are thinking about it — and are worried about not having saved enough. This leads to stress at work, which can lead to more absence, lower productivity, and disengagement.

A global survey by Willis Towers Watson shows that fewer employees have confidence in their ability to have sufficient retirement resources. It also shows that 30% of employees expect to be working at or beyond age 70, a statistic that varies widely by country. For example, 45% of Japanese workers plan to be on the job at age 70, along with 37% of workers in both the US and Australia, and 32% from the UK. In France and Germany, those numbers are 8% and 7%, respectively.

This is in part due to people expecting to live longer, and in part due to changes in types of retirement programmes — the defined benefit pension, for example, is well on the path to extinction for many, being replaced by defined contribution plans that put more of the onus of retirement on the worker.

The amount of worry regarding a long work career is also related to a lack of savings. In South Africa, for instance, savings rates are in decline, according to statistics from the Gordon Institute of Business Science and global asset management group Investec. Stagnant wage growth contributes, but so, too, can savings habits.

“The major reason they’re working past 70 is they were negligent in their youth, and that goes back to financial literacy,” said Lyndy van den Barselaar, FCMA, CGMA, the managing director of global staffing firm ManpowerGroup’s South Africa operation. “Employees need to realise that whatever they earn, they need to allocate a certain amount to retirement.”

Van den Barselaar said South Africa’s sluggish economy has heightened worry among employees. In times such as these, financial literacy for workers becomes even more important, she said.

“Jobs are hard to come by, and people are being retrenched a lot,” she said. “The stress levels can lead to an increase in absenteeism, which costs the company financially. And we’ve also seen that people are so desperate that they commit fraud.”

ManpowerGroup South Africa has taken steps with workers, first by offering advice and strategies on budgeting for monthly expenses. One bit of advice is steering clear of high-interest “payday loan” firms as a strategy to get out of debt.

In addition, the company has made it compulsory that new employees use payroll deductions for at least basic healthcare services and enrolment in the company’s provident fund.

“We’re not trying to ensure they have less money to take home,” van den Barselaar said. “We want to make sure they’re covered. If they get ill, they’ve got medical aid; and when they retire one day, they have a pension fund.”

When debt piles up, especially for low-wage earners, workers sacrifice contributions to retirement funds to pay current bills. And van den Barselaar said workers sometimes change jobs simply to cash in the provident fund of their previous employer to pay off debt. That is the sort of activity that erodes savings and can lead to stress as retirement nears.

She said that companies providing workers the opportunity to discuss personal financial issues is a first, critical step to lowering employees’ financial stress.

“Employers need to create an environment where people feel free to discuss their problems with HR or managers,” van den Barselaar said. “A lot of people get into so much debt that they don’t see a way out.”

The Willis Towers Watson survey shows the importance of organisations making financial wellness a key consideration in overall wellness programmes for employees. Workers who say they have both financial and health worries are the most disengaged (35%, compared with 12% who have neither financial nor health concerns), have the highest number of absences, and are most likely to experience above-average or high stress.

— Neil Amato (Neil.Amato@aicpa-cima.com) is an FM Magazine senior editor.

For more on employee financial wellness, read “Benefiting From a Financially Healthy Workforce” from the October issue of FM Magazine.