INVESTIGATING EMPLOYEE BENEFITS, RETIREMENT FUNDING TRENDS AND ATTITUDES AMONGST SOUTH AFRICAN SMALL AND MEDIUM ENTERPRISES (SMEs)

2017

> 3 > 2

CONTENTS1 / FOREWORD 4

2 / ABOUT THE RESEARCH 6

3/ SUMMARY OF FINDINGS 8

4 / DETAILED FINDINGS 12

4.1 SME AND EB OVERVIEW 12• Confidence in South Africa by SMEs, employees and brokers 12• SMEs and debt 20• SMEs vs. Corporates 20• Employee turnover 21• Responsibility for EB 24• Provision of EB (and barriers) 25• EB preferences amongst SME employees 26

4.2 RETIREMENT FUNDING 28• Preparedness for retirement 28• Retirement funding as an SME priority 32• Reasons for lack of SME retirement funding 33• SME retirement funding requirements 34• Public and private sector promotion of retirement funding solutions 35• Preservation 35

4.3 EMPLOYEE BENEFITS SERVICE PROVIDERS 38• Involvement in service provider selection 38• Reasons for choosing service providers 38• Confidence in retirement funding solutions and solution providers 39• Member education 40• Interaction with retirement funds 40

5/ COMPARING THE FINDINGS 42

> 5 > 4

1720

Welcome to the second edition of the Old Mutual Corporate SME Employee Benefits Monitor.

Small and Medium Enterprises are the lifeblood of the South African economy and provide the lion’s share of employment opportunities to working South Africans. As such, it is essential that these businesses also offer a vital financial lifeline to their employees, affording them the long-term financial security they need, for themselves and their families.

Given the challenging economic environment - both local and global - in which SMEs operate today, it is understandable that many find it difficult to achieve a balance between profitability and the moral obligation they have to provide more than just a monthly salary for their employees.

However, it is also true that the provision of solutions that help employees achieve their desired financial outcomes can be a significant source of competitive advantage, particularly, when it comes to attracting, retaining and developing scarce talent.

The findings of the 2017 SME Monitor show that the majority of SMEs in this country are aware of the responsibility they have to provide employee benefits to their employees and the mutual benefits that doing so can unlock. However, there are still a number of obstacles that stand in the way of widespread delivery of such employee benefits within the SME sector. These range from perceptions of high costs to the company and administrative burdens, to the very real challenges of a lack of financial means to fund employee benefits and retirement savings, employee turnover and a reluctance by employees themselves to accept a portion of the costs involved in securing their own futures.

By highlighting these, and other aspects of the SME employee benefits landscape, it is the hope of Old Mutual Corporate that this 2017 SME Monitor will prompt candid and honest conversations amongst all stake-holders in the South African SME sector so that, together, we will be able to find workable solutions that deliver tangible benefits for employees and sustainable growth for small and medium enterprises across our country.

PRUDENCE THIPEGENERAL MANAGER: SME SEGMENTOLD MUTUAL CORPORATE

> FOREWORD

> 7 > 6

This 2017 Old Mutual SME Monitor is the second of its kind and builds on the findings and insights, published in the 2015 SME Monitor. The Monitor evaluates attitudes, perceptions and trends around employee benefits and retirement funding within South African SMEs.

The independent research for this SME Monitor was conducted with SME decision-makers, employees and brokers over February and March 2017. The participant interviews took the form of 45-minute face-to-face engagements or 25-minute Computer-Aided Telephonic Interviews (CATI).

THE SURVEY QUESTIONS WERE DESIGNED TO DELIVER INSIGHTS INTO VARIOUS ASPECTS OF SME EMPLOYEE BENEFITS INCLUDING:

• Attitudes towards employee benefits in SMEs;• Perceptions of the need for, and provision of, employee benefits by SMEs;• Levels of preparedness for retirement amongst SME employees;• General knowledge and understanding of employee benefits;• Driving factors behind the prevalence (or lack thereof) of employee

benefits in SMEs; and• Factors influencing the selection, by SMEs, of employee benefits and

employee benefit providers.

While this SME Monitor is focused on providing the above insights specific to SMEs and employee benefits, it forms part of Old Mutual’s series of research monitors, including the Old Mutual Retirement Monitor and the Old Mutual Savings and Investments Monitor. Maximum benefit will therefore be derived from reading all of these documents together. Electronic versions of all the Old Mutual Monitor publications can be downloaded at www.oldmutual.co.za/corporate.

SURVEY SAMPLE

In addition to surveying decision-makers, employees and brokers in the SME market, the 2017 SME Monitor research included two new participant categories, namely Medium Enterprises and a targeted sample of Women-owned Businesses.

> ABOUT THE RESEARCH02

THE PARTICIPANT SAMPLES WERE AS FOLLOWS:

SAMPLE SIZE

DECISION-MAKERS EMPLOYEES BROKERS

SMALL - MEDIUM ENTERPRISES 460 460 50

MEDIUM ENTERPRISES 100 100 -

WOMEN-OWNED ENTERPRISES 32 30 -

CRITERIA FOR PARTICIPATION:To qualify for inclusion in the survey:

• Small-Medium Enterprises (SMEs) were required to have an annual turnover of between R2 million and R200 million and employ between 10 and 200 employees.

• Medium Enterprises were required to employ between 200 and 1000 employees.

• Women-owned businesses had to be majority owned by women, but no specific requirements were placed on them in terms of turnover or employee numbers.

IMPORTANT NOTE ABOUT THE WOMEN-OWNED BUSINESS RESULTS: While the research conducted with women-owned SMEs delivers some valuable and interesting findings, these have not been included in this 2017 Monitor. The sample size for women-owned businesses is too small to make these findings part of the overall results and they have been excluded for the sake of overall accuracy. They will however be outlined in a separate document.

The sample was controlled by industry sector, using the dti’s Review of Small Businesses (2004-2007) and Stats SA figures used in the BER report in SMEs.

> 9 > 8

SME CONFIDENCE IN SA

• 8% of SME decision-makers agree with the statement “feel confident about the SA economy”.

• Despite this 59% of SME decision-makers feel that their own businesses are sustainable, in the long-term.

• Most SMEs feel that government support of their businesses is lacking and that legislation does not promote SME development and growth.

SME EMPLOYEE CONFIDENCE

• The majority of SME employees (76%) believe “they will stay in their jobs” for at least the next year.

• But only 56% feel that it is unlikely that they will be retrenched. • 41% feel confident about their retirement plans.

BROKER CONFIDENCE

In a number of areas, broker confidence in SA is lower than that of SME employees and decision-makers:• 8% say that government is supportive of SMEs. • 8% say that legislation makes it easier for SMEs to do business.• Only 2% feel that labour has not been a problem for SME businesses.

SMEs AND DEBT:

38% of SME decision-makers, 45% of employees and 67% of brokers say that a lot of business turnover is going towards servicing debts.

OF EMPLOYEES BELIEVE “THEY WILL STAY IN THEIR JOBS” FOR AT LEAST THE NEXT YEAR.

RESPONSIBILITY FOR EMPLOYEE BENEFITS PROVISION

• Most respondents feel that the responsibility for employees’ well-being should be shared by both the company and its employees:

• Lack of finance or available profit 50% of responses

• Employees don’t want to contribute 26% of responses

• Not their responsibility 20% of responses

• Administration concerns 9% of responses

MAIN BARRIERS TO OFFERING EMPLOYEE BENEFITS, AS SEEN BY DECISION-MAKERS

03> SUMMARY OF FINDINGS

IMPORTANCE OF EMPLOYEE BENEFITS TO SMEs AND THEIR EMPLOYEES

• The majority of SME decision-makers and employees believe that the employee benefits offered by a business play an important part in attracting employees.

• But only 56% of SME employees say they actually considered employee benefits when deciding to enter into their current jobs.

EMPLOYEESRESPONSIBLE FOR OWN WELL-BEING

BOTH EMPLOYEES AND EMPLOYERS

RESPONSIBLE

EMPLOYERS RESPONSIBLE

DECISION- MAKERS 20% (2014: 20%) 56% (2014: 50%) 24% (2014: 30%)

EMPLOYEES 25% (2014: 25%) 40% (2014: 40%) 35% (2014: 35%)

BROKERS 12% 65% 23%

76%

> 11 > 10

RETIREMENT FUNDING AS AN SME PRIORITY

• 86% of decision-makers, 90% of SME employees and 98% of brokers say retirement funding provision should be a priority for SMEs.

• But only 32% of decision-makers say retirement funding is currently on SMEs’ agendas.

CONFIDENCE IN RETIREMENT FUNDS

• 45% of SME decision-makers and 44% of employees are confident that their company retirement fund will provide adequately.

• 58% of decision-makers feel that their fund returns are in line with expectations (down from 69% in 2014).

EMPLOYEES’ READINESS FOR RETIREMENT

• More than half of SME decision-makers and employees think that less than 70% of their salary is adequate in retirement.

• 38% of SME decision-makers feel that more than 70% of their white collar workers are prepared for retirement.

• Only 10% of SME decision-makers feel that more than 70% of their blue collar workers are prepared for retirement.

• 55% of SME employees feel they will be able to self-fund their retirement.• 40% of SME employees predict that they will retire at the age of 61 to

65 years.

OF SMEs FEEL THAT THEY WILL BE ABLE TO SELF-FUND THEIR RETIREMENT.

55%

> 13 > 12

4.1 OVERVIEW OF SMEs AND EMPLOYEE BENEFITS

SMEs’ CONFIDENCE IN SOUTH AFRICA

Perhaps as a direct consequence of South Africa’s continued economic challenges, only 8% of SME decision-makers surveyed indicated that they felt confident about the country’s economy.

Despite these low confidence levels, 59% of SME decision-makers (2014: 63%) still feel that their own businesses remain sustainable in the long term and that they have the necessary skills and capacity to deliver on their business objectives and strategies.

That said, the majority of SME decision-makers (6%) do not feel that government is supportive of SMEs in this country, and only 7% (2014: 9%) are of the opinion that SA legislation is geared towards making it easy for SMEs to do business here.

As was the case in the 2014 research, most SME decision-makers (64%) agree that the cost of doing business in South Africa has increased, and 58% of respondents (same as 2014) have the perception that SMEs operate in a more competitive environment than previously.

04> DETAILED FINDINGS SMEs’ CONFIDENCE IN SOUTH AFRICA

DECISION-MAKERS – Positive Sentiment

63%59%

82%

78%70%

20142017

My business has long-term sustainability

Have the necessary technology

Have sufficient skills to deliver what we need

% SME Decision-makers who Strongly Agree (8, 9, 10)

OF SMEs FEEL THAT THEIR BUSINESSES ARE SUSTAINABLE.

59%

> 15 > 14

The responses of medium enterprise decision-makers largely mirror those of SMEs, however, medium enterprises demonstrated higher confidence in the areas of:

• Long-term sustainability of their businesses (78%) versus 59% of SMEs.• Ability to secure funding (48%) versus 35% of SMEs.• Improved financial situation over the past year (38%) versus 25% of SMEs.

Medium businesses are, however, more concerned about labour problems than SMEs, with only 37% indicating that labour challenges have not been a problem for their business, versus the 44% of SMEs that agreed with this statement.

SMEs’ CONFIDENCE IN SOUTH AFRICA DECISION-MAKERS – Negative Sentiment

6%

7%

9%

8%

28%

25%

My business is in a better financial situation than 1 year ago

9%

7%

33%

27%

Debtors are paying on time

27%

27%

Expect business prospects to improve in the next 6 months

% who see this as a strong influencer NOT to preserve (8, 9, 10)

Government is supportive of SMEs

Legislation has made it easier to do business in SA

Feel confident about SA economy

OF SMEs AGREE THE COSTOF DOING BUSINESS HASINCREASED.

64%

20142017

> 17 > 16

At just 41%, the proportion of SME employees that are confident about their retirement plans is still concerning.

CONFIDENCE OF SME EMPLOYEES IN SOUTH AFRICA

While the vast majority of SME employees (76%) believe they will stay in their jobs for at least the next year, only 56% of those interviewed feel that it is unlikely that they will ultimately be retrenched. This is significantly down from the 68% of respondents who felt their retrenchment was unlikely in the 2014 research.

Overall, employees in medium enterprises are more confident that they will not be retrenched (72%) than those in SMEs (56%).

BROKER CONFIDENCE IN SOUTH AFRICA

The brokers surveyed showed some notable difference in opinion from employees and decision-makers in SMEs. The most prominent categories where confidence was much lower than SMEs were as follows:

• Government is supportive of SMEs (8%)• Legislation makes it easier for SMEs to do business (8%)• Labour has not been a problem (2%)

In terms of their own businesses, 69% of brokers feel that their operations are sustainable in the long-term. However, only 10% expect their business prospects to improve in the next six months and 10% feel confident about the South African economy.

SME EMPLOYEES’ CONFIDENCE IN SOUTH AFRICA

13%

10%

Feel confident about the South African economy

43%

41%

Confident about my financial retirement plans

66%

61%

Confident I am able to make good financial decisions

25%

28%

Compared to one year ago my personal financial situation is better

68%

56%

Think it is unlikely I will be retrenched

72%

76%

Think I will stay in my job for at least the next year

% SME Staff who Strongly Agree (8, 9, 10)

OF BROKERS FEEL THAT THEIR OPERATIONS ARE SUSTAINABLE.

69%

20142017

> 19 > 18

% Agreement

Feel confident about the South African economy

Expect business prospects to improve in the next 6 months

Cost of doing business has increased

See a lot of potential for our business

My business has long-term sustainability

Fund providers provide tools/training/product/technology that enable us to sell

Have the products and services we need to deliver

Have the necessary support and technology

Labour has not been a problem

Legislation has made it easier to do business in SA

Government is supportive of SMEs

Expect business prospects for SMEs to improve in the next 6 months

From

thei

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sine

ss p

ersp

ectiv

eBr

oker

vie

w o

f SM

Es10%

10%

62%

58%

69%

79%

83%

87%

2%

8%

8%

13%OF DECISION-MAKERSSAY THAT A CONSIDERABLEAMOUNT OF TURNOVERIS USED TO SERVICE DEBT.

38%BROKER CONFIDENCE IN SOUTH AFRICA

> 21 > 20

COMPARING SMEs AND CORPORATES

Most (75%) SME employees believe it is different working for an SME to working for a corporate organisation. The reasons cited by these respondents for their opinion include:

• More personal / like a family (40% of responses)• Relaxed / more flexible (19% of responses)• Recognised for your contribution (8% of responses)• Opportunities for personal growth (7% of responses)

Despite these positive perceptions of SME employment, half of the employees said they chose to work for an SME because that’s where they could find a job. Most also felt that corporates generally provide better benefits, higher salaries, greater career growth opportunities and enhanced exposure.

SMEs AND EMPLOYEE TURNOVERSMEs AND DEBT

Debt remains one of the primary challenges to the sustainable success and growth of SMEs in South Africa with 38% of SME decision-makers, 45% of employees and 67% of brokers saying that a considerable amount of business turnover is going towards servicing their companies’ debts.

SME EMPLOYEES

YES NO

DON’T KNOW YES

BROKERS

DO SMEs EXPERIENCE HIGHER EMPLOYEE TURNOVER?

NOYES

DECISION-MAKERS

NO

DON’T KNOW

> 23 > 22

Of the decision-makers who think SMEs are different to corporate, 84% believe that their businesses attract a different profile of employees than large corporate organisations. 76% of these decision-makers feel that SMEs are unable to compete with corporate salary packages, and 71% say that SMEs can’t offer the employee benefits that a corporation offers.

Their perceptions appear to be confirmed by the reasons given by SME employees about what would be different if they worked for a corporate. These include:

• Higher income (42% of responses)• Better benefits (33% of responses)• Improved opportunities for growth and experience (27% of responses)

EMPLOYEE BENEFITS AS A DRIVER OF EMPLOYMENT DECISIONS BY EMPLOYEES

The majority of SME decision-makers* (65%) and SME employees (70%) believe that the employee benefits offered by a business play an important part in attracting employees. This sentiment is shared by 54% of brokers.

NO

SME EMPLOYEES

YES

DON’T KNOW YES NO

BROKERS

YES NO

DECISION MAKERS

DO EMPLOYEE BENEFITS INFLUENCE WHICH COMPANY EMPLOYEES SELECT?

OF DECISION-MAKERS SAY SMEs

CAN’T OFFER THE BENEFITS OF

CORPORATES.

71%

> 25 > 24

Despite this, only 56% of SME employees say they actually considered employee benefits when deciding to enter into their current jobs.

*The figure is notably higher amongst decision-makers in medium enterprises, with 74% indicating that potential employees consider employee benefits when selecting a accompany to work for.

RESPONSIBILITY FOR EMPLOYEE BENEFITS

When asked who has ultimate responsibility for the long-term well-being of SME employees, most respondents felt the responsibility should be shared by both the company and its employees. Responses by decision-makers, employees and brokers showed relatively close alignment as can be seen from the table below:

RESPONSIBILITY FOR LONG-TERM WELL-BEING OF EMPLOYEES

EMPLOYEESRESPONSIBLE FOR OWN WELL-BEING

BOTH EMPLOYEES AND EMPLOYERS

RESPONSIBLE

EMPLOYERS RESPONSIBLE

DECISION-MAKERS 20% (2014: 20%) 56% (2014: 50%) 24% (2014: 30%)

EMPLOYEES 25% (2014: 25%) 40% (2014: 40%) 35% (2014: 35%)

BROKERS 12% 65% 23%

PERCEPTION OF PROVISION BY SMES FOR LONG-TERM WELL-BEING OF EMPLOYEES

COMPANY HAS NOT PROVIDED ADEQUATELY

SOME PROVISION, BUT NOT

ADEQUATE

ADEQUATE PROVISION BY

COMPANY

DECISION- MAKERS 17% (2014: 19%) 43% (2014: 39%) 40% (2014: 42%)

EMPLOYEES 26% (2014: 29%) 35% (2014: 34%) 39% (2014: 37%)

BROKERS 35% 48% 17%

PROVISION FOR WELL-BEING OF EMPLOYEES BY SMEs

When asked whether SMEs are in fact providing sufficiently for the well-being of their employees, the variance between responses by decision-makers and employees increased:

> 27 > 26

This variance may have something to do with the different perceptions amongst employees of what employee benefits are as shown by the figures below:

WHEN ASKED WHAT EMPLOYEE BENEFITS ARE, SME EMPLOYEES RESPONDED AS FOLLOWS:

BARRIERS TO THE PROVISION OF EMPLOYEE BENEFITS

SME decision-makers point to the following as the main reasons why they do not offer employee benefits to their employees:

• Lack of finance /available profit (50% of responses)• Employees don’t want to contribute (26% of responses)• Not decision-makers’ responsibility (20% of responses)• Administration concerns (9% of responses)

EMPLOYEE BENEFIT PREFERENCES AMONGST SME EMPLOYEES

As was the case in the 2014 research, the employees interviewed showed a clear preference for retirement funding and medical aid cover as the two most important employee benefits. Funeral cover was the third most sought-after employee benefit.

EMPLOYEE BENEFITS

20142017

2%4%

Special Sick Benefits – such as HIV, TB, Cancer

4%7%

Critical Illness

4%8%

Income Protection

4%4%

Education Benefit

12%15%

Life Assurance

13%24%

Disability Cover

17%21%

Funeral Cover

82%79%

Medical Aid

92%91%

Retirement Fund

% Responses

• Medical Aid (73%)• Retirement fund (87%)• Employee perks (27%)• Funeral policies (18%)• Savings opportunities (15%)• Disability cover (11%)

PROVISION OF EMPLOYEE BENEFITS

On the subject of whether SMEs are in fact providing any employee benefits to their employees, 70% of decision-makers responded that they are, while only 60% of employees of SMEs agreed.

> 29 > 28

4.2 RETIREMENT FUNDINGEMPLOYEE PREPAREDNESS FOR RETIREMENT

UNDERSTANDING THEIR RETIREMENT FUNDING NEEDS

When asked what percentage of salary is required for employees to retire comfortably, the results were fairly similar between employees and decision-makers, with more than half of each group believing that less than 70% of their salary would be adequate. However, broker respondents differed significantly from these two groups.

THE PARTICIPANT SAMPLES WERE AS FOLLOWS:

WHAT % OF SALARY DO YOU NEED AS AN INCOME

WHEN YOU RETIRE?

DECISION-MAKERS EMPLOYEES BROKERS

Less than 70% 53% 56% 20%

70 - 89% 32% 26% 60%

90 - 100% 15% 18% 20%

In terms of employees’ preparedness for retirement, the perceptions among decision-makers and brokers showed significant differences according to the levels of position held by the employees in the business.

% OF SME DECISION-MAKERS THAT SAY…

% OF BROKERS THAT SAY…

CATEGORY OF SME EMPLOYEE

LESS THAN 30% OF EMPLOYEES ARE PREPARED FOR RETIREMENT

More than 70% of em-ployees are prepared for retire-ment

Less than 30% of employees are prepared for retirement

More than 70% of employees are prepared for retirement

EXECUTIVES 11% 66% 27% 48%

‘WHITE COLLAR’ WORKERS 16% 38% 35% 8%

‘BLUE COLLAR’ WORKERS 41% 10% 69% 0%

In contrast to these perceptions by decision-makers and brokers, 55% of SME employees believe they will be in a financial position to self-fund their retirement. This figure increases slightly to 60% amongst employees of Medium Enterprises.

The perceptions of preparedness to self-fund for retirement changes according to both the position of the employee in the company and the age of the respondent.

OF EMPLOYEES BELIEVE THEY WILL BE ABLE TO SELF-FUNDTHEIR RETIREMENT.

55%

> 31 > 30

RELIANCE ON OTHERS AT RETIREMENT

The SME employees who believe they will not be able to self-fund their retirement, say they will rely on the following people or institutions for the financial support they require:

WHO WILL EMPLOYEES RELY ON FOR FINANCIAL SUPPORT?

AGE INFLUENCES VIEWS

25 to 3452

57

57

5635 to 44

58

4645 to 54

20142017

20142017

55

4755 to 64

BY LEVEL IN THE COMPANY

62

65

91

77

61

60

(* Small sample)*Executive

Senior Management

Middle Management

Supervisor

Other staff in administration & sales

Other staff in production, stores & factory

33

50

27

44

50

43

4% Continue to earn income

16% Combination of children and government

26% Spouse/Family

26% Government

14% Children

BROKER2017

22% Continue to earn income 22% Combination of children and government 48% Spouse/Family

9% Government

9% Children

SME EMPLOYEES

2017

33% Continue to earn income

10% Combination of children and government

33% Spouse/Family

14% Government

15% Children

PERCENTAGE OF SME EMPLOYEES WHO BELIEVE THEY CAN SELF-FUND THEIR RETIREMENT

SME EMPLOYEES

2014

> 33 > 32

RETIREMENT FUNDING AS AN SME PRIORITY

On the subject of whether retirement funding provision should be a priority for SMEs, 86% of decision-makers* (2014: 79%) say it should be. 90% of SME employees and 98% of brokers agree with this sentiment.

*Amongst decision-makers in Medium Enterprises, this figure increases to 92%.

PERCEIVED REASONS FOR THE LACK OF RETIREMENT FUNDING BY SMEs

DECISION-MAKERS BROKERS

• Financial constraints• The cost of EB is too high• SMEs are just trying to survive• It’s the employees’ choice - they must look after themselves• Too much administration• High employee turnover• Lack of knowledge• Employees don’t want to pay for it• Not incentivised to offer it• Too few employees

• SMEs can’t afford it - struggling to meet expenses • Focused on growth and turning a profit - benefits are an afterthought • Not a priority - trying to survive without having to retrench employees• Employee resistance - employees rather want the money and don’t want to contribute• Not compulsory or a legal requirement• Not core business • No perceived benefit to business• Lack of understanding

OF EMPLOYEES BELIEVE THEY WON’T BE ABLE TO RETIRE.

OF BROKERS THINK THATRETIREMENT FUNDING SHOULD BE A PRIORITY FOR SMEs.

In contrast, the responses to whether retirement funding is in fact on the agenda of SMEs revealed a very different picture with just 32% of decision-makers* saying it is. On the positive side, this is well up on the 22% that said it was in 2014.

*Amongst decision-makers in Medium Enterprises, this figure increases to 37%.

35% of SME employees and just 23% of brokers, agree that retirement benefits are on SMEs’ agendas.

RETIREMENT AGE AS SEEN BY SME EMPLOYEES

40% of SME employees (2014: 37%) predict that they will retire at the age of 61 to 65 years old, while 27% believe they will retire sooner, at age 60, and 12% hope to retire at age 55 - 59. Of concern is the fact that there are still 18% of employees who say they will only retire after age 65, or that they won’t be able to retire at all:

• Between 66 and 69: (5%)• Older than 70: (7%)• Won’t be able to retire: (6%)

6%

98%

> 35 > 34

SME RETIREMENT FUNDING REQUIREMENTS

While more than half (54%) of the SME decision-makers surveyed feel that their businesses have unique requirements when it comes to a retirement funding solution, only 38% of brokers agree. At 41%, fewer decision-makers in Medium Enterprises also feel their retirement funding needs are unique compared to those of large corporations.

In terms of the retirement funding requirements that SME decision-makers felt were unique to their organisation, they felt that the solution needs to be:

COST EFFECTIVE

FLEXIBLE AND ACCESSIBLE

EASY TO ADMINISTER

HIGH- PERFORMING

SUPPORTED BY

EDUCATION

Lower costs / cheaper cost to company and employees: 57% (53%)*

Flexibility in the make-up of the product: 33% (30%)*

Simplicity / Easy to understand: 32% (23%)*

Being able to add options when needed / or afford-able: 13% (16%)*

Easy to implement: 14% (16%)*

Low admin-istration bur-den: 16% (14%)*

Excellent ad-ministration and claims process: 12% (11%)*

Growth on retirement fund / good growth / good returns / return on investment: 11% (9%)*

Secure / safe / not too risky / reliable: 2% (5%)*

A way to limit withdrawals / taking the cash: 8% (7%)*

Education for employees: 16% (17%)*

*Figures in brackets are 2014 responses

PUBLIC AND PRIVATE SECTOR SUPPORT OF RETIREMENT FUNDING

SME decision-makers feel that government and financial service providers could support and encourage the uptake of retirement provision solutions in the following ways:

GOVERNMENT

• Additional/better tax benefits, exemptions and reductions• By making retirement funding provision for employees compulsory

FINANCIAL SERVICE PROVIDERS

• Lower costs• Increased awareness through marketing and education• Customised packages tailored to individual employers

REASONS FOR LACK OF RETIREMENT SAVINGS PRESERVATION

The widespread failure of retirement fund members to preserve their fund benefits when leaving or transferring jobs remains a key concern for the retirement funding industry. When asked what they believe the main reasons are for employees failing to preserve their retirement fund benefits, the majority (80%) of SME decision-makers cite a desire to access the cash savings as the main cause. Other key influences are shown in the chart below:

OF DECISION-MAKERS FEEL THAT THEIR BUSINESSES REQUIREUNIQUE RETIREMENT SOLUTIONS.

54%

> 37 > 36

INFLUENCES ON THE LIKELIHOOD OF NOT PRESERVING DECISION-MAKERS

20142017

12%13%

Cost of transferring to another fund

31%30%

Withdrawal benefit is too small to preserve

39%36%

Lack of advice on how to preserve

26%21%

Fear of making the wrong decision

39%39%

A lack of awareness of preservation options

69%

80%

Desire to access cash

% who see this as a strong influencer NOT to preserve (8, 9, 10)

> 39 > 38

4.3 SMES AND EMPLOYEE BENEFITS SERVICE PROVIDERS

WHO IS INVOLVED IN CHOOSING AN EB SERVICE PROVIDER?

FINANCIAL DIRECTOR OR CFO 36% responses

HUMAN RESOURCES 26%* responses

OWNER 25% responses

CEO 17% responses

MD OR GM 16% responses

EXECUTIVE TEAM 16% responses

COMPANY BOARD 16% responses

UNION/BARGAINING COUNCIL 4% responses

*Involvement by HR is typically higher for Medium Enterprises

INVOLVEMENT OF BROKERS IN EMPLOYEE BENEFITS SERVICE PROVIDER SELECTION

Most SMEs (63%) work through a broker when selecting or dealing with their employee benefits service providers. This is significantly up on the 48% of SMEs who indicated they preferred dealing with a broker in the 2014 research.

The main reasons cited for preferring to deal with a broker include:

• Their knowledge, expertise and advice• They save time and lessen administration• They understand the SMEs’ needs• They are a one-stop solution and handle all queries for the SME• They offer the best ‘deals’• A personal relationship is preferred• They are independent and unbiased

WHY SMEs CHOOSE A RETIREMENT FUND PROVIDER

SME decision-makers listed the following as their primary reasons for selecting a given retirement fund service provider:

FUNDAMENTAL REQUIREMENTS POTENTIAL DIFFERENTIATORS

• Reputation • Track record • Financial stability• Fees charges• Investment performance

• Service and ease of doing business• Ability to provide a total EB package• Flexibility• Skills and expertise• Range of investment choice• Support and communication to members• Responsible investing

CONFIDENCE IN RETIREMENT SOLUTIONS

Decision-makers of those SMEs that offer retirement funds demonstrated fair levels of confidence in those funds and their providers, but not all think they will be adequately provided for:

2017 % Confidence

2014 % Confidence

COMPANY RETIREMENT FUND WILL PROVIDE ADEQUATELY 45% 46%

ADMINISTRATION IS DONE PROPERLY 81% 82%

INVESTMENT RETURNS ARE IN LINE WITH EXPECTATIONS 58% 69%

COSTS ARE REASONABLE 56% 62%

Employees of SMEs that offer retirement funds largely agreed with these overall fund confidence perceptions, However, at 66% the number of employees that felt confident in the ease of access to transact or interact with their fund was still relatively low.

2017% Confidence

2014% Confidence

COMPANY RETIREMENT FUND WILL PROVIDE ADEQUATELY 44% 64%

CLAIMS PROCESS IS EASY 41% 46%

EASY TO MAKE ADMINISTRATIVE CHANGES 60% 65%

FUND IS EASY TO UNDERSTAND 58% 62%

EASY TO FUND AND INTERACT ONLINE 48% –

HAVE ENOUGH INFORMATION ABOUT FUND 59% –

> 41 > 40

SME INTERACTION WITH RETIREMENT FUND

SME decision-makers say that their primary means of interaction with their retirement funds are through emails (57% of the time) and via broker engagements (36% of the time).

When it comes to their employees interacting with their fund, decision-makers feel that the majority of such interaction (38%) takes place through meetings with HR. Only 22% believe their employees’ interaction with their fund, is through online or web-enabled channels. However, more employees (29%) say they interact online.

THE MAIN REASONS GIVEN FOR THIS LOW LEVEL OF ONLINE FUND INTERACTION BY EMPLOYEES INCLUDE:

• Members prefer personal interaction (15% responses)• Limited access to computers (14% responses)• Not computer literate (14% responses)• Lack of understanding (5% responses)• Concerned about security (3% responses)• Time consuming (4% responses)

DECISION-MAKERS AND BROKERS CITE THE FOLLOWING ADVANTAGES OF ONLINE ENGAGEMENT WITH THEIR CLIENTS’ FUNDS

DECISION-MAKERS BROKERS

PROS OF ONLINE INTERACTION

• Easy to use • Faster to use online • Facilitates good communication • Keeps you up to date

• Easy to use • Easy to access fund information. Information is always available • Members or HR can update own details• Information is always up to date • Quicker / self help which saves broker time

OF MEDIUM ENTERPRISES SAY THEIR FUND OFFERS MEMBERS EDUCATION.

72%

AVAILABILITY OF MEMBER EDUCATION

At 64% and 52% respectively, relatively low numbers of decision-makers and employees feel that their retirement fund service providers offer sufficient member education. This figure is higher for Medium Enterprises with 72% saying their fund offers member education.

> 43 > 42

05> COMPARING THE FINDINGS (2014 - 2017)

POSITIVES

• 86% of SMEs say a retirement fund is important (up 5%).

• Although still not on the agenda of most SMEs, more SMEs are talking about employee benefits (up 10%).

• Most decision-makers are aware they have made some retirement fund provision for employees, but that it is not enough.

• There is an increased focus on risk benefits as part of employee benefits.

• A higher number of SME employees see disability cover as important.

NEGATIVES

• Small decline (-2%) in number of SMEs saying they provide some type of benefit.

• Biggest decline in the provision of EB Benefits is in small enterprises R7 – R31 million turnover with less than 50 employees.

• Decision-makers are less happy with returns from their retirement funds.

• Decision-makers are more concerned about costs of retirement funding and employee benefits.

• Lack of understanding of the percentage of salary needed for retirement.

• Many SME employees want more money out of their salary rather than contributing to employee benefits.

• While employees have a good understanding of the type of employee benefits that could be offered, they also think that flexi-time, tax breaks or allowances qualify as employee benefits.

OF SMEs SAY A RETIREMENT FUNDIS IMPORTANT.

86%

> 8

NOTES