Three global trends are profoundly changing what it means to save for retirement, placing pensions systems across the world under pressure and increasing anxiety among employees.
Data driven insights suggest that the confluence of these trends creates a heightened need, and a unique opportunity, for employers to help their staff along their journey towards financial freedom.
Firstly, the world is going through a profound demographic shift .
Advances in medicine and the science and practice of wellbeing are resulting in people, the world over, living far longer lives than ever before, although not always in better health.
Concurrently, fertility rates - the average number of children born to a woman over her lifetime - have been declining globally.
Consequently, populations around the world are ageing, implying that the time individuals have to save relative to the time spent in retirement is falling dramatically.
Where in the 1950s retirees might have expected to spend around 10% of their adult life in retirement relative to 90% working, that ratio is today closer to 50/50.
Secondly, markets are increasingly volatile.
Recent regulatory changes have afforded South African investors with unprecedented access to the immense opportunity provided by global markets.
However, this has occurred alongside a global shift to defined contribution pension schemes, implying that most of the investment risk that comes with this access has been transferred to the individual.
As returns are less certain while risks prevail, investors face increased uncertainty when saving for their futures.
Finally, in South Africa, these trends are compounding with a well-documented and alarming retirement savings shortfallas many borrow to spend, rather than earn to save.
More than nine out of every ten South African's are unable to afford retirement with the country exhibiting average retirement replacement ratios well below those seen in developed economies.
Unsurprisingly, therefore, retirement concerns are highly pronounced among South African employees.
More than half, 53%, of respondents in developed countries believe that social security systems have deteriorated and only 26% believed that it had improved over the decade, according to a comprehensive survey conducted by Credit Suisse.
That is not an encouraging result, but of more concern is that South Africans are the most pessimistic of the 16 countries surveyed, with 67% of respondents having perceived a deterioration of the social security system over the decade and only 10% having reported an improvement.
Local Dynamics
When people don't save enough not only do they suffer in retirement but their dependents, who then need to support them in old age, are also less able to save.
This creates a snowball effect that entrenches the 'sandwich generation' phenomenon and has profound consequences for both the structure of society - by exacerbating inequality - and for the economy - by forcing many into states of chronic indebtedness, thereby limiting their ability to invest in value creating entrepreneurship.
Unsurprisingly, therefore, retirement concerns are highly pronounced among South African employees.
In South Africa, "while more than 80% of people above retirement age are in fact receiving a pension, replacement rates are very low and the country does not rank well with regard to future sustainability either, which helps to explain the pessimistic attitude," according to Credit Suisse.
A replacement ratio is a basic measure of retirement-income adequacy, calculated as the net pension entitlement to lifetime gross average earnings.
By the definition used by Credit Suisse, "for full-career workers and, assuming that individual earnings grow in line with average earnings, the replacement rate reflects pension income in relation to the last earnings".
"In 2018, a South African with earnings equal to the national average, (of USD 9061 per annum) for instance, will receive a pension that would make up about 19% of the last earnings," according to Credit Suisse.
This compares poorly to the 59% replacement ratio which is the average for OECD countries surveyed and is the lowest of the countries surveyed.
Clearly, "Most South Africans are not on track for a retirement that they will be pleased with," says Guy Chennells, head of product at Discovery Employee Benefits.
On the contrary, "most are on track for a real problem in retirement".
The key insight is that, as these trends unfold, employers are in a powerful position to do more.
So, how are employers in such a unique opportunity to do more?
While great strides have been made in reducing the cost of, and improving access to, retirement investing, evidence from the field of behavioural economics suggests that it is people's choicesthat have the greatest impact on their retirement outcomes.
This insight highlights the critical importance of incentivising and nudging behaviour change to help employees achieve their retirement goals.
Discovery's shared value model for investing, for instance, provides real incentives of up to 15% more money than a client puts in to encourage them to keep it invested until retirement and actively nudges and helps people to make incremental improvements towards their goals.
In a recent case study on a large financial services organisation who had driven awareness of these features, Discovery found that members who had engaged with these features had dramatically higher preservation rates.
Members who had made a change to contributions were 50% more likely to preserve, members with boosts to the value of more than R50,000 were 150% more likely to preserve and members who had simply opted into the boost programme and generated half of the potential monthly boost value were 48% more likely to preserve.
"These are incredibly exciting and significant findings" comments Chennells. "Each of those preservations represents someone who will now have a dignified retirement rather than the nightmare scenario that many retirees find themselves in."
Employers are in a position of great influence here.
The status quo is that most employers provide a basic retirement savings scaffolding, but that status quo has failed a generation of employees.
Without the tail winds of high investment returns, and in the real context of South Africans emerging from a radically disadvantaged history, employers can, and should, do all that is within their power to provide employees with the tools and support to help them to make the decisions that add up to financial freedom one day.