By Tokiso TKay Nthebe
Retirement planning is a critical pillar of a financial plan as it helps pre-retirees to prepare, plan and save money during their working years so that they can retire with sufficient funds. Sadly, retirement planning is often overlooked and misunderstood by members of retirement funds, where the assumption is that the responsibility to retire with enough savings lies with the government or the employer.
Without proper financial planning and retirement education, members face the risk of retiring with insufficient capital to maintain their standard of living or to meet their day-to-day living expenses in retirement. Not only is the lack of knowledge disempowering for members who could have made different financial decisions had they known better, but they also face the risk of mismanaging their retirement benefits or falling prey to get rich quick schemes promising them unrealistic returns at retirement.
So, why is retirement education important?
This blog explores how continuous retirement education initiatives can bridge the knowledge gap and improve members’ retirement outcomes.
What challenges do government employees face?
Though government employees have greater job security, we cannot turn a blind eye to several challenges that they face. Firstly, most employees heavily rely on one income stream and do not have voluntary savings or investments beyond their pension benefits. Secondly, government employees are prime targets for sales agents who sell them a plethora of financial products ranging from insurance policies such as funeral covers to high-interest rate loans that are unsecured and are deducted at source without providing the perquisite financial literacy or comprehensive product knowledge. Lastly, many government employees are contributing towards the public pension fund, but lack the understanding of how the fund works, how much they are contributing or where the funds are invested.
Due to the lack of financial literacy and retirement knowledge, the consequences for employees are dire and have a dominion effect that leaves members financially vulnerable in the long term. It starts with employees struggling to meet their daily financial commitments, leading to a vicious cycle where they take high-interest loans to keep up with the high cost of living. Shortly thereafter, employees then take additional unsecured loans to service the existing ones, drown in high-interest rate payments and ultimately consider resigning hoping to cash out from their retirement benefits. Without savings or investments, employees are also often left vulnerable to financial storms, unexpected expenses or emergencies. This opens another can of worms!
How can financial education, specifically retirement education help members make better financial decisions and ultimately improve their retirement outcomes?
- Why does retirement education matter?
The retirement industry (like banking and insurance) is notorious for assuming that members understand how finances or pension funds work or that they will ‘just get it’ which unfortunately is not the case. Not only are pensions complicated but because these benefits form part of a member’s biggest assets, the industry has a duty to do more than just work on assumptions.
This therefore necessities for continuous engagements and educational initiatives driven by pension funds, administrators and industry experts to help members make sense of this industry and their benefits.
Retirement education empowers members with knowledge to make informed decisions about their futures. This includes, but not limited to understanding the relevant pension laws, fund rules, how contribution rates impact their savings, as well as their ability to assess the financial needs today and in the future. Furthermore, these initiatives can help members understand their retirement benefits and investment options, where for example shortfalls are identified regarding their retirement benefits, members can then explore making additional voluntary savings on time to meet their goals.
Without a well-structured retirement education program, members may not understand how to plan, prepare and optimise their retirement contributions during their prime workings years or explore additional products to help them retire adequately prepared.
