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Retirement benefit counselling has an impact on how much members take as cash

Proper counselling when employees change jobs or reach retirement makes a significant difference to the portion of their savings employees take as cash, but few employees are receiving this kind of advice, according to the 2022 Sanlam Benchmark Survey.

Data from Sanlam’s Individual Member Support division shows that the portion taken in cash at withdrawal has steadily been decreasing since 2018 among members who were counselled, from slightly more than 60% of the fund value to 48% in 2021. On the other hand, the portion of cash taken by members who did not receive counselling has increased, from about 35% to 51% last year.

“Sharing of information during retirement benefit counselling engagements provide an opportunity to demonstrate the real effect that early withdrawal from accumulated retirement capital can have on future retirement annuity income. When members fully understand the impact that any withdrawal will have on their retirement income, they are more likely to preserve that accumulated capital,” says Justin Jacobs of Individual Member Support at Sanlam Corporate.

Benefit counselling also results in members taking less in cash at retirement. Data from Individual Member Support shows that counselled members took 19% of their fund value in cash in 2021, down from 27% in 2018, compared with 25% for non-counselled members.

As expected, the survey found that most employees were cashing in all or some of their retirement savings when they changed jobs. This figure might be reduced if members received proper advice when leaving employers and transferring to new employment.

Nearly 63% of members indicated that they were provided with nothing more than a withdrawal form at exit.

“This highlights the need for retirement funds to include and involve employer human resources officers in the planning and implementing of member engagements. These important stakeholders know their group of employees best and play a key role in facilitating member education at critical touch points in a member’s working life,” says Jacobs.

Similarly, almost three-quarters of the respondents in the consumer study report indicated that their new employer did not encourage them to transfer their retirement savings to the new employer’s fund. A positive intervention could have far-reaching implications to ensure members reach their desired retirement goals.

“Retirement benefit counselling is not only impactful at exit from an employer, but it can also enable better retirement outcomes through engagement at the start of a new employment journey,” says Jacobs.

“Providing members with information about default investment portfolios and contribution rates to assist them in making informed choices will put them on the path to retiring with confidence. This new employee engagement also provides the opportunity to inform members about the ability to consolidate accumulated retirement capital in their new retirement fund and potentially save on costs.”

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