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WHAT’S INSIDE YOUR AUGUST ISSUE: EMPLOYEE BENEFITS Employee benefits have moved far beyond medical aid and retirement funds. As expectations shift and costs climb, advisers who can design benefits strategies that genuinely attract and retain talent are in high demand. Cover story and Pg16-18
WOMEN IN FINANCE Women are reshaping the financial services industry as advisers, leaders and clients. For Women’s Month, we celebrate the women driving change and examine what the profession must do to attract and retain female talent. Pg9-15
COLLECTIVE INVESTMENTS While they remain the backbone of most client portfolios, the landscape around collective investments is shifting rapidly. We unpack the trends reshaping this industry and what they mean for advisers’ recommendations. Pg20-23
SHARI’AH INVESTING As a fast-growing investment segment, Shari’ah-compliant investing is an area advisers can’t afford to overlook. We explore how Islamic finance principles are being applied in South Africa and why demand is rising.
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Pg24-26
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Employee benefits enter a new era By Sandy Welch
Editor MoneyMarketing
F
or decades, employee benefits have largely been shaped by employers. Companies selected retirement funds, medical schemes and group risk benefits, while employees simply joined the structures that came with their jobs. That model is beginning to change. According to Geoff Baars, Chairman and CEO of NMG Benefits, the future of employee benefits will increasingly be driven by employees themselves, reflecting a broader shift towards personal choice, financial ownership and individual responsibility. “The future of employee benefits is in the hands of the employee,” says Baars. “It’s their money, and they’re going to want to make the decisions about how it’s used.” The shift is significant in an industry that manages approximately R800bn in annual contributions, including retirement funds, medical schemes and group insurance. Around nine million South Africans belong to retirement funds, while approximately eight million participate in group insurance arrangements. “It’s a very important industry,” says Baars. “What happens to this money is important to literally millions of people.” While participation is relatively broad, adequate financial security remains elusive. “The breadth of coverage is relatively good,” he explains. “The challenge is the depth of that coverage. Are people saving enough for retirement, and are the benefits meeting their long-term needs?” The employment landscape has also transformed. Defined benefit pension funds have largely disappeared, replaced by defined contribution arrangements where employees build their own retirement savings. Yet benefit structures have not kept pace. Employees increasingly fund their own retirement and healthcare through cost-to-company packages, but often have little say over the products they must join. “We’re seeing a growing logical inconsistency,” says Baars. “Employees are effectively paying for these benefits themselves, yet in many cases they’re still being told which retirement fund or medical scheme they must belong to.” Healthcare illustrates this shift particularly well. Medical scheme membership has remained largely
“The future of employee benefits is in the hands of the employee” static despite population growth, as affordability continues to constrain access. While alternative healthcare products have emerged, millions of South Africans remain without adequate private healthcare cover. For Baars, this means employers must move away from one-size-fits-all benefits towards advice that reflects individual circumstances. “Our mission is to ensure that every member receives the best financial advice for their circumstances,” he says. “We know that’s not happening today for many people.” Healthcare benefits under pressure According to Karin Mitchelmore, Executive Head of Healthcare Consulting at NMG Benefits, private healthcare is experiencing what she describes as a “squeeze effect”, driven by rising medical costs and declining affordability. “The rising cost of clinical treatment, combined with a shrinking pool of younger, healthier members, is forcing medical schemes to increase contributions well above inflation,” she says. “We’ve seen annual increases of around 10%, far outstripping salary growth.” As employees come under greater financial pressure, many employers are moving away from compulsory medical scheme membership, giving staff more flexibility over how they spend their healthcare budgets. While that increases choice, it also changes the risk profile of medical schemes. “The average age of medical scheme beneficiaries has increased from around 32 in 2008 to 38 today,” says Mitchelmore. “Young, healthy employees are increasingly looking for cheaper alternatives, leaving medical schemes with an older and more expensive membership base.” Healthcare advice is also moving beyond the workplace. Baars notes that whereas most medical scheme members once joined through their employers, retail advice is becoming increasingly important. Continued on next page