When it’s your money, who should decide?

Every year, South Africa’s employee benefits industry helps manage about R800 billion on behalf of millions of people. Yet a recent NMG Benefits media roundtable suggested the industry’s biggest challenge isn’t investment returns, healthcare costs, or regulation. It’s about people. More specifically, it’s about what happens when employees are asked to make more of the decisions that employers once made for them.

Many employers still choose the retirement fund or medical scheme, and employees often select from only a handful of approved options rather than the entire market. Even so, responsibility is shifting. Cost-to-company structures mean employees increasingly pay for their own benefits, defined contribution funds have largely replaced defined benefit funds in the private sector, placing investment risk on members, and the decline of employer-subsidised medical schemes means more people are deciding what cover they can afford.

Choice is becoming one of the employee benefits industry’s biggest opportunities.

It is also becoming one of its biggest risks.

Geoff Baars, the chairman and chief executive of NMG Benefits, summed it up simply: “The future of employee benefits is in the hands of the employee.”

From employer decisions to employee decisions

When Baars entered the industry, retirement funds looked very different.

Defined benefit funds were still common. Employers made most of the important decisions. Employees had little say over how their retirement savings were managed, and medical scheme membership often formed part of the employment package.

Today, most private-sector employees work on a cost-to-company basis. Retirement funds are predominantly defined contribution. Medical scheme subsidies have steadily disappeared. In many workplaces, employees pay for their own benefits, even if the employer still decides where that money goes.

Baars believes that arrangement is becoming harder to justify.

“I’m telling you, you’re paying for this, and I’m telling you which fund you must be a member of and which medical scheme you must join,” he said. “Increasingly in future… employees are going to push back… and say, ‘My money, I’m going to choose.’”

Healthcare illustrates how quickly that shift is taking place.

When Karin Mitchelmore, executive head of healthcare consulting at NMG Benefits, started her career, employer-subsidised medical schemes were the norm.

“It was so much easier,” she recalled. Employers typically offered a subsidised scheme that employees trusted would meet most of their healthcare needs. Today, that model has largely disappeared.

Baars has watched the same trend unfold.

When he started his career, more than 80% of medical scheme members belonged through their employer. Today, only slightly more than half do. He expects retail members to outnumber those covered through workplace arrangements before long.

Greater choice sounds like progress. It also introduces new challenges.

Freedom or protection?

Nobody at the table claimed to have an easy answer.

Employees are increasingly paying for their own benefits, so shouldn’t they decide how that money is spent?

At the same time, the panellists have seen what happens when people are left to navigate these decisions on their own.

Baars admits he is conflicted. He doesn’t believe employers should be overly paternalistic. If employees are paying for their own benefits, they should have the freedom to choose.

Yet he has also seen employees leave NMG for competitors that offer higher take-home pay because they don’t require staff to belong to a retirement fund or medical scheme.

“We don’t like to be paternalistic and tell people what they should be doing with their money,” he said. “It’s their money, right? But on the other hand, we’re very concerned about what they are doing with their money.”

Siphamandla Buthelezi, chief operating officer and executive head of platforms at NMG Benefits, approached the issue from a different perspective.

Many South Africans save for retirement only because their employer requires them to do so, he argued. Remove that obligation altogether and far fewer people would retire with meaningful savings.

That doesn’t mean employers should keep making every decision. Their role, he said, is changing.

“The role of the employer doesn’t disappear. It evolves.”

Instead of deciding on behalf of employees, employers need to help them to understand the decisions they are making.

That starts much earlier than many employers realise.

A graduate joins a company, completes a stack of employment forms, and is expected to make decisions about retirement savings, healthcare, and insurance – often before receiving any meaningful financial education.

“Do you hire a 20-year-old graduate and not educate them on financial issues and think that they’re going to make the right decision?” Buthelezi asked.

It’s a question that extends well beyond retirement funds. Healthcare presents the same challenge.

Twenty-five options… and that’s just one medical scheme

If employees are expected to make more of their own financial decisions, healthcare is one of the first places where that responsibility becomes real.

Medical inflation continues to outpace salary increases, leaving households with less disposable income while healthcare costs keep rising.

“The healthcare landscape is in a very tricky position at the moment,” said Karin Mitchelmore, executive head of healthcare consulting at NMG Benefits. “We’re seeing averages of 10%, which is way above your normal salary increase, so people are having less and less money, and they’re having to choose between what is most important right now.”

The pressure is changing the profile of medical schemes.

The average age of beneficiaries has risen from 32 in 2008 to 38 today as younger, healthier members increasingly opt for more affordable alternatives, leaving schemes with older memberships and higher claims costs. At the same time, many employers no longer insist that employees belong to a medical scheme.

“They say it’s fine. We will offer it to you, but it’s your choice,” Mitchelmore said.

Choice, however, comes with a catch.

One medical scheme may offer 25 different benefit options. Add gap cover, medical insurance, and other healthcare products, and the decision quickly becomes daunting.

“Our role is so much more than it ever used to be,” Mitchelmore said. “There isn’t a one-solution-fits-all.”

When money is tight, most people start with the monthly contribution. Mitchelmore understands that. What worries her is when price becomes the only measure of value.

“There’s a lot of value that’ hidden there,” she said of medical scheme benefits. “But if you’re not aware of it, what ends up happening is people make decisions on price, and unfortunately, most of those decisions are poor decisions.”

That doesn’t mean everyone should buy the most expensive option available. The first step, she said, is understanding the family sitting across the table. Are there chronic conditions? Young children? Plans to start a family? Existing cover? Only then does the conversation turn to products.

“Don’t talk to a friend. Don’t base your decision on price,” she urged. “Meet with experts. Let them consult. Do your full needs analysis.”

As more healthcare decisions shift from employers to individuals, the role of advisers is evolving too.

Baars said the growing retail market is asking advisers to master an increasingly complex healthcare landscape, alongside investments, life insurance, and short-term insurance.

“If one scheme has 25 options, you’re a financial adviser, you’re covering investment products, life insurance products, short-term insurance products, and now you must also be an expert in medical schemes. That’s really, really tricky.”

The same principle applies beyond healthcare.

Trevor Kingsley-Wilkins, principal consultant at NMG Benefits, said employers and trustees often compare retirement fund providers using what he calls the “sticker price”. One provider advertises free administration. Another appears cheaper than its competitors.

“But there is no such thing as a free lunch.”

Instead, he said, employers should compare the total expense ratio (TER), which reflects the overall cost of managing retirement savings. Research cited by Kingsley-Wilkins suggests that every additional 1% in fees can reduce retirement outcomes by between 20% and 40%, depending on the assumptions used.

What two-pot really changed

The withdrawals may have dominated the headlines, but NMG Benefits believes the two-pot system has also produced an unexpected outcome: sustained engagement between retirement funds and their members.

South Africa’s two-pot system may have stumbled across something retirement systems in countries such as Australia, the United Kingdom, and Canada have long struggled to achieve: sustained member engagement despite compulsory saving and preservation.

About 80% of NMG Benefits’ retirement fund members have engaged digitally with their savings since the two-pot system was introduced.

“When you tell any retirement fund in another country in the world that 80% of your members are engaging with you digitally each year, they’re just astonished,” said Baars,

For Buthelezi, that engagement signals a fundamental shift. Two-pot has created what he describes as a new retirement ecosystem, one in which members are becoming active participants in decisions about their retirement savings. As a result, retirement fund administrators are now engaging directly with members instead of interacting almost exclusively with employers, HR departments, and trustees.

Engagement alone does not guarantee better decisions. It does, however, create opportunities to explain the tax implications of withdrawals, improve financial literacy, and help members to make more informed long-term choices before they access their retirement savings.

Rather than making every decision on behalf of employees, employers should equip them with the knowledge to make better financial decisions themselves. Trustees, meanwhile, need to make their decisions more transparent, while fund administrators need to build systems and platforms around members rather than primarily serving employers and HR departments.

Putting members first

Yet engagement is only valuable if it helps the industry better understand the people it serves.

Baars points to funeral policies as an example. Millions of South Africans already have funeral cover through their employer, yet many continue to buy individual funeral policies.

“We know there’s a lot of wastage,” he said. “They could get the same amount of cover for maybe a third to a half of that.”

Yet the demand remains.

For Baars, the lesson is that the industry needs to understand why people continue to choose these products before trying to steer them towards alternatives.

He drew a comparison with critical illness insurance, a product developed in South Africa in the 1980s. When it was introduced, insurers questioned whether it would work. The data was limited, pricing was difficult, and many believed it was the wrong product.

Consumers wanted it anyway.

“We can’t keep telling people what they should be doing,” Baars said. “We’ve got to respond to what they really want, and then kind of nudge around that.”

For Buthelezi, that same principle extends beyond product design. It also shapes how retirement funds engage with members. Administrators need to build on the engagement created by two-pot, using it to improve financial literacy and help members make better long-term decisions before they access their retirement savings.

That requires a different way of thinking about who the industry ultimately serves.

“I think we need to stop seeing our client as the board of trustees, HR,” he said. “They are our client, but we need to think about the member.”