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Member Communication:

Employee Benefits in light of the COVID-19 pandemic

Observation by Liberty Corporate 

The COVID-19 pandemic and resultant lockdown has had a significant impact on all South Africans, creating heightened uncertainty, stress, and fear. As you navigate through this period, it is important to ensure that your wellbeing is looked after, both financially and emotionally. Your employer aims to look after your financial and emotional wellbeing through providing you with risk benefits, retirement solutions and additional support and services.

Your financial wellbeing may be looked after by having retirement solutions in place to help you meet your retirement goals, and risk cover in place to protect you financially in the event of death, disability or illness.

Your emotional wellbeing may be looked after by having additional services in place such as emergency and support services, access to benefits counselling, and educational support for your children.

It is important that these benefits and services continue to best meet your needs and those of your family, particularly during this difficult and uncertain time.

Ensuring your financial wellbeing through adequate retirement solutions

In many cases, employees’ retirement savings have been adversely affected by the COVID-19 pandemic. The adverse effect may be as a consequence of the impact of financial market crashes, both locally and globally. Although there has been some evidence of markets recovering, not all markets have recovered to the levels at which they were before the COVID-19 pandemic erupted.

The importance of reviewing retirement contributions for a better retirement outcome

The COVID-19 pandemic, and its impact on financial markets is likely to have an adverse effect on your future retirement outcome and the ability to meet your retirement goals.

However, you may make Additional Voluntary Contributions (AVC’s) towards your retirement savings. Whether this is considered now, or in the future when affordability becomes more apparent, following the pandemic and economic recovery, it is important to understand how AVC’s help to reduce the shortfall in retirement savings, and the positive impact that AVC’s have on your retirement outcome.

For example, consider a 40-year-old individual who contributes 16.5% of their salary towards their retirement savings. They have done so from age 20, and will continue to do so until retirement at age 65. This would result in expected future retirement savings of R2,19 million, which would allow them to purchase a retirement income of R 9 130 per month.

However, due to effects of the COVID-19 pandemic and a consequent fall in financial markets, their expected future retirement savings has dropped by 10% which means that their expected savings at retirement is reduced to R 2,05 million. This would allow them to purchase a retirement income of R 8 531 per month.

The individual could choose to make additional contributions towards their retirement savings, improving their expected retirement outcome and hence income. The effect of contributing an additional 1% towards their retirement savings every year, starting at different ages is illustrated below.

It is evident from the above, that the increase in retirement income is greater if the individual starts contributing an additional 1% every year towards their retirement savings at a younger age, compared to if they start contributing an additional 1% at an older age.

Assumptions: The individual is female, CPI = 6%, Annual salary increase = CPI + 1%, The individual is invested in the Core Balanced portfolio, The individual has a starting salary of R100 000 per annum, All projections are shown in today’s money terms, All fees are ignored, The prescribed FSCA Living Annuity drawdown rates were used to determine the monthly income after retirement.

The need to access cash in the event of retrenchment

While your employer provides you with retirement funding solutions, it is also important to note that in this difficult time, particularly in the event of retrenchment, you have access to your retirement funds. This may be needed in instances where financial hardship is significant.

The ability for you to access your accumulated retirement savings on retrenchment is allowed in South Africa. This differs to regulations in many other countries across the globe where individuals cannot access their retirement savings until retirement.

It is however, in most cases, suggested to preserve if one’s financial circumstances allow for it, and for those not requiring immediate access to cash flow due to financial hardship.

Preserving retirement savings (keeping it invested) rather than cashing it out may greatly increase an individual’s ability to earn a higher retirement income. While funds remain invested, there is also a greater chance of benefiting from market recoveries before cashing out.

However, it is important that you seek advice of a fund financial adviser in the event of retrenchment, based on your individual circumstances.

Ensuring your financial wellbeing through adequate risk benefits

The COVID-19 pandemic and the consequent lockdown has forced many employers to resort to different ways of working to ensure that their businesses continue to survive and continue to support their employees.

However, the speed at which this transformation has happened has also caused a fair amount of distress amongst employees. In addition to this, the recent easing of some of the lockdown measures has caused fear of contracting the virus if they have been requested to return to work. This has caused stress, anxiety and depression for many employees, potentially impacting their long-term physical and mental health.

The importance of having adequate death, disability and critical illness cover in place

For the period between 6 May 2020 and 30 June 2020, a report compiled by the Burden of Disease Research Unit of the South African Medical Research Council shows that more than 6 800 people have died of natural causes in South Africa compared to what was initially predicted.

Not all of these deaths are COVID-19 related. However, it can be deduced that the impact of the pandemic on the economy and the working environment, as well as the strain on the health care system, has led to a greater number of natural cause deaths than originally anticipated.

With the aim of tracking the socio-economic impact of the virus, the lockdown and gradual re- opening of the economy, Ask Afrika, a South African market research company, interviewed a representative sample of 5 000 South Africans over an 11-week period during the lockdown. The results show that financial distress is the main cause of the negative impact on the health and wellbeing of South Africans. The fear that employees have of becoming unemployed has tripled during the lockdown period alone.

Since the start of the lockdown, many employers have adapted to allow their employees to work remotely. The results from the research conducted show that employees’ emotional distress is up to 10% higher for lower income families compared to higher income families due to having to balance a full-time job and household responsibilities at the same time. This has led to higher feelings of fear, depression, discouragement and irritability amongst the employed.

The results of the research clearly illustrate that additional stress has been caused by the COVID-19 pandemic and the subsequent lockdown. This, as well as the impact of depression on both mental and physical health may be significant. Mental health, specifically, is playing a significant role in the underlying cause for many adverse incidents. Consequently, this may result in a greater chance of become ill or disabled.

The COVID-19 pandemic has resulted in a need to review your level of risk cover. By ensuring that an appropriate level of death, disability and critical illness cover is in place, you will receive peace of mind that you and your family are taken care of should anything happen during this highly uncertain time.

Ensuring your emotional wellbeing during the COVID-19 pandemic

Lastly, it is important that sufficient additional support and services are available to you to ensure your emotional wellbeing.

The World Health Organisation recognises the added stress that is being felt around isolation, change and health impacts.

For more information on mental wellbeing during this time. Feel free to browse the link below:

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Morebo Financial Solutions (Pty) Ltd, an affiliate of Liberty, the Liberty Group Ltd is an authorised Financial Services Provider in terms of the FAIS Act. (No. 2409)
Morebo Wealth (Pty) Ltd, an affiliate of Liberty, the Liberty Group Ltd is an authorised Financial Services Provider in terms of the FAIS Act (no. 2409)
Morebo Brokerage (Pty) Ltd is an Authorised Financial Services Provider in terms of the FAIS Act (no. 48360)

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