Benefits Barometer 2017 by Alexforbes

CHANGING WORLD OF WORK

WORKING TOGETHER, FINDING SOLUTIONS, IMPROVING LIVES

Disclaimer The information in this book is not advice nor is it intended as a personal recommendation, guidance or a proposal on the suitability of any financial product or course of action as defined in the Financial Advisory and Intermediary Services (FAIS) Act. While care has been taken to present correct information, Alexander Forbes and its directors, officers and employees take no responsibility for any actions taken based on this information, all of which require advice. Please speak to your financial adviser for tailored advice based on your individual financial needs before you make financial decisions based on this information. The graphs and charts in this book are for illustrative and information purposes only. The information in this book belongs to Alexander Forbes. You may not copy, distribute or modify any part of this document without the express written permission of Alexander Forbes. Alexander Forbes Financial Services is a licensed financial services provider (FSP 1177 and registration number 1969/018487/07). Alexander Forbes Health is a licensed financial services provider (FSP 33471 and CMS registration number ORG 3064). Produced by Alexander Forbes Communications Photos: Gallo Images

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BENEFITS BAROMETER 2017

PART

Foreword by Group Chief Executive Andrew Darfoor Executive summary

1 2 3

The changing world of work

4 9 19

Chapter 1: The new landscape of work

Chapter 2: Policy debates in South Africa

Chapter 3: Employer–employee relations of the future

Chapter 4: Understanding employees in context

Chapter 5: Why a changing world of work matters to retirement funds

Longevity: the demographic disruptor

Chapter 1: What we need to understand

Chapter 2: The demographics of ageing in South Africa

Chapter 3: Shifting sands – families on the move

Chapter 4: Reimagining long-term care

105

Chapter 5: How are we doing here?

113

Chapter 6: An action plan for ageing reform

125

How we need to respond in a changing world 129 Chapter 1: The modern organisation

133

Chapter 2: The promise of workforce analytics

137

Chapter 3: Can holistic well-being programmes change the face of family care? 147 Chapter 4: Solving for SMMEs and sole proprietors

165

Chapter 5: South Africa’s skills development journey

177

PART

CONTENTS

4 5 6

Getting creative about employee benefits

185

Chapter 1: Getting creative about value creation

189

Chapter 2: Benefits that matter

197

Benefits that matter: Life-planning tools

219

Chapter 1: Housing – the building block for wealth creation

223

Chapter 2: The cost of commuting

231

Chapter 3: Early childhood learning – a head start in life

241

Chapter 4: Skills development – a new approach

247

Chapter 5: Planning for a better ending

257

The data and all it tells us

275

Chapter 1: The issues, the barometer and the data

277

Chapter 2: The sector case studies

287

Acknowledgements 339

FOREWORD Itâ&#x20AC;&#x2122;s in our hands now. Could a reconceptualised benefits framework rebalance opportunities and outcomes for South African employees? Five years ago, when we first launched Benefits Barometer, our team could not have imagined the journey their research would take them on. In the beginning, the mission was straightforward: provide an annual assessment of the South African employee benefits system and the industry that supports it to determine how effectively it was addressing the physical, psychological and financial needs of employees.

FOREWORD

What has emerged over the course of the last five years, I believe, is a publication that holds a unique position among the plethora of studies and surveys produced each year by research groups, consulting groups and financial services companies. Many such studies frame the analysis and debates narrowly – from our work on the Benefits Barometer, we have learnt to understand the critical need for a holistic framework to grapple with the complex issues around savings and investment, social protections, social mobility, financial stability and effective employer–employee relations. To gain insights into whether the retirement fund system is effective, we simply need to examine the full financial journey an individual has to negotiate along on the way to retirement – and this is a lifetime journey. To tackle the issue of the country’s public–private partnership to provide individuals with social protections around income, we also need to address the issue of social mobility, knowing that asset acquisition plays an equally important role in the lives of individuals. Benefits Barometer saw an opportunity to make these complex debates more accessible to each of the stakeholders involved: policymakers, employers, unions, boards

of trustees and management companies, financial services companies and, of course the primary focus of all our efforts: the individual employee and their families. It’s a role that Martin Fisher, co-founder and Chief Executive Officer of Kickstart International, has come to identify as system entrepreneurship. Or, as he puts it more eloquently: “Fundamentally, and on a large scale, changing the way a majority of relevant players solve a big social challenge such that a critical mass of people affected by that problem substantially benefit1.” It is this mindset that makes Benefits Barometer the ‘big read’, in our opinion. The publication seeks to be the sum of many smaller debates, which makes it highly relevant and accessible to those readers who want to concentrate on specific aspects of these debates. The theme for the 2017 Benefits Barometer is benefits that matter in the changing world of work. As part of a highly connected global community we are, and will continue to be, affected by the rapid technological changes being brought about by what is now referred to as the Fourth Industrial

Revolution. This supercharged fusion of digital, biological and physical technologies is fundamentally changing how we work, where we work and what work we do. On a more profound note, it is also challenging the economic and organisational precepts that underpin our work. As Klaus Schwab, the chair of the World Economic Forum, puts it: “The resulting shifts and disruptions mean that we live in a time of great promise and great peril. The world has the potential to connect billions more people to digital networks, dramatically improve the efficiency of organizations and even manage assets in ways that can help regenerate the natural environment, potentially undoing the damage of previous industrial revolutions.2” According to the World Economic Forum, South Africa is in the unenviable position of being highly exposed to this global phenomenon while having the lowest potential to cope with it. This is because of the poor quality of the country’s educational system and its high levels of unemployment3.

1 Milligan, K, Rayner, C, Thorogood, C, Bonnici, F, Saez, K. 2017. Beyond organizational scale: how social entrepreneurs create systems change. Schwab Foundation for Social Entrepreneurship: World Economic Forum. 2 Schwab, K. 2016. The Fourth Industrial Revolution. World Economic Forum. 3 World Economic Forum. 2017. The future of jobs and skills in Africa.

BENEFITS BAROMETER 2017

Our continued discussion of the holistic well-being of employees should therefore be seen in this context. If we do not acknowledge these changes in the South African context, we could exacerbate the inequality that is currently testing our economy and society. If there has been one key learning that has come out of the Benefits Barometer series it is that systems fail when they fail to address the interests of the individual they are meant to serve. This edition re-emphasises this warning and stresses the importance of creating better outcomes for individual workers who must deliver in this changing world. Interestingly, this will be the first ‘industrial’ revolution where the individual will wield huge influence over how it unfolds. In Benefits Barometer 2017, we are not discussing the future of a business or even an industry. We are discussing the future of the entire system: the system of benefits and protections we provide to working South Africans to ensure they remain productive contributors to the economy. For too long, the vested interests of other stakeholders, not the individual’s needs for themselves and their families, have largely determined which benefits should matter most, with policymakers focused on ensuring there is a basic safety net around income for employees. Employers have wanted to keep

workers productive and functional, ensuring they would readily leave their employ when the time came to retire. For boards of trustees and management companies, the issue has been fulfilling their roles as fiduciaries through good governance and oversight. If we are going to best serve the interests of employees, we have to go significantly beyond a discussion of benefit structures and into the heart of what constitutes a viable financial and social contract between employer and employee. By doing so, all parties will be better positioned to tackle the challenges of an exponentially changing work world. This means: ■■ We need to look holistically at assisting individuals to develop their human capital potential to meet new demands and challenges. ■■ We need to organise and manage our businesses in such a way that those who are best informed about how to function nimbly in response to these changes have a voice and an influence. ■■ We need to embrace the expanding worlds of artificial intelligence and machine learning to cater to the very different learning requirements of our diverse employee population. ■■ We need to more fully exploit the enhanced capabilities of data analytics and mobile communications to customise

FOREWORD

benefit structures in ways we have never been able to do before.

new world of work might hold, and support in meeting their aspirational goals.

■■ We need to recognise that there are socio-demographic changes taking place in South Africa that will place additional burdens on both the workplace and our society at large. This means that employment debates need to consider that the issues of youth unemployment may be inextricably linked with how we deal with an ageing, experienced workforce.

This is where we believe Alexander Forbes has a different perspective. If we are going to meet the challenge of these global trends, promote human capital development to meet that challenge and provide individuals and their families with the sage counsel and advice to meet the financial, physical and mental demands of these changing times, we see the need for employers to play a critical role as agents for change.

All these efforts will be necessary if we want to harness the commitment and engagement of a workforce that will need less and less from employers than employers will need from them. While much of what lies ahead is unknown, we must recognise that the future of work is changing, and indeed challenging, our assumptions about how we should be optimally structured. Employers and their workplaces, as we currently understand them, may not play such a dominant role in our day-to-day lives. Retirement as a convention could cease to exist. There’s no doubt that the skills we will need to meet the challenges of the future will be different from the ones we have required in the past. What we believe won’t change, though, is the need for individuals to have adequate safety nets when facing whatever challenges this

Furthermore, we believe that in partnering with employers there is a need to reconceptualise and evolve into a new framework for employee benefits that creates a powerful foundation for whatever the future holds. It’s in our hands, now, to consider how we could use this rapidly changing world to rebalance opportunities and outcomes across our diverse population. We trust that you will find our Benefits Barometer 2017 report insightful.

Andrew A. Darfoor Group Chief Executive Alexander Forbes Group Holdings

BENEFITS BAROMETER 2017

EXECUTIVE SUMMARY

EXECUTIVE SUMMARY Benefits that matter in the changing world of work The world is changing. So are our places of work and the roles of, and relationships between, employees and employers. This yearâ&#x20AC;&#x2122;s Benefits Barometer touches on a range of socio-demographic and economic factors that will affect the world of work in South Africa in the context of a changing global environment. With unprecedented change and transformation in the world of employee benefits, we continue to underscore the importance of the role of the employer and other stakeholders (employees, policymakers, communities and households) in developing a meaningful framework for the delivery of benefits that cater to an individualâ&#x20AC;&#x2122;s needs throughout their lifetime.

BENEFITS BAROMETER 2017

PART 1 The changing world of work Globalisation, the changing nature of production, the rise of the ‘gig economy’ and the growing use of machines as ‘talent’ are some of the changes that will have farreaching consequences for organisations and individuals. Advances in biotechnology are also impacting on the way we live – and how long we live – which means we have the potential to be economically active for longer. In Chapter 1, we start to see how these factors combine to create a new landscape of work, and consider the possible impact on our lives. Responding to these changes within the current structure of the South African economy presents a number of challenges at policy level. Policymakers must accommodate a very different-looking future while addressing complex issues rooted in the past. From this perspective, we examine policy debates in South Africa. Are policy measures sufficient to address matters such as growth, minimum wages, flexible-term employment, education, small business development, retirement reform and care for the aged? Chapter 2 looks at some key policies and regulations that have, or will have, a direct impact on the well-being of employees and the environment in which they work. From policymakers to employers, we move on to examine employer–employee relations of the future in Chapter 3. The nature of this changing world of work is such that the

current power dynamic between employer and employee is changing. We do not believe this to be a bad thing. As things currently stand, South African employers provide a critical resource in social security benefits. Inadvertently, this is having a perverse impact on the willingness of individuals to engage in entrepreneurial activities and endeavours, an important building block for South Africa’s economy. Equally, for corporates to compete effectively with the flexibility and agility of the new world, these ‘power dynamics’ will have to make way for collaborative, flatter organisational structures. This will be seen as critical for retaining the type of talent that will be required into the future. Modern organisations will need to see human capital development as a critical strategic imperative. In Chapter 4, we point out that empathy and a clear understanding of what employees value is fundamental for employee engagement. Personal circumstances, cultural nuances and sociological drivers of an employee’s relationship with money must be taken into account when developing meaningful benefits that will matter. We look at the ‘responsibility lens’ of employees, and the factors that influence their interactions, decisions and outlook regarding money. These are important drivers for developing benefits frameworks that actually work.

We also look at how historical views and socio-demographic changes are creating a sharply contrasting value set among today’s employee populations. We conclude the first section with a discussion of why a changing world of work matters to retirement funds. Trustees are grappling with the dual challenges of keeping members committed to their savings journey while ensuring their income needs are adequately provided for after employment. In Chapter 5, we see how certain shifts have already taken place in this environment. The future for retirement funds, social security, employee benefits and even trustees is decidedly uncertain at this point in time. But we see this as providing an important opportunity to trustees. Now is the time for trustees to seize on the critical role of ‘agents of change’, leading the charge on the individualisation and customisation of benefits.

EXECUTIVE SUMMARY

PART 2 Longevity: the demographic disruptor In Part 2, we shift the conversation from the demographic issue that concerns most policymakers – our ‘youth bulge’ – and look at the trends and consequences of ageing in Africa. While the attention of policymakers is rightfully focused on the issues of youth and unemployment, demographic changes – specifically increasing longevity and urban migration – are placing an increasing strain on assumptions that a culture of reciprocity will mean that families will take care of their elders. It is the fact that we remain so much a ‘barbell economy’ that is creating a problematic situation. For higher income groups, retirement may be viable, though not desirable as individuals stay physically active for much longer. For lower income groups,

everything rests on family support which is slowly fading. For lower income groups, everything rests on the availability of family support, and with urban migration, that model of support is changing. We ask some hard questions about how ready South Africa actually is for the tsunami of caregiving that will be required when older people look for options for long-term care within their communities and discover there are none, or that they are badly or poorly managed. It may well be that the highest impact of ageing will be in populations where social as well as economic hardships are greatest. Chapter 1 looks at some of the dynamics impacting on ageing in South Africa, and how these are starting to shift. A closer

exploration of the particular demographics of ageing, in Chapter 2, makes it clear that the way our population is ageing requires our serious attention. In Chapter 3, we explore how the shifting sands of demographic flow are placing strain on the traditional model of intergenerational family support. Chapters 4, 5 and 6 consider what this means for South Africa when it comes to developing a policy on ageing and reimagining long-term care in a way that reduces healthcare costs and increases quality of life at the end. We consider some creative approaches to addressing the inequality of health and care, and set out an action plan for ageing reform that suggests a way forward for the various stakeholders involved.

BENEFITS BAROMETER 2017

PART 3 How we need to respond in a changing world Having raised a number of questions and matters to consider, we take a closer look at what we should be doing. How should we respond to all these changes in a way that ensures the long-term success of our economy, our businesses and, most importantly, our people? Chapter 1 shows us that the modern organisation will need to start managing human capital, not jobs. We introduce what we see as being the four building blocks that can position companies to effectively navigate this rapidly changing workplace. These will be the hallmarks of the organisation of the future: HR data analytics; an integrated employee wellness programme; a skills and education framework that cuts across all needs; and a customised benefits platform. As the employerâ&#x20AC;&#x201C;employee relationship shifts, developments in these areas would go a long way to encourage enhanced employee engagement, participation and long-term commitment. We explore each in more detail in the subsequent chapters. Chapter 2 demonstrates the effectiveness of workforce analytics in engaging and retaining human capital. South African companies are only just beginning to understand the power and potential here. A case study from Mercer, global leader in pension, benefit, investment

and HR consulting, shows how data analytics were used to successfully predict and address employee turnover in an organisation â&#x20AC;&#x201C; something to consider when we set employment policies for the changing world of work. With South Africa facing the dual demographic challenges presented by a youth bulge and the prospect of greater longevity, we see how effective workplace analytics can be in taking the issue of age off the table when determining what drives productivity. Investing in an older working population can actually result in significant benefits to both organisations and the younger members of the workforce, something that policymakers and employers would do well to consider. The successful modern organisation will do more than simply offer a fair wage in return for a job well done. In our discussion of the emerging concept of employee well-being, in Chapter 3, we propose ways to develop employee well-being programmes that will provide holistic family care and proactive solutions for dealing with the physical, financial and emotional issues that affect both individual and family well-being and, ultimately, employee engagement and productivity. We ask serious questions about how to create a sustainable programme that will ensure commitment and ongoing engagement from all stakeholders without

introducing potential conflicts of interest. We use the example of employee health programmes to demonstrate how an integrated benefit (in this case, healthcare) can be implemented to provide value to both employer and employee. Another area that will require a complete rethink if we are to get the desired results is that of skills development. Regardless of their industry, age or career stage, all workers will need to develop the skills that the new world of work will demand. In Chapter 4, we urge industry, policymakers, employers and trainers to get together and accelerate our skills development journey so we can meet the challenges of an interconnected future and compete with a rapidly changing global labour market. For those who choose to take a different path and run their own businesses, we explore ways to accelerate the development of entrepreneurs and small, medium and micro-sized enterprises (SMMEs). Government has high hopes for the power of SMMEs and entrepreneurship to unlock economic growth. The question addressed in Chapter 5 is how effective plans to achieve this have been thus far, and how the financial services industry could be more effective in meeting the requirements of this rising sector.

EXECUTIVE SUMMARY

PART 4 Getting creative about employee benefits Chapter 1 delves into some of the research thatâ&#x20AC;&#x2122;s emerging on what South African employees value from their employers. What could employers offer that would make employees commit and engage with their employers? What we are hearing is a dual message: on one hand itâ&#x20AC;&#x2122;s about helping the employee plan for an unknown future, while mitigating expense risk, and on the other itâ&#x20AC;&#x2122;s about giving employees a clear path to promotion and a way for them to thrive at work. This means we have to address both the future of jobs as well as the future in talent when responding to this new world order. We make the case for getting creative about value creation, and suggest how the industry and employers can work together to design

benefit offerings that respond to various employee needs, from lifestyle and family to financial and health. Having considered what may be required for us to successfully navigate a changing world of work, we turn our attention to how employers can provide better support to employees through a comprehensive benefits framework. Our starting point is that the best benefits provide value for both the employee and the employer. As the world of work evolves, benefits need to go well beyond being customised and integrated. We see the introduction of fully portable benefits that any individual could purchase and maintain throughout the course of their financial lives increasing in importance.

Chapter 2 focuses on how HR departments could go about designing an alternative benefits platform that transforms the benefits framework into a life-planning tool that can be used by any employee, regardless of how or where they are employed. We use the idea of personas to explore the process of creating customised solutions that can solve for highly heterogeneous employee populations without appearing to be paternalistic. We see this as the only viable way to create an array of benefits that truly matter. We explore some of these benefit offerings in greater depth in Part 5.

BENEFITS BAROMETER 2017

PART 5 Benefits that matter: Life-planning tools In our final section, we flesh out five new benefits concepts that creatively capture our thinking about our win-win criteria – where both the employer and employee derive significant value from benefits that will make critical differences in everyone’s lives. In Benefits Barometer 2016, we argued that there is a historical overhang of ‘asset deficits’, particularly in the areas of housing and education. We continue that discussion this year and look at some potential solutions. In Chapter 1, we see housing as a building block for wealth creation and introduce the importance of integrating a discussion on housing into every financial well-being programme. We explore the macro-economic multipliers associated with investing in residential housing and discuss mortgagefunded retirement as an alternative way to address asset deficits and retirement risk. Chapter 2 takes stock of the issues that have a direct influence on employees’ financial well-being as we consider the true cost of commuting and the impact that the financial

costs, travel time and transportation options have on employees’ workplace productivity and financial well-being. We present an agenda for action that explores how policymakers, government and employers can start to address the legacy of issues our current transportation system presents. We then look at early childhood learning in the workplace, in Chapter 3. While not a ‘traditional’ benefit, this is an innovative solution that addresses a number of concerns for employees: how to give their children an affordable head start in life in the context of a failing educational system; the need for childcare solutions at the workplace; and how to provide children with an opportunity to develop essential social skills in a culturally diverse environment. Chapter 4 looks at how to put skills development ‘on steroids’ for employees themselves. This will require a learning programme that responds to how the learner learns best, that adapts to the learner’s interests and skills level, and informs

employers if the employee is engaged or indeed succeeding. Whether it is used for a financial well-being programme that evolves as employees need it, or for providing training on a highly complex aspect of an employer’s business, this next-generation learning system is a bold step forward in ticking all of the right boxes. We end with a new take on retirement financial advice in a world where retirement is as long as pre-retirement. In Chapter 5, we try to provide a more realistic picture of what an individual is looking at when they hit a date the employer has defined as ‘retirement’. In planning for a better ending, we reflect on how little we know about what that period holds, why certain trajectories may be likely, and how one could go about preparing for them. We look at the reality of post-retirement careers, options for continued income generation, and how we need to start thinking about our inevitable winding down.

EXECUTIVE SUMMARY

PART 6 The data and all it tells us The final section of Benefits Barometer 2017 allows us to benchmark our progress. What are the issues that have historically been barriers to the success of benefits programmes? The benefits barometer provides an indication as to which issues impact which sector the most.

Then we dip into the data. In addition to the latest consolidated update of current employee benefits offerings by sector, we include data that companies have provided in their own annual reports that provide insights into how they are undertaking their human capital development commitments. This data has been aggregated to sector level as well.

CHANGING WORLD OF WORK EMPLOY YOUTH ORGANISATIONAL CHANGE

SMMES

AUTOMATION

ELDERLY

BIG DATA

FLEXIBILITY

SKILLS DEVELOPMENT

GOVERNMENT POLICY

EMPLOYER SKILLS

PENSION REFORM TRANSFORM DIVERSIFY

ADDRESS INEQUALITY

GIG ECONOMY

PRODUCTIVITY EFFICIENCY

ATTRACT TALENT

FACTORS INFLUENCING THE SOUTH AFRICAN WORKFORCE

SOUTH AFRICA:

Inequality, youth unemployement, urbanâ&#x20AC;&#x201C;rural divide, ageing in Africa, populist/nationalist, education failure, productivity and competitiveness

SKILLS DEVELOPMENT

FLEXIBILITY

INTEGRATED PICTURE COSTS OF IN-FUND SOLUTIONS

MULTISTAGE LIFE

SKILLS DEVELOPMENT

BENEFITS THAT MATTER

HUMAN RESOURCES

TRUSTEE TRUSTEE MANCO MANCO

EMPLOYEE CHOICE

GIG ECONOMY TOTAL REWARD OR VALUE

FINANCIAL LITERACY

FLEXIBILITY

FLEXIBILITY PRE- AND POST-RETIREMENT

BENEFITS PORTABILITY

TCF

MY VALUES

PENSION REFORM WELL-BEING

DEMOGRAPHIC CHANGES

GLOBAL FACTORS INFLUENCING THE WORKFORCE GLOBAL:

automation, future-ready skills, disruption, multistage lives, changeâ&#x20AC;&#x201C;agile organisation and workplace for me

BENEFITS BAROMETER 2017

With the unprecedented change and transformation in the world of employee benefits, we continue to underscore the importance of the role of the employer and other stakeholders (employees, policymakers, communities and households) in developing a meaningful framework for the delivery of benefits that cater to an individualâ&#x20AC;&#x2122;s needs throughout their lifetime. Furthermore, we believe that in partnering with employers, we can reconceptualise a new framework for employee benefits that creates a powerful foundation for whatever the future holds. Itâ&#x20AC;&#x2122;s in our hands, now, to consider how we could use this rapidly changing world to rebalance the opportunities and outcomes across our diverse population. We trust that you will find our Benefits Barometer 2017 report insightful.

EXECUTIVE SUMMARY I HOME I NEXT PART

PART 1 THE CHANGING WORLD OF WORK Chapter 1: The new landscape of work

Chapter 2: Policy debates in South Africa

Chapter 3: Employerâ&#x20AC;&#x201C;employee relations of the future

Chapter 4: Understanding employees in context

Chapter 5: Why a changing world of work matters to retirement funds

PART 1 Introduction

THE NEW LANDSCAPE OF WORK OVERVIEW In setting the scene for this year’s Benefits Barometer, we contemplate the new landscape of work and the scale and intensity of changes taking place under the Fourth Industrial Revolution. We discuss how changes such as globalisation, the changing nature of production, the rise of the ‘gig economy’ and, the growing use of machines as ‘talent’ will affect the workplace. We also see how advances in biotechnology are impacting on the way we live – and how long we live.

PART 1 Introduction

BENEFITS BAROMETER 2017

How should regulation respond to this shifting reality while at the same time address a legacy of inequality? We consider this in our discussion on policy debates in South Africa. We place these debates in the context of the country’s history and the underlying structure of the economy. Many of the changes we discuss throughout this year’s edition will influence not only the nature of the workplace but also of growth, minimum wages, and the security of livelihoods funded by those wages. We look at some of the key policies – proposed or in draft – and existing regulations that have, or will have, a direct impact on the financial well-being of employees and the environment in which they conduct their work. We then bring the discussion to a more personal level, starting by examining the employer–employee relations of the future. In this rapidly changing world of work, we need a framework that allows workers to take risks in setting up small

businesses. That means challenging the current power dynamic between employer and employee; a dynamic that makes it difficult for many employees to forfeit their benefits in favour of ‘going it alone’. At the same time, modern organisations will need to renegotiate the concepts of ‘employer’ and ‘employee’ in designing workplaces for that most valuable commodity: human capital. As this dynamic shifts, we will move to a model of benefits that focuses on how the employer can help an individual employee get the support they need in terms of their working, personal and family life. The more holistically employers can understand these needs, the better they will be able to structure policies and benefits that make sense for their employees – and this process starts with understanding employees in context. What are their responsibilities outside work? What are their attitudes and behaviours towards money? Understanding the history, values,

psychology and responsibility lens of our individual employees is the right starting point for a meaningful discussion about a viable employee benefits framework. We conclude this first section with a discussion of why a changing world of work matters to retirement funds. Retirement funds – and, by extension, their trustees and management committees – will be affected by these changes. At this stage, it’s not clear exactly how to connect the dots between government policy, employer and employee. What is clear, though, is that trustees and management committees must play a proactive part in understanding and responding to these changes in order to fulfil their duties to their members. In our final chapter, we see how certain shifts have already taken place in this environment. We conclude that the best way for trustees to respond is by acting as agents of change who lead the charge on the individualisation and customisation of benefits.

THE NEW LANDSCAPE OF WORK

PART 1 Chapter 1

THE NEW LANDSCAPE OF WORK

THE FOURTH INDUSTRIAL REVOLUTION: UNPRECEDENTED AND EXPONENTIAL CHANGE A new phrase has entered our daily language that’s symbolic of the changes the world is seeing as well as a symbolic marker of those changes, and how disruptive they are and will be: the Fourth Industrial Revolution. This ‘revolution’, as the founder of the World Economic Forum, Klaus Schwab, suggested, may “in its scale, scope and complexity … be unlike anything humankind has experienced before1”. But surely such ‘epoch-changing’ shifts in production, organisational design, ideation and labour relations have occurred before? Indeed, this may be so. However, as Schwab noted, it is the scale and intensity of these changes that makes them unprecedented: The speed of current breakthroughs has no historical precedent. When compared with previous industrial revolutions, the Fourth is evolving at an exponential rather than a linear pace. Moreover, it is disrupting almost every industry in every country. And the breadth and depth of these changes herald the transformation of entire systems of production, management, and governance1.

What are some of these exponential changes? There’s an increasing accessibility of and connection to mobile devices (and what these devices can do), unprecedented processing power and unlimited access to information. Add growing innovations in artificial intelligence, robotics, blockchain, the Internet of things, and nanotechnology and you have, if one is unprepared, a recipe for widening the ‘digital divide’ and entrenching inequality. The Fourth Industrial Revolution has one further component: biotechnology. The extraordinary advances occurring in biotechnology have the power to completely change the timeframe over which we can live productive lives. This will mean we’re not just changing how we will live in the future, we’re also changing how and when we will die. Each of these elements will impact on the world of work. How businesses respond to these changes may well be a differentiating factor between which of our industries, organisations and workplaces survive and which are rendered obsolete by these changes.

How do these changes affect the workplace? In the 21st century, with the pervasive influence of easily accessible information,

1 Schwab, K. 2016. The Fourth Industrial Revolution: what it means, how to respond. World Economic Forum, 14 Jan 2016.

digital communication and interfaces, the nature of work has shifted from workers of the same organisation working one job in a co-located environment, to multiple jobs (gigs) being performed by skilled workers across the globe. Moreover, the Fourth Industrial Revolution extends into key changes and shifts in production, organisational change, ideation and labour contracting that are markedly different from the previous ‘revolutions’ and, in particular, from the shifts we saw in the 20th century. Longer, healthier lives mean the whole convention of the three-stage life – learning, earning and retirement – may well be obsolete. We now need to prepare ourselves for a multistage life, where success will be based on our ability to recreate and repurpose our relevance in the working world. This chapter touches on these changes and explores their bearing on our world of work. We look at the changing nature of production, the rise of contingent and remotely located forms of work (subject to fluid and flexible employer–employee relations), the growing use of machines as ‘talent’, and the phenomenon of ageing in South Africa and its impact on both the economy and the workplace. We conclude the discussion with looking at how regulation can respond to this shifting reality in a country that must respond to these future developments while at the same time address a legacy of inequality.

PART 1

THE NEW LANDSCAPE OF WORK

The changing nature of production

Let’s look at some of the drivers of these changes.

The on-demand economy is characterised by economic activity driven by technological companies meeting consumer demand through the rapid (often immediate) provisioning of goods and services. Who, then, meets supply? Unlike in the old industrial model, supply is not met through a co-located and centrally organised value chain of production. Provisioning and the allocation of supply is done, as Business Insider describes, through “an efficient, intuitive digital mesh layered on top of existing infrastructure networks2.”

Diffuse global value chains

The gig economy

The late 20th century saw the rise of diffuse global value chains, with parts of the production process of one good or service located in different and numerous geographical locations. An Apple iPhone is one example of this: it’s designed by Apple in California and assembled in China. This is at odds with old industrial models, which are characterised by co-located labour, design capability and managerial structures.

The question of how supply is met for markets to clear is one that also gives rise to another dynamic: the ‘gig economy’. What do we mean by this? Tacita McEvoy, founder of Cape Town-based digital marketing agency Social Media Now, describes the gig economy as a “job market dominated by freelancers and entrepreneurs”:

The way production has interfaced with geopolitical and trade policy changes in the wave of globalisation that started towards the end of the previous century has resulted in significant changes to the nature of production – changes which, in turn, contributed to the transforming world of work.

Globalisation of production and the on-demand economy The globalisation of production has also contributed to the development of manufacturing and inventory processes such as ‘just-in-time’ (JIT), which gave early inspiration to the development of the gig economy. JIT systems focus on the production of goods to meet demand rather than creating surplus in anticipation of any future demand. This can be seen as the earliest precursor to the ‘on-demand economy’.

…apart from being a ‘live performance’, gig can also mean a ‘job’ or an abbreviation of gigabyte. But in 2017, when someone tells you they have a ‘new gig’, it immediately takes your mind to their job, and not a twowheeled carriage pulled by one horse (yes, that’s also a gig). All in all, a gig is a contracted job tasked to a professional to complete in a defined period of time.

2 Jaconi, M. The ‘on-demand economy’ is revolutionizing consumer behaviour – here’s how. Business Insider, 13 July 2014.

Chapter 1

The sharing economy: breaking the ownership–use nexus Alongside the gig economy is the ‘sharing economy’, which breaks the ownership–use nexus. In the past, you would need to own an asset to guarantee its use. The rise of new technology platforms changes this – you don’t have to own a fleet of cars (or even one car) to have a ride-hailing business, or a well-stocked showroom to sell clothes. When applied to employer–employee relationships, the example is instructive: an employer (or the owner of the ‘linking’ technology platform) doesn’t need to have a contractual relationship with the personnel providing the ‘service’. This explains the rise of contingent workforces and livelihoods in the absence of formal employment agreements. This development has been accompanied by the rise in digital marketplaces offering individuals avenues for income generation in exchange for completing specific assignments and tasks. Examples of these marketplaces include BetterWage, Upwork, TaskRabbit and Amazon Home Services. They link freelancers with assignments in a wide array of areas, including domestic work, repairs, software programming, application development, graphic design, marketing and mobile development. If we are to take seriously the sentiments of tech and creative entrepreneur, Gil Oved, then more and more organisations (even those that are not technology companies), will see such functions and services as being a crucial part of how they reach consumers and of their overall value propositions.

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What’s in it for organisations in such arrangements? These freelance agreements can be used by large organisations in instances where certain functions and tasks are marginal to core operations and therefore do not justify a full-time hire. For smaller businesses, the same logic applies. As Susan Lund observes, this can be a helpful costcontainment approach for small firms: “... they can dramatically lower costs for small companies that need specialised help, from accounting to marketing assistance for a product launch3.”

The rise of machines as talent Another interesting phenomenon set to change the landscape of work is the rise of machines as ‘talent’. These machines are no longer confined to industrial robots but also extend to services sectors of the economy. As a PwC CEO Survey found, these advances are often mind-boggling: “3D printing can be used to make cars and aircraft; biotechnology is changing the way we produce food and medicines; and nanotechnology and artificial intelligence will transform numerous industries4.” Most concerning here is the fact that there is little evidence to date that these new technologies are actually creating new job opportunities elsewhere in the world. In addition to these shifts in the way we use physical (or tangible) machines is the rise of powerful logarithms and artificial intelligence (AI) applications that can synthesise large datasets and distil useful analytics. This has created a competitive race for human talent that has the ability to deploy machines, algorithms and the Internet of things to

unlock commercial value. Firms like Google have joined this race for talent in response to the growing relevance of artificial intelligence and machine learning. Recent reports show the increasing ‘poaching’ of AI engineers across organisations such as Amazon, Twitter, Snapchat and Facebook. These changes, which will make machines a prominent feature of much of what is produced and how services are delivered, require organisations to think creatively about how technology can complement (rather than displace) human capability. In the PwC survey mentioned, of the 1 379 CEOs surveyed across the globe, most found that the skills they considered important were those that couldn’t be replicated by machines. The study also acknowledges that ‘augmented reality’, where a person and machine work together, provides the most optimal solution in a number of applications now. It then becomes clear that the unique selling point for employees in the future we are moving towards won’t be “I’m a human and I can do a certain task”. Rather, the differentiator will lie in having a skill that can’t be automated. Non-cognitive functions and more emotional intelligencedriven capabilities (sentiment, experience, leadership, empathy and care) will take precedence over the ability to complete routine tasks.

The demands of increasing longevity A demographic factor that will contribute to this need for a contract-based or gig economy will be the demands of increasing longevity.

3 Quoted in Jaconi (2014). 4 PwC. 2017. CEO survey: 20 years inside the mind of the CEO ... what’s next?

The good news is that we are seeing a substantial increase in our health-related quality of life before death. This means we can have productive lives for significantly longer than our current retirement dates suggest. Moreover, a number of studies show that older, experienced employees can actually increase the productivity and employment opportunities for a company if they are employed in appropriate work contexts (Part 3: Chapter 2 case study.) This stands in sharp contrast to the prevailing view that older employees stand in the way of transformation. The bad news is that funding a longer period of retirement will demand that people find ways to continue generating income long past these somewhat arbitrary retirement dates. By necessity, retirement as we know it will be due for a shake-up. As with the other elements of the Fourth Industrial Revolution, increasing longevity will demand that we rethink employer–employee relationships, careers, skills development, organisational structure and, of course, employee engagements and benefits.

How do we respond? The rise of exponential information flows, boundless digital communication and interfaces has not only changed how we connect and transact, but also how we work and the landscape in which work happens. The provision of products and services is (and will be) driven by efficient and intuitive digital interfaces, giving rise to contingent workforces, freelance gig-economy workers and the growing use of machines as ‘talent’.

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These developments also bring about a competitive race for talent, and organisations across all sectors, and of all sizes, need to be alive to this. No industry will be left undisturbed or ‘undisrupted’ by these changes. From 3D printing changing how we manufacture, and thus transforming trade and consumer dynamics downstream, to changes in climate change and automation affecting the production of the food we eat, these changes will inevitably challenge our assumptions about how economies work. They will contest the notion of a linear trajectory – moving from agriculture to manufacturing and then services in the tertiary sector – and we may (as we’ve seen in many instances on the African continent) see ‘leapfrogging’ beyond manufacturingrelated infrastructure and other overhead investments to a ‘service and experience’ driven economy. It’s therefore important for organisations in different sectors, with different production processes, to be appreciative of these shifts, in a generalised form at least. These shifts involve making organisational change more quickly in response to changing economic realities. The important message for organisations is that prescience is a strategic need, and the pace of some of these changes without such prescience may find many firms considerably unprepared to respond appropriately. To some extent our best hope here will be to leapfrog the upskilling of our people. The real threat to our future is not the possibility of our workers being replaced by robots but our inability or unwillingness to train unskilled workers for this new world of work.

5 Quoted in Jaconi (2014).

In addition, the quandary of funding an everlengthening period of retirement challenges us to rethink our notions of retirement, particularly in a world where experience and skill are in short supply. Policymakers, alongside employers of all kinds, must respond in a way that ensures the economy is able to secure portable benefits and muchneeded social security reforms that protect the worker and the workplace of the future.

Policy and regulation governing ‘the new worker’ The world over, policymakers and regulators are at pains to clarify how self-employed, part-time and contract work in this digitised environment should be regulated, especially where employees are defined as ‘independent contractors’ or ‘contract workers’, many of whom work more than 40 hours a week with no benefits. In Germany and Canada, labour law covers ‘dependent contractors’, granting additional protections to workers who rely strongly on one employer or organisation and therefore find themselves in the murky middle ground between being employees and independent contractors. Lund notes that in countries like the United States (and even here in South Africa), employers have for a long time been the channel through which many workers receive benefits: “Employers are the primary mechanism for delivering a wide range of benefits (even if employees share the costs with them). These include health insurance, disability insurance and retirement plans, as well as unemployment insurance, maternity and paternity benefits, worker’s compensation for job-related injuries, and paid time off5.”

Chapter 1

What happens to freelancers or independent contractors? Should they buy their own savings instruments, cover and benefits, and rely on their own resources should they need to take time off, for any reason? From a regulatory perspective, there are two related issues. Firstly, there is a need for labour legislation to clarify the role of workers or independent contractors working for technology platform organisations, such as Uber, and those engaged in digital freelance work for various companies. (Recent conflict in South Africa between metered taxi drivers and Uber drivers indicated how some of these regulatory questions can flare up violently if unattended to.) Secondly, once this has occurred, there is a need to develop a system of portable benefits frameworks to meet the needs of this segment. Lund argues that “unions could fill this gap, providing benefits and even training and credentialing for members, as they have done in the construction industry and for Hollywood writers and movie professionals”.

A multistakeholder approach to designing a system of portable benefits It becomes clearer that as the digital revolution moves forward, alternative models of work and employment relationships will require a multistakeholder approach. The starting point is in regulation (including involving the freelance industry in unemployment insurance benefits). It’s then up to industry, alongside the regulators, to design a system of portable benefits that will disrupt the employee benefits landscape.

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The likely consequence of such a move will be to place a greater focus on retail funds and benefits platforms, overlaid on a digital interface, with flexible term structures and payout frameworks.

Where to from here? The only thing we can say for certain about this revolution in learning and working is that it will take us all – governments, policymakers, employers, workers and students – into uncharted waters. Because it will touch on every aspect of how we live our lives, the implications go far beyond simply rethinking our policies on retirement dates. It will impact on our notions about

education, partnerships, social security, financial advice and job security. No doubt a battleground will emerge in the HR departments of many employers. Conversely, although the benefits of prescience may be numerous, there will be significant challenges with the Fourth Industrial Revolution which will have a direct bearing on organisational effectiveness and holistic employee well-being. It’s these shifting dynamics – and potential responses – that we explore throughout this section and the remainder of this year’s Benefits Barometer.

POLICY DEBATES IN SOUTH AFRICA

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POLICY, CHANGE AND ECONOMIC STRUCTURE

Very few policy debates in South Africa escape the reality of the structure of the economy – more importantly, what this structure allows for, and the kind of change it constrains. The political breakthrough of the 1990s was expected to change the underlying structure of society. But expectations and hope are often a block apart from reality – 23 years after the first democratic elections in 1994, South African society is characterised by extensive inequality and a slow pace of material change in the lives of the majority. What is this structure and what does policy aimed at changing it look like?

What is the structure of the South African economy?

aimed at transforming certain key features of the South African economy and their continued expression in South African life.

An important element of our answer lies in how the history of the country has shaped its present.

Economic transformation: necessary and radical?

As Thabo Mbeki noted in the Fourth Nelson Mandela Memorial Lecture in 2006:

The notion of radical economic transformation occupies a polarising space in our public discourse. It has come to be accepted that South Africa is one of the most unequal societies in the world. The country has, as we discuss in this chapter, a social structure characterised by a low-wage, at times fractious society, with deep social and material vulnerability. This presents significant challenges in designing and implementing policies that will address and remedy the social structure that reproduces such inequality.

“... within the context of the development of capitalism in our country, individual acquisition of material wealth, produced through the oppression and exploitation of the black majority, became the defining social value in the organisation of white society ... because the white minority was the dominant social force in our country, it entrenched in our society as a whole, including among the oppressed, the deep-seated understanding that personal wealth constituted the only true measure of individual and social success1.” Beyond this focus on personal wealth as the true measure of individual and societal success, our history also reminds us that it is a tangible feature of our lives. Many of the persistent features of the country the former president mentions remain. They are worth mentioning here, as our subsequent discussion on policy focuses on policies

1 Mbeki, T. 2006. Nelson Mandela Memorial Lecture by President Thabo Mbeki. University of Witwatersrand, 29 July 2006.

The approach captured in the policy blueprint that is the National Development Plan is that policy needs to be geared to achieving inclusive economic growth that will create the employment and the social wage multipliers necessary to undo the legacy of apartheid. However, much of this intent is stifled by elements intrinsic to the South African socio-economic story: low household savings and public and private

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investment, widespread inadequacy of and unequal access to basic social provisions (education, healthcare, water and housing), and entrenched spatial divisions complicate the picture. It often seems there are just too many moving parts, so what do we solve for first? Moreover, what might employers and employees be able to influence?

poverty by race. The results are telling: 70% to 75% of black South Africans and 56.78% among the coloured community were defined as ‘poor’. The figures were 20.47% for Indians and 4.06% for whites. Finn goes on to note that the sectoral profile of the challenge of low wages, and that of inequality, are closely linked:

Conditions of work and remuneration in a country with high household dependency ratios may be the answer. This makes for a good starting point for our policy conversation.

“Trends in earnings inequality reveal insights into a number of general facts. First, withinindustry and within-race inequality are shown to be dominant. Second, inequality within agriculture, construction (both of which have low wages), services and mining has increased significantly. Third, earnings inequality within the African population group is very high, and wages for Africans are far below those of Whites, on average. These issues would need to be considered by any strategy focused on reducing inequality2.”

Where do we begin? The overhang of the low wage accumulation path Low wages are a key feature of the South African social structure. The oft-cited examples of the Group Areas Act, pass laws, influx control and the homeland system were designed to ensure a steady supply of cheap labour. Estimates by Finn (2015), based on the National Income Dynamics Study (NIDS) Wave 3 dataset, estimate the incidence of

2 Finn (2015) A national minimum wage in the context of the South African labour market. Southern Africa Labour and Development Research Unit Working Paper 153, University of Cape Town. (Figures based on a poverty line of R1 319).

Chapter 2

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Benefits Barometer 2017 unpacks some of the key challenges that will face the labour market over the next few decades. It bears mention, then, that many of the changes discussed in this edition will influence not only the nature of the workplace but also of earnings, and the security of livelihoods funded by those earnings. Below we discuss a few of the proposed policies, some of which are existing regulation, others that are currently within the policy process, and those that are still in draft form.

Policy measures proposed National minimum wage The national minimum wage is a policy response around which a deal was recently concluded at the National Economic Development and Labour Council (NEDLAC). Responding largely to key features of the earnings profile and the prevalence of the working poor, who earn a monthly household income of less R4 125, there was a need to further regulate income at the bottom end of the distribution. The multistakeholder platform concluded a minimum wage of R20 per hour, equivalent to R3 500 for a 40-hour week, and close to R3 900 for a 45-hour week. The report of the NEDLAC-appointed National Minimum Wage Advisory Panel was telling in terms of the context to which this policy measure was intended to respond: Over 6.7 million people earn less than R4 000 a month. Over half of the workforce in South Africa earns below R3 700, and 4.6 million people don’t even earn R2 500 per month. If you were supporting a family of five, that R2 500 would only cover your minimum food requirements.

Flexible-term employment It is clear that incidences of low pay continue to pervade the South African economic landscape to a large degree. However, this is not the only challenge related to the workplace for many. The other issue is that of flexible-term employment and the vulnerability and challenges associated with ‘atypical’ employment. Measures aimed at dealing with the precariousness of work in many sectors are another feature of the South African labour market policy environment.

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Chapter 2

Policy measures Labour Relations Act Amendments in 2015 to the Labour Relations Act stipulate that ‘temporary services’ or temporary work are limited to services rendered for not more than three months, and where the temporary service and its duration are not determined by a collective agreement in a bargaining council or by collective agreement or sectoral determination. The segment of society these amendments are aimed at covering is what economist Guy Standing calls the precariat. Standing argues that policy changes over the last few decades and the responses of corporations to the dictates of the globalising market economy have created an unconventional segment of the ‘employed’: Millions of people, in affluent and emerging market economies, entered the precariat, a new phenomenon even if it had shades of the past. The precariat was not part of the ‘working class’ or the ‘proletariat’. The latter terms suggest a society consisting mostly of workers in long-term, stable, fixed-hour jobs with established routes of advancement, subject to unionization and collective agreements, with job titles their fathers and mothers would have understood, facing local employers whose names and features they were familiar with3. Indeed, the new workplace is different. When we consider some of the changes suggested in this year’s edition of Benefits Barometer (especially as they relate to the changing nature of work), these amendments may lay the ground for tensions between regulators, employees and employers. Or, hopefully, greater collaboration and cooperation.

Intense and often fractious industrial relations Dr Morne Mostert, a futurist at the Institute for Futures Research (IFR) at the University of Stellenbosch Business School, argues that the biggest risk facing the future of work in South Africa lies in ‘social paradigms and approaches to problem solving’: how we respond to problems, and the social paradigms we use to do so. Do we often choose the path of conflict and, ultimately, industrial strife, rather than workplace conversation? Do we retreat into the comfort of existing stereotypes, mistrust and fractious dialogue when faced with issues that affect the ‘common interest’?

3 Standing, G. 2011. The precariat: the new dangerous class. Bloomsbury Academic: New York, p. 6.

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In many instances in South Africa, the response to those questions is a resounding ‘Yes’. The 2014 platinum sector strike was a flashpoint in the new South Africa. From January 2014, and six months thereafter, more than 70 000 workers in the platinum sector downed tools in an action from which the industry is yet to recover. It was one example of the level of industrial distrust and the breakdown of a social compact between organised labour, business and the government. What has happened since? Successive attempts at creating policy aimed at encouraging industrial harmony have been undertaken, while at the same time industrial strife has spread to new sectors deploying technology platforms, like Uber. Recently we have seen numerous incidences of conflict between Uber and the metered taxi industry, as the latter aims to claw back some of the market share taken by Uber. Below, we take a look at some of the policy processes aimed at addressing industrial tensions, primarily the work at NEDLAC on strike balloting.

Policy measures proposed Strike balloting Strike balloting is a secret ballot conducted among the members of a union to determine whether they should undertake a strike. In many cases this needs to be decided with a clear majority. Alongside the national minimum wage conversations discussed above, NEDLAC proposed amendments to the Labour Relations Act to strengthen provisions on the extension of bargaining council agreements, picketing rules, strike balloting and resolving industrial disputes through measures like advisory arbitration. As Deputy President Cyril Ramaphosa observed, these deliberations are aimed at preventing protracted industrial action: When implemented, these proposed amendments will provide employers and employees with mechanisms to resolve disputes more effectively and expeditiously and minimise the potential for protracted or violent industrial action4. Many of these proposals have received resistance from organised labour, in particular the Congress of South African Trade Unions (COSATU), the National Council of Trade Unions (NACTU) and the newly formed South African Federation of Trade Unions (SAFTU). Beyond the union autonomy over work withdrawals that this decision might likely reduce, the other concern is that these measures do not present a ‘full package’ to meet the expectations of the labour movement. This package includes concluding a comprehensive social security dialogue at NEDLAC.

4 Ramaphosa, C. 2017. Statement by Deputy President Cyril Ramaphosa on the finalisation of agreements on labour stability and a National Minimum Wage. The Presidency, Republic of South Africa. 8 Feb 2017.

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With the advent of the gig economy, the increasing use of a contingent workforce, and flexible employer–employee relationships, a baseline of publicly provided social benefits will become a necessity. In this context, changing, and increasingly fluid, employer–employee relationships also present an opportunity to rethink the ‘portability’ of employee benefits and how these are designed (and for what purpose). One of the questions these changes bring to bear is: how should employee-provided benefits respond to employment relationships without co-location and, increasingly, off-site and contingent workforces? Next, we discuss some of the aspects of this comprehensive social security package, in particular healthcare, universal income, education and housing.

Social wage matters The term ‘social wage’ refers to public spending on welfare, healthcare, education, housing and other related amenities. Social wage policies enable and support labour market participation by narrowing the gap between wages and the cost of living of those engaged in low-wage work, and their households. Benefits Barometer 2017 acknowledges that the shifts described in Part 1: Chapter 1 may displace many from existing jobs, despite new job opportunities emerging. With the vulnerability associated with the growing ‘precariat’ described earlier, it is important to provide a baseline of publicly provided income, health and housing benefits.

Chapter 2

Jeffrey Pfeffer, in looking at the US benefits framework, makes an observation that is also instructive for us here in South Africa: “In the US, for good or bad, many benefits and social assistance programs are largely, though not exclusively, handled by employers. The US is unique among advanced industrialized countries in not offering universal healthcare coverage. Instead, coverage decisions are at employers’ discretion5.” In South Africa, the role of employers in the employee benefits framework is a prominent one. With regard to retirement and social protection issues, shifts towards flexible, fluid and geographically diffuse workplaces may dislodge the role of the employer in the provision of these benefits. As Pfeffer notes: “A similar situation holds for pensions. Even though employers have moved aggressively from offering defined-benefit to defined-contribution plans since 1998, most large employers still offer some form of retirement plan. Employers make contributions to Social Security for their employees, and while the selfemployed are required to contribute, their contribution rate is less than that of the combined employee-employer rate.” We look at some of the social wage issues that are on the policy agenda, and progress made in this regard.

5 Pfeffer, J. 2015. The case against the ‘gig economy’. Fortune Leadership, 30 July 2015.

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Policy measures proposed National Health Insurance The National Health Insurance (NHI) is a proposed financing mechanism aimed at pooling funds to provide access to affordable and quality healthcare to all South Africans, irrespective of means. The NHI will be funded by a combination of mandatory prepayment sources, and general taxes. The white paper on National Health Insurance was published for comment in December 2015, and 10 district-level pilots were implemented in the OR Tambo District, Tshwane, Umgungundlovu, Pixley ka Seme District and Vhembe, among others. For policymakers, it remains to be seen how the envisaged health insurance system will respond to the changing landscape of work, and how the combination of mandatory prepayment and taxation is likely to respond to this development.

Basic income grant A big part of the policy conversation about comprehensive social security, particularly at NEDLAC level, is the basic income grant. The grant is a small cash payment to citizens, without a ‘means-test’. It is seen as an important part of the policy lever aimed at reducing inequality. Moreover, in a context of high incidences of underemployment in the working-age population, it is a measure that fills a gap: currently, only young children and those who are beyond working age receive some form of social support from the government fiscus. It is clear that there are growing fears around automation and the displacement of jobs. Guy Standing, at this January’s World Economic Forum annual gathering in Davos, argued that the basic income grant is a “means of basic security…it won’t eradicate poverty, but it will handle uncertainty”. The other argument that Standing and the Basic Income Earth Network make is that wealth is an outcome of the intergenerational transfer of assets (financial or otherwise), so if we allow private inheritance, we should also allow for a public one. This discussion will surely occupy conversations at social dialogue and policymaking institutions over the next year or so, as the debates on comprehensive social security return to the NEDLAC chambers.

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Education and skills development In addition to the policy debates discussed, there is an increasing awareness that much of the preparation for the changing landscape of work needs to involve a thorough interrogation of our education system. South Africa’s education outcomes, and the alignment of our skills profile to market needs, is not always optimal. This year’s Benefits Barometer discusses these issues in Part 3: Chapter 4. In addition, we undertake a detailed discussion of key spatial concerns in the areas of housing and transport (Part 4).

Connectivity, technology and transport There is also a recognition that social wage issues must extend to connectivity and information and communication technology (ICT) concerns which, if unaddressed, may further entrench the digital divide. There have been notable concerns about connectivity infrastructure, accessibility and cost. Contentious debates continue regarding the allocation of high-demand spectrum, and whether the model proposed by the Department of Telecommunications and Postal Services (DTPS) in the National Integrated ICT Policy white paper will resolve the issues around accessibility and cost. Expectedly, policy is required to respond to South Africans waiting hours to get to their places of work using a fragmented

Chapter 2

public transport system. Not to mention the overwhelming number of South Africans who are without work and the 27.7% who are still in search of work. If one is to include discouraged job seekers, this figure climbs towards two-fifths of the working age population. The other matter on the policy horizon that’s likely to have an impact on financial wellness and the disposable incomes of employees is the market inquiry into land transport modes which was launched by the Competition Commission in May 2017. This inquiry will look at market conduct, pricing and the allocation of subsidies to different travel modes (bus, rail, private car, minibus taxis, among others). In Part 5: Chapter 2, we explore the issues around transport in South Africa, and their impact on employee well-being and productivity.

Small business development In a changing landscape of work, small businesses will not only be a crucial driver of job creation but will also create spaces to unlock the creative and productive energies of both young people and people who are forced to consider second careers after retirement. In this regard, facilitating the development of a solid small, medium and micro-sized enterprise (SMME) sector becomes imperative to economic growth.

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Policy measures Department of Small Business Development In 2014, South Africa’s fifth democratic administration introduced the Department of Small Business Development (DSBD) in an attempt to align government-wide attempts to create access to markets for small businesses. The strategy is a combination of system-wide interventions (public procurement, enterprise and supplier development) and public–private partnership. With regard to the former, the recently published (1 April 2017) Preferential Procurement Regulations stipulate that 30% of public procurement must be set aside for small businesses, cooperatives, and township and rural enterprises. The regulations also give accounting officers in public entities the right to open certain tenders exclusively to the group of entities mentioned above. The second type of interventions relate to partnerships between the public and private sector. An example of this is the recently launched Tshepo1Million campaign, pioneered by the Gauteng provincial government with Standard Bank South Africa. The memorandum of agreement between Standard Bank and the Gauteng government explains the purpose of this initiative as “... the management of a purpose-built pipeline of young jobseekers from the Tshepo1Million programme into such training, transitional employment, contract employment, permanent employment and enterprise/ supplier development opportunities as can be identified as viable and feasible across the Standard Bank South Africa internal operations and value-chain”. Increasingly, and even as part of the Broad-Based Black Economic Empowerment (B-BBEE) codes, firms are being challenged to find areas in their operations and value and supply chains to create access to markets for small businesses from designated groups. This is seen as an opportunity to unlock the employment and social spillovers of creating an ecosystem enabling of small business. In Part 3: Chapter 5 we delve further into policy issues around the development of a viable SMME sector. We also discuss some of the operational initiatives of the Department of Small Business Development. These include the Black Business Supplier Development Programme (cost-sharing and grant funding up to R1 million for training and development and tools and machinery); the Co-operative Incentive Scheme (a grant for registered primary co-operatives); the Shared Economic Infrastructure Facility (a facility aimed at municipalities, municipal entities and provincial government entities) and the National Informal Business Upliftment Strategy (a programme aimed at the development of SMMEs on the lower end). In addition to these programmes, spearheaded by the Department, SMME development is also the focus of development finance institutions (DFIs), the Small Enterprise Finance Agency (SEFA) and the Small Enterprise Development Agency (SEDA).

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Chapter 2

Retirement reform Much of the policy conversation regarding the reform of the retirement benefits and pension landscape has to do with two aspects we will discuss below: automatic enrolment in retirement funds and the annuitisation for provident fund members.

Policy measures Automatic enrolment in retirement funds As law firm ENSafrica notes, â&#x20AC;&#x153;South Africa has a well-developed occupational pension system, but there is limited coverage and a large number of funds6.â&#x20AC;? In late 2016, government tabled a discussion document on social security reform at NEDLAC. In the document, government considers auto-enrolment as a means of ensuring that workers save for retirement. The role of the employer in this proposed approach would be to automatically enrol workers into a retirement fund, which can be sponsored by an employer or sourced from a third party.

Annuitisation for provident fund members The implementation of the Revenue Laws Amendment Act of 2016, which proposed the annuitisation of retirement benefits for provident funds, has been postponed. The postponement has occurred as a result of concerns from organised labour and the need for further consultation at NEDLAC. Discussions on both issues continue, alongside ongoing conversations around comprehensive social security.

Much of the policy conversation regarding the reform of the retirement benefits and pension landscape has to do with automatic enrolment in retirement funds and the annuitisation for provident fund members.

6 Snyckers, M and Sedice, L. 2017. What the 2017 South African budget review means for pension funds. ENSAfrica, 8 Mar 2017.

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Ageing and care for the aged Policy debates about the limited resources that can be allocated to health and long-term care pit the health needs of youth and the able-bodied against the health and long-term care needs of the aged and frail. With attention firmly focused on the development of South African youth, very little is being done to address the crumbling service delivery for long-term care. South Africa has had an Older Person’s Act in place since 2006, which purports “To deal effectively with the plight of older persons by establishing a framework aimed at the empowerment and protection of older persons and at the promotion and maintenance of their status, rights, wellbeing, safety and security; and to provide for matters connected therewith.” In truth, very little has been done to translate those good wishes into a coherent strategy to address a situation that is creeping ever so quietly into our back rooms. We consider the implications of this in Part 2. Moreover, we present ideas which, by including the private sector into the equation, provide the potential for a sort of ‘solutions trifecta’ that:

■■ addresses the long-term care-giving needs of the elderly ■■ develops much-needed skills and job opportunities for youth who are not likely to be made obsolete from automation ■■ opens up opportunities for foreign investment through the creating funding mechanism for the development of care facilities that can service both those who can afford to pay and those who can’t Part 2 also recognises that “differentiated histories, day-to-day lifestyles and family dynamics provide the most powerful explanation for how South Africans will continue to experience the ageing process”. What is meant by this? The challenges of ageing, much like all social challenges in South Africa, have racial, class and gender influences that are reflective of the difficult society South Africa remains. The discussion on ageing in Benefits Barometer 2017 looks at the following policy questions, among others: ■■ Who should be providing post-retirement care (and how should it be provided?)? ■■ How should care be financed? What aspects of the responsibility of care belongs to the state, the private sector and individuals and their families?

The associated policy responses to these questions require a multistakeholder conversation between the Departments of Social Development and Health; medical schemes; employers and service providers in the areas of housing, home and institutional care; community health workers; and the relevant touchpoints in the financial services industry.

Policy discussions are important to all stakeholders It’s important to set out a role for different stakeholders in our subsequent discussions on factors that influence employee wellbeing in this changing landscape of work. We have discussed some of the key policy debates under way in South Africa that have, or will have, a direct impact on the financial well-being of employees. Policymakers are but one part of the picture, though – it’s just as important for employers, employees, trustees and the financial services industry more broadly to be in tune with and ‘alive’ to these policy discussions, as they will have an influence on the environment within which these different stakeholders conduct their work.

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ADDRESSING THE CHANGING DEMANDS OF THE WORKPLACE The hierarchical relationship between employer and employee is so integrated into how society operates that it’s difficult to readily imagine a different option. Democratic societies want their economically active population to be productive, and being productive often means being employed. Governments and unions get concerned when the economy sheds jobs because this creates unproductive groups of people.

Challenging the power dynamic The power dynamics between employer and employee are unequal, with many employers holding significant power over their employees. This inequality has been so naturalised that most individuals’ sense of purpose – with the exception of those who have a heightened entrepreneurial spirit – is often linked to the ability to find a job. The vast majority of people derive joy from the ability to find a job because having a job is considered to be character-building, and work represents security and a possibility for us to demonstrate our potential1. This attitude becomes problematic because we are unable to imagine what a full life could look like without a job. An even more interesting debate is the role that employee benefits should play. Currently, full-time employment carries with it the promise of a social security net: income protection, medical aid and retirement savings. In the absence of full-time employment, these protections are spotty at best in terms of their cover or duration of cover. If South Africa wants to genuinely stimulate employment through every available means – entrepreneurship, SMMEs, gig work and other part-time models – these basic protections would have to be more widely available.

In this rapidly changing world of work, we will need a framework that allows workers to take risks in the pursuit of creating a more dynamic and responsive economy. Our existing employment convention is concerning because it’s difficult for many employees to give up these benefits to take the risky route of setting up small businesses. As a result, entrepreneurial spirit is dampened because longer-term employment becomes more palatable than the unpredictable world of starting and growing a business. Under this scenario, a world of a few employers and many employees is sustained, and the unequal power dynamic between the employer and employee is perpetuated. In this chapter, we look at how this power cycle between the employer and the employee is being disrupted by global changes in the form of technological advancements and a new generation of employees who are demanding a new way of being. We argue that the only solution is for all parties involved to change in order to address the challenges this presents. But first we take a look at the choices that employers appear to be making both globally and locally as they tackle the changing demands of the workplace.

1 Tokumitsu, M. 2017. The United States of Work: Employers exercise vast control over our lives, even when we are not on the job. How did our bosses gain power that the government itself doesn’t hold? New Republic Daily, 18 Apr 2017.

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The impact of technology and globalisation What factors are having the greatest impact on changing the power balance between employee and employer? The answer begins with the introduction of communication applications such as Facebook, Twitter and WhatsApp. Connectivity means ideas can be shared across the globe instantaneously and are no longer filtered through a specific corporate lens. New insights and knowledge are now within reach for all of us. Indeed, those who can navigate this global treasure trove of information become valuable assets, and these employees are not necessarily the corporateâ&#x20AC;&#x2122;s most senior management. This also means that resourcing, production and talent no longer need to be locked into one geographic location. Companies that develop the best models for collaboration and partnerships with either the most

Chapter 3

innovative or cost-effective array of suppliers, producers and creators will rise to the top in this new environment. While automation, machine learning, 3D printing, digitalisation and biotechnology will fundamentally change which jobs will be performed by machines and which by human beings, it is becoming increasingly apparent that the skill sets most likely to be valued in this new work world will be those that capitalise on what it is that makes us most human. These developments all suggest that responding to these changing opportunities will demand a new mode of employerâ&#x20AC;&#x201C; employee interaction, to say nothing of farreaching implications for labour organisations and policymakers2. In essence, the workplace of the future will be the one that is most responsive to these new demands3.

It is becoming increasingly apparent that the skill sets most likely to be valued in this new work world will be those that capitalise on what it is that makes us most human.

2 Bhorat, HG. 2013. Changing dynamics in the global labour market: evidence from South Africa. International Labour Office: Geneva. 3 Mercer. 2017. Global talent trends study 2017.

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Figure 1: Organisational design: drivers of change and plans to change

Organisational redesign being proposed globally C-suite: How are you planning to change your organisational design cover the next two years?

41 %

93 %

Moving support functions to shared services

33 % Flatenning the organisational structure

Greater efficiency

of executives globally are planning a redesign in the next 2 years

31 %

31 % Decentralising authority

Increased agility

Greater customer intimacy

Eliminating roles, functions, departments

Reduced costs

Increased innovation

What is driving this change?

Building organisations of the future

Source: Mercer (2017)

4 Mercer. 2017. Global talent trends study 2017. 5 Mercer (2017).

Responding to rapid changes in production and servicing demands a complete rethink of how the companies of the future could be optimally structured. It’s therefore not surprising that C-suite executives globally have indicated that organisational change is top of their list of priorities. In the Mercer Global Talent Trends Survey, 93% of executives around the world responded that they are planning an organisational redesign over the next two years. What is driving this change is the quest for greater efficiency, increased agility, greater customer intimacy, cost reduction, and the need to stimulate innovation.

Deloitte’s study, Global Human Capital Trends 2017, echoes this observation. In their survey, organisational design was also ranked as the top place of the global trend, with 88% of executives responding that they saw this as their top priority5. By contrast, South African executives have a slightly more muted response to the issue of restructuring their organisations to meet the demands of the future world of work. Although organisational design remained the most popular of all the global trends, only 83% of the respondents to the Deloitte survey ranked this as ‘very important’.

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Why is organisational restructuring such an imperative in these times? In the changing world of work, it is becoming increasingly evident that successful organisations will be characterised by networks of teams rather than hierarchies. If organisations are to create conditions for teams to function in a more natural and interconnected way, then information sharing and real-time monitoring of results are the order of the day. These new network structures can be formulated to tackle one set of problems at one point in time, and then be reformulated

another way at another point in time to tackle a different set of problems. The idea is to break down artificial structures and simplify complex structures to enable collaboration across multiple functions and multiple company boundaries. What is wanted is flexibility, agility, and the power for these teams to make their own decisions as and when needed. This focus on organisational change means that companies will need to redefine the job landscape. According to the Mercer Global Talent Trend study for South Africa, 65% of

Figure 2: Importance of global trends Rank by importance Organisation of the future

83%

Employee experience

83%

Talent acquistion

81%

Careers and learning

58%

Diversity and inclusion

80%

Performance management

80%

Leadership

76%

Digital HR

74%

People analytics

71%

The augmented workforce

64% 34%

Robotics, cognitive, computing 0

South African companies have indicated that they plan on changing their job evaluation method in response. This would entail establishing a consistent job architecture that is aligned with this new organisational structure, determining who can do what job best (human or otherwise), formulating new forms of leadership roles, using more sophisticated HR analytics to value emerging roles and define reward eligibility and quantifying work in terms of experiences, with jobs as anchor points.

Africa 2017 importance score

South Africa 2017 importance

Chapter 3

Global 2017 importance score

87%

61%

82%

79%

84%

81%

86%

83%

79%

69%

85%

78%

79%

73%

75%

71%

66%

63%

33%

40%

100

Source: Deloitte (2017)

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What, then, does this suggest about the future of jobs in South Africa? The same study found HR professionals believed that, over the next three years, we would see: ■■ a broader span for management control, ■■ more focus on sales and delivery (and less on management), ■■ higher values placed on design and innovation, and ■■ an increase in jobs that would now be done virtually.

65 %

of companies in South Africa plan to change their job evaluation method this year in response to the changing workplace.

How companies are redefining the landscape

1 2 3 4 46

Establishing a consistent job architecture aligned with the new structure

Evaluating who can do jobs (employee, contingent, robotics, algorithims)

Using science to value emerging roles and define rewards eligibility

Quantifying work in terms of experiences with jobs as anchor points

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Changing priorities: a focus on the employee experience What is particularly interesting to note is that, at the same time, South African executives are also seeing employee experience as one of the important talent trends for the future. Organisational redesign alone will not prepare a corporate for the future world of work. Getting employees to genuinely engage, though, provides the glue. For many corporates this means thinking of their employees as another form of client or consumer – and a critical one at that! This would seem to indicate that how we manage them, the thought and care that we give to developing our employees’ skills, talents and careers, and the consideration we give to attracting and retaining top talent will prove to be an important competitive edge in this rapidly changing work environment. One has only to look at the way different generations of workers have identified their priorities to sense how those changing attitudes are evolving. These classifications of different generations of workers can be hugely over-simplistic in that they fail to recognise the extent to which these characteristics can cut across generations, particularly when the generations work shoulder to shoulder in the workplace.

Chapter 3

Still, they are useful for indicating a general shifting in priorities. ■■ Traditionalists – born before 1946. They are distinguished by their loyalty to the company. They often work for a single company for their entire lives. ■■ Baby boomers – born between 1946 and 1963. Their attitude that one lives for work is what distinguishes them. They prefer being physically at the office during specified working hours. ■■ Generation X – born between 1964 and 1979. They are distinguished by their attitude that work should not define life. They work to live rather than live to work. ■■ Millennials – born between 1980 and 1995. They want to work on their own terms. They own their careers and seek meaningful work. What the general trend suggests is that with each subsequent generation, the role of the company seems less important in people’s lives, while the role of the employee, and accommodating their needs, is becoming a higher priority for employers. Unless companies focus on adding meaning to employees’ lives and not just money in their pockets, getting a commitment to a common future will be difficult.

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The unique challenges of South Africa In South Africa, employers face further challenges. On the one hand they have to reconceptualise organisational structures to be responsive to the changing demands of a globally competitive workplace. On the other, they need to redress a legacy of unequal treatment across and between race, gender and income groups. To some extent, these goals are compatible to each other. Transformative workplaces that promote diverse work groups and decision-making bodies appear to be better environments for fostering good governance, integrated thinking and sustainable work practices. According to an article in Harvard Business Review by David Rock and Heidi Grant, diverse work groups are just plain smarter. They cite a 2015 McKinsey report on 366 public companies which found that “companies in the top quartile for ethnic and racial diversity in management were 35% more likely to have financial returns above their industry mean, and those in the top quartile for gender diversity were 15% more likely to have returns above the industry mean’6.

For a transformative work environment to really succeed, though, two points must gain traction. The first is greater transparency and fairness around pay. This is a non-negotiable if inequality is going to be addressed with integrity. The second is recognising that getting employees to be engaged demands that compensation needs to be more than just an absolute number.

■■ Social exchange is based on relationships that encompass unspecified future obligations. The exact nature of future returns for contributions is based on the individual trusting that the exchange parties will fairly distribute their obligations in the long run. This allows exchange parties to reciprocate through discretionary exchange acts8.

Social exchange: from paternalism to partnership

Social exchange relationships are based on goodwill and reciprocity, which implies that organisations need to enter into mutually beneficial partnerships with employees. These partnerships will cease to view employees as dependants but rather see them as enabled individuals who are following their human instinct to be productive and add value, while employers meet their need to produce and be profitable.

Social exchange is one way to respond to a changing workplace landscape which calls for designing organisations of the future that are less hierarchical and highly productive. Social exchange theory7 maintains there are two types of exchange that characterise employee behaviour: economic and social exchange. ■■ Economic exchange is the formal transactional contract which details the conditions of employment and the precise nature of what is exchanged, on a justifiable basis.

Research has shown that employees prefer to define their relationships with employers through social exchange, and thriving organisations are often those that leverage social exchange principles 9. In a social exchange relationship, when efforts are fairly rewarded employees are willing

Research has shown that employees prefer to define their relationships with employers through social exchange, and thriving organisations are often those that leverage social exchange principles.

6 Rock, D and Grant, H. 2016. Why diverse teams are smarter. Harvard Business Review, 4 Nov 2016. 7 Adams, JS. 1965. Inequality in social exchange. Advances in Experimental Social Psychology, pp. 267-299. 8 Kamdar, D. 2007. The joint effects of personality and workplace social exchange relationships in predicting task perfomance and citizenship perfomance. Journal of Applied Psychology, pp. 1286–1296. 9 Vilakazi, S. 2016. The interplay between individual identity, organizational identity and racial transformation. Johannesburg: Wits Business School. 10 Mercer (2017).

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to reciprocate with discretionary behaviour, such as getting involved in activities beyond their contractual obligations. Policymakers and employers may wish to explore the social exchange concept to adapt to changing workplace needs and create work environments that are based less on authoritative power dynamics and more on partnerships that develop inherent individual talents and interests to solve the problems of the future. This is essential if organisations are to build for an unknown future, attract and retain tomorrow’s talent, and cultivate a thriving workforce10. Economic exchange is fairly easy to police because it’s formalised in specific contractual obligations. Social exchange, on the other hand, asks for sincerity and reciprocated goodwill, which may be harder to police but yield the best results. The inability to police social exchange relationships is good because, as shown, the future workplace requires less controlling of and more collaboration between employers and employees. Remuneration packages and benefits will have to respond to this structure and reflect the partnership nature of the relationships. Policymakers will need to play their part

Chapter 3

by introducing programmes that allow individuals to provide for their basic needs outside employer-provided benefits, thus transforming the paternalistic relationship that exists between employer and employee into one that is more equal.

POS is defined as the positive aspects of the organisational context that make employees believe the organisation values their contribution and cares for their general well-being, which in turn influences them to thrive12.

This arrangement may give more individuals the option to be entrepreneurial instead of relying on an employer for survival and a sense of identity.

Emerging studies in this field suggest that a strong correlation between POS and POB yields reciprocal relationships which result in harmonious and successful organisations13. In other words, the concept of workplace relationships needs to recognise the human need to produce and contribute meaningfully while being valued and cared for, and the business needs to maximise production through motivated and productive individuals.

Renegotiating the concepts of ‘employer’ and ‘employee’ In order to design workplaces that are led by social exchange relationships, the very concepts of employer and employee may have to be renegotiated. A more neutral way of defining workplace relationships may be adopted, incorporating what psychologists have termed positive organisational behaviour (POB) and perceived organisational support (POS). POB is defined as individual behaviours that are positive and life-giving in the organisation – that is, the positive mental and emotional state and talents of individuals11.

In addition, government will have to be enabled to create an environment that disrupts the employer–employee power dynamic. This will be achieved when there is equal access to all to benefits, such as savings pools, income protection and medical schemes, which are currently provided primarily through larger employers. Important decisions will need to be made, legislated and enforced to create the impetus for change.

11 Bakker, AB. 2008. Positive organizational behavior: engaged employees in flourishing organisations. Journal of Organisational Behavior, pp.147-154. 12 Masterson, S. S. (2000). Integrating justice and social exchange: the differing effects of fair proceedures and treatment at the workplace. Academy of Management Journal, pp.738-748. 13 Vilakazi (2016).

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How ready are South African companies for meeting this future?

Figure 3: Readiness of organisations for the future world of work Africa 2017 Readiness (not ready)

2017 Readiness (not ready)

58%

61%

54%

58%

50%

54%

50%

Just how ready are South African companies for meeting these challenges of the future? The 2017 Deloitte Human Capital Trends report noted that organisational ecosystems and networks may be influenced by the nature of the industry or sector. There is no single business approach suitable for all organisations, industries or sectors; rather, different approaches may be required for each type of organisation. However, the goal is the same: to unlock organisational flexibility so organisations can transform to meet the needs of the future workplace. Yet, despite

Rank by importance

In Part 3: Chapter 1 we will come back to this management challenge and consider ways in which the company of the future might provide a more effective response.

South Africa 2017 readiness (not ready)

Organisation of the future

68%

Employee experience

59%

Talent acquistion

57%

59%

Careers and learning

58%

47%

55%

Diversity and inclusion

50%

45%

53%

Performance management

50%

63%

68%

Leadership

57%

67%

Digital HR

59%

66%

People analytics

59%

62%

The augmented workforce

84%

83%

Robotics, cognitive, computing

72% 69% 65% 64% 88% 0

Source: Deloitte (2017)

ranking organisational structure and employee experience as the highest priorities for addressing a changing workforce, South Africa companies appear to feel more confident about their readiness to address advances in IT and robotics than they are about their ability to deal effectively with that most precious commodity, their human capital.

100

UNDERSTANDING EMPLOYEES IN CONTEXT

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UNDERSTANDING EMPLOYEES IN CONTEXT

PUTTING THE LENS ON EMPLOYEES

“No man is an island, entire of itself, every man is a piece of the continent, a part of the main.” John Donne, poet Before you get your unique employee number, become a platinum loyalty cardholder with access to endless VIP points and health smoothies, receive calls about the latest offer or an SMS from your bank wishing you a happy birthday ... you are first and foremost an individual.

You are an individual with desires, interests and values that every product manufacturer, service provider and employer is trying to understand and anticipate to provide, and sometimes sell, something of value – or at least what they perceive to be of value – to you.

framework will take into account lifestyle needs such as housing and transport (which we discuss in more detail further on), financial protection against those ‘what-if’ scenarios, and savings that enable the accumulation of assets over time.

Given that South Africa has a working population of 9 644 000 in the formal nonagricultural sector as at the first quarter of 20171, can we expect employers to get this right for each one of us? And if so, how? How should they know what we want when we ourselves don’t always know, and when what we want changes from day to month to year?

Because we all have obligations beyond our individual aspirations, employers can also consider providing personal improvement and protection benefits for both the individual employee and their family. This includes implementing policies which allow for the fact that ‘life happens’, acknowledging there will be times when people need more than just the legislated time off to attend to personal matters.

The individual employee at the heart of the benefits framework For employers, policymakers and service providers to engage effectively in co-creating a comprehensive social security package of meaningful benefits, they need to apply everything they know to the needs of the individual on the receiving end of these benefits – and this includes everything they know about the individuals themselves. We’ve said before that employees still have a basic need for savings, income and medical protection regardless of how the world of work changes. A comprehensive benefits

1 Stats SA. 2017. Quarterly employment survey (Q1: 2017).

So, what should we be thinking about when developing this individualised, customised ‘package’ of benefits? In this chapter, we provide some direction by exploring employees in the context of their extended responsibilities. We then address the importance of considering different ‘money mindsets’ – attitudes and behaviours towards money that may influence the way individuals engage with these benefits. By taking both these perspectives into account, we believe employers will be in a stronger position to offer the right benefits, at the right time, to employees who need them.

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Chapter 4

Individuals in the context of their responsibilities Indeed no one is an island, especially in South Africa where the average household is made up of four people. This figure does not include grandparents or in-laws who live on the same property, extended family members whose numbers climb well into the fifties, and other individuals or groups who may not be related to but are dependent on you, either financially or for some other reason. Adding to our ‘piece of the continent’ is a network of friends, colleagues, community circles and social organisations to whom we believe we owe some duty of care – whether formally or informally.

The responsibility lens We see this network of significant others through our ‘responsibility lens’. The responsibility lens framework is a visual representation of an individual’s ecosystem of

relationships and interdependencies between role players (industry, employer), partners (family, friends) and influences (social, community structures), as shown in Figure 4. Naturally, we do not expect any two individuals to have the same responsibility lens. While the magnitude and focus of each lens will vary from person to person, no decision or activity – moving home, for example – by the individual at the centre is made or performed in isolation. There are various forces at play that affect our individual interactions, decisions and outlooks within this lens. Personal circumstances (financial or otherwise), changing lifestage needs, cultural nuances, and upbringing, for example, play a role in determining how we connect the dots and allow the different lenses to co-exist in a balanced way.

The responsibility lens framework is a visual representation of an individual’s ecosystem of relationships and interdependencies between role players (industry, employer), partners (family, friends) and influences (social, community structures).

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Figure 4: Employeeâ&#x20AC;&#x2122;s responsibility lens

Unions Stokvels Government Social structures

MY INDUSTRY

Other

EMPLOYER

Friends

SOCIAL STRUCTURES

Colleagues

MY INDUSTRY

Other

EMPLOYER

Adviser

SOCIAL STRUCTURES

Asset manager

MY INDUSTRY

Other

EMPLOYER

Trustees

SOCIAL STRUCTURES

EB partners

*EB: Employee benefits

MY CIRCLE

Bank

EB department

Employer

MY CIRCLE

Networks

Insurer

The industry

MY CIRCLE

Affinities

Family

My circle

SOCIAL STRUCTURES

MY CIRCLE

Administrators

MY INDUSTRY

Other

EMPLOYER

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Chapter 4

Using the responsibility lens to structure a meaningful benefits package Many South African households have a non-nuclear construct, with varying responsibilities to influencers, participants, benefactors and decision-makers. Increasing pressure on and expectations for younger generations to financially support their parents before and after retirement further impacts on their own spending and saving patterns. At the same time, there is a growing

trend to reduce contributions to long-term or retirement savings in order to fund monthly expenses. Consider this reality for a large portion of South Africans: according to the survey of employees in Old Mutual’s Savings and Investment Monitor (July 2016), 45% of children expect they will have to support their

retired parents – a significant increase from 2010 (26%). By using these archetypes as a platform for discussion, employers and advisers can engage with employees about the benefits that would best suit their individual lifestyles, responsibilities and personalities.

Figure 5: South African’s expectations of having to support family in the future

Expectations are still high 2017

58%

2016

58%

2015

55%

2014

48%

2013

48%

2012

50%

Source: Old Mutual Savings and Investment Monitor (2017)

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Moreover, the 2017 edition of the survey reports that 58% of respondees expect to financially support both parents and other family members into the future, a trend that’s given rise to the term ‘sandwich generation’. Members of the sandwich generation are among the first group of consumers who will make savings and investment sacrifices to ‘boost’ their monthly income so they can cover their expenses. And with unemployment now affecting 30.1% of young people (aged 15 to 24 years) and 27.7% of the total population, the chances are high that unemployment touches most South African families in one way or another. With this in mind, it’s clear that the way an employer structures its employment policies and benefits can have a significant impact on our ability to meet our responsibilities and obligations. Using this lens, here’s what an employee might want to consider: ■■ How flexible are my employer’s policies towards letting me address family emergencies or health crises? ■■ How flexible are they in allowing me to address those day-to-day administrative hassles that plague family life? ■■ What are my options and how much flexibility do I have about retirement funding, medical aid cover, spousal and life cover? But that’s not all that impacts on my relationship with the employer. Other considerations that come into play include: ■■ What will I have to give up in pay to just get to work each day?

■■ How convenient will it be if I also have to take care of young children?

The influence of our past experiences on present attitudes

■■ How easily can I get food at the workplace?

The way we relate to employee benefits, compensation and money exchanges of any kind has to be understood through the lens of past experience and memories about money. The biases these influences introduce to our decision-making belie the notion of rational economic decisions. This is why, for benefits to be engaging, they need to speak to what matters to us, help us address our greatest fears, and provide clarity when notions of money simply leave us confused.

■■ Will there be other resources to fall back on? ■■ Will there be discounted services I can tap into? Where we are moving to is a model of benefits that is light years away from the tradition of paternalism. Instead of a model where the employer says, “This is what you need and this is what I will give you,” the pendulum has now swung 180 degrees to, “How can I help you get what you need to make your work life here work for you and your family?” The more holistically employers can understand an employee’s life, the more likely they will be able to structure policies and benefits that make sense for their employees.

Individuals in the context of their relationship to money Throughout recorded history, most people in Europe – as elsewhere in the world – had possessed just four kinds of things: those they inherited from their parents; those they made themselves; those they bartered or exchanged with others; and those few items they had been obliged to purchase for cash, almost always made by someone they knew. – Tony Judt, historian

For most of us, our relationship to money is based on our experiences of and exposure to money during childhood. If you grew up in a home where money was readily available and there was always enough at the end of the year for a family holiday, you are more likely to be free-spirited when it comes to spending on creating new memories, paying little attention to the cost. If your childhood was spent watching your parents borrow money from neighbours, banks and community mashonisas (credit providers) almost every week to survive, you are more likely to be focused on attaining as much money as possible – at the fear of losing it all – while at the same time being price- and savings-sensitive. In the middle of the spectrum are those whose childhood experience with money was balanced: always enough to get by from month to month, but not quite enough to enjoy spontaneous ‘luxuries’ or family outings.

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The influence of money mindsets The fact is, regardless of where our money problems stem from, the way we respond to these pressures – for better or worse – is a function of these money mindsets. As part of a recent study in partnership with Accenture’s Value Proposition Team to better understand our relationship with and attitudes towards money, we explored four possible mindsets that represent different beliefs, behaviours and goals.

These ‘money mindsets’ are plotted on two axes: one representing the degree to which each mindset is structured (rules-based or instinctual), the other showing the extent of scope (focusing on today or tomorrow). From this exercise, four archetypes are identified: achievers, balancers, experiencers and explorers.

MONEY IS THE GOAL

MONEY IS VALUE

MONEY IS AN ENABLER

MONEY IS A MECHANISM

NARROW SCOPE (FOCUS ON TODAY)

OPTIMISERS

As we see below, these archetypes, and the characteristics that define them, can provide useful insights into how employees perceive the value of money in relation to their needs and the obligations of their respective responsibility lenses. By using these archetypes as a platform for discussion, employers and advisers can engage with employees about the benefits that would best suit their individual lifestyles, responsibilities and personalities.

■■ I’m goal-oriented; I’m willing to do what it takes to achieve set goals.

LOW STRUCTURE (FOLLOW YOUR GUT)

HIGH STRUCTURE (FOLLOW THE RULES)

EXPLORERS

WIDE SCOPE (FOCUS ON TOMORROW)

Using money mindsets to guide a conversation about benefits

Achievers: “Life’s a game and winning is the only option.” Beliefs, behaviours, needs and goals:

Figure 6: Characteristics of each money mindset

ACHIEVERS

Chapter 4

■■ Planning for all scenarios gives me comfort that nothing will stand in the way of achieving my goals. ■■ I’m constantly planning and budgeting with long-term goals in mind. ■■ I seek knowledge and insight into new and better ways to manage my finances. ■■ I’m prepared to make lifestyle sacrifices to achieve my goals. ■■ Show me the value you add to me and my goal.

EXPERIENCERS

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Money mindset: ■■ I define success by being able to track the achievement of my goals. ■■ I want to be in control and prepared for the future. ■■ I’m long-term focused – I understand that achieving long-term plans is a consequence of meeting regular and frequent shorter-term goals. ■■ I stay on track; I’m always within budget. ■■ Educate and enable me.

Optimisers: “I ensure I beat the system every time.” Beliefs, behaviours, needs and goals: ■■ Money is valuable – I aim to maximise that value on a day-to-day basis.

■■ I prefer minimal engagement with financial services. I don’t really pause to think about the long-term impact of my decisions or the associated cost. It’s about the here and now. ■■ My money is valuable to me and I want to make the most of it.

Experiencers: “Help me avoid self-sabotage.” Beliefs, behaviours, needs and goals: ■■ I’m aware of my regular, compulsive spending without a great deal of planning.

■■ I occasionally feel guilty about my poor spending habits, but this is temporary. ■■ I want to feel less guilty when enjoying life.

Explorers: “Make me feel I truly matter” Beliefs, behaviours, needs and goals: ■■ My goal is to live a full and purposeful life – money will enable this. ■■ Success is not determined by financial wealth only. ■■ I interact with brands and services that feel personalised and unique. ■■ Rules and too much structure inhibit my movement and gut sense.

■■ I want to feel less guilty when enjoying life. I want the freedom and flexibility to spend on my lifestyle.

Money mindset:

■■ Exploitation of the rules is necessary to progress in life. ■■ I focus on optimising short-term transactions and value exchanges.

■■ I’m extremely reliant on having a secure income from my job.

■■ My spending is based on perceived value.

■■ The long term is defined as a series of short-term moments.

■■ Managing finances is based on gut sense – I only check on my financial position when I think I may be exceeding my credit facilities.

■■ I hustle on multiple transactions to capitalise on value that may be hidden in the detail. ■■ I don’t have any brand affinity towards providers. ■■ The system is out to get you.

Money mindset: ■■ Rules define the parameters in which a series of games are played – I make sure I understand the rules to find value in opportunities.

■■ I see money as a store of value and I’m always looking for opportunities to engage in arbitrage for more enhanced stores of value.

■■ I fluctuate between extreme experiencedriven behaviour and subsequent rebalancing through trade-offs. ■■ I need help to plan and to avoid self-sabotage.

Money mindset: ■■ Money is a means to an end – I focus on the short term. ■■ I value experiences over money.

■■ I have a balanced, holistic view of longterm benefits. ■■ I will make trade-offs to achieve my financial goals. ■■ I’m equally happy to spend without hesitation if the perceived value is greater than the monetary store of value. ■■ I have a tendency to make impulsive decisions, so need to know that all scenarios are catered for. ■■ I don’t read the details of products and services.

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Chapter 4

Figure 7: Behaviours related to money mindsets It may be that we identify with more than one of these mindsets, which is not unusual, given the number and complexity of factors that influence our financial decisions and behaviours. The figure below shows how we can refine the way we identify with each mindset by considering the relative importance of certain behaviours related to each (for a detailed discussion on how we make financial decisions, see Benefits Barometer 2015).

“MAKE ME ACHIEVE MY PLANS FASTER OR BETTER”

“MAKE ME FEEL I TRULY MATTER”

Sophistication of human interaction:

LOW

HIGH

Sophistication of human interaction:

LOW

HIGH

Sophistication of digital interaction:

LOW

HIGH

Sophistication of digital interaction:

LOW

HIGH

Financial savviness:

LOW

HIGH

Financial savviness:

LOW

HIGH

Attitude to risk:

LOW

HIGH

Attitude to risk:

LOW

HIGH

“ENSURE I BEAT THE SYSTEM EVERY TIME”

“HELP ME AVOID SELF-SABOTAGE”

Sophistication of human interaction:

LOW

HIGH

Sophistication of human interaction:

LOW

HIGH

Sophistication of digital interaction:

LOW

HIGH

Sophistication of digital interaction:

LOW

HIGH

Financial savviness:

LOW

HIGH

Financial savviness:

LOW

HIGH

Attitude to risk:

LOW

HIGH

Attitude to risk:

LOW

HIGH

We can refine the way we identify with each mindset by considering the relative importance of certain behaviours related to each.

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Chapter 4

Different generations, different approaches Mark Zuckerberg addressed an audience at Harvard University with the following words: “Our generation will have to deal with tens of millions of jobs replaced by automation like self-driving cars and trucks. When our parents graduated, purpose reliably came from your job, your church, your community. But today, technology and automation are eliminating many jobs. Membership in communities is declining. Many people feel disconnected and depressed, and are trying to fill a void2.” Throughout this chapter we’ve emphasised the importance of, and value in, engaging with employees as individuals in our efforts to develop customised solutions within a framework of benefits. Yet much is made today of how generational differences shape attitudes towards money. Baby boomers (born 1946 to 1964) and millennials, or Gen Ys (born 1977 to 1995), are supposed to manifest distinctly different attitudes towards their jobs, their careers and everything in between. For some experts, these differences are a function of changing technologies. In South Africa, our distinctive historical experience, and the roles that our families and friends played in the context of those different periods, provides an added dimension to those generational differences. But the contrast also serves to show how far the country really has come for this family here. We investigated this by asking two individuals from the same middle-class, South African family a series of questions related to their views on jobs, career paths, employers and benefits. This is by no means a research study at scale, but merely an exercise to showcase extremes and just how our impactful our environments can be.

EVELYNN 62 | BABY BOOMER {1955}

MAXWELL 22 | MILLENNIAL {1995}

Evelynn*, and Maxwell* share their unique experiences. *To maintain the anonymity of our respondents, we have changed their names.

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EVELYNN 62 | BABY BOOMER {1955}

MAXWELL 22 | MILLENNIAL {1995}

Q: Describe your childhood, family, dreams and aspirations when growing up. “I was born and raised in a small farming community in KwaZulu-Natal. I have five brothers and my parents were farmers, and later owned small businesses. However, because of the apartheid system, my dad could only own a 49% share and partnered with his white personal assistant, who owned 51%. My brothers all followed in my parents’ footsteps as farmers, and still own their own farms and businesses.”

“My childhood was really good relative to the majority of non-white kids my age. I went to a Model C school and feel as though I received a good foundational education. My older siblings and mother guided me as I grew up and from their experiences showed me right from wrong. My mother worked mostly in finance and had multiple jobs over the years, while my father tried going into business by himself, but was unsuccessful. A dream job would be one that involves what I am passionate about (architecture and design), but not through someone else’s vision – ultimately working for myself is the dream job. My passion for architecture and design is not limited to buildings. The design of clothes, shoes, furniture, cars, musical instruments, phone apps, web pages and machinery is also something I am interested in. I believe that I am able to do multiple things that I love doing, and money happens to be a consequence of doing those things. Basically, I’m a Renaissance man. My peers think the same way, with slight differences based on how they were raised. I was raised to chase my dreams and desires and sort of do it on my own. It sounds clichéd, but I want to leave my mark on the globe – hopefully leaving it in a better way than I found it.”

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EVELYNN 62 | BABY BOOMER

Chapter 4

MAXWELL 22 | MILLENNIAL

{1955}

{1995}

FULL-

TIME Work period ONE

COMPANY Attitude towards assets

Attitude towards learning

Attitude towards security

MULTIPLE

EMPLOYERS/JOBS

Acquire ownership of assets

Secure accessibility to assets

Classroom, skills acquisition

The world is your teacher

Employer provides my ‘social wage’ security

Not interested

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EVELYNN 62 | BABY BOOMER

MAXWELL 22 | MILLENNIAL

{1955}

{1995}

Q: What influenced your choice of work or career? “Schooling in the 1960s and 1970s was run on the ‘Coloured Affairs’ education system. As a result, our choice of careers was limited to teaching, law, nursing or medicine.”

“Being introduced to art in school is where I fell in love with the creative world – creating things from imagination was borderline genius. The people I interacted with introduced me to different types of music and the people who made the music. Their creativity and passion are what influenced me to choose a creative career path. My earliest career choice was to be a graphic designer – I didn’t know how much they earned or what qualifications I needed, but I knew they were creative people and that I wanted to be a part of it.”

Q: What was the socio-economic landscape in South Africa when you looked for your first job? “Most of the jobs advertised were for whites only and required certain qualifications. In the period 1974 to 1980, the whites benefited more from jobs advertised, and the employees typically employed white candidates because they had a better education most of the time and they were bilingual, which was a requirement. The pension funds were not opened for non-whites to join immediately. I had to work for a company for five years or be over the age of 25 before I could qualify to be a member of the fund.”

“I started looking for my first job in 2015, the last year of my undergraduate degree. In order to progress to postgraduate, I needed to work for a year at an architecture firm. The political climate was quite rough as students were protesting and I was part of the protest action. Different parties were debating their views and the focus was largely on higher education around the country. Economically the country was facing a bad year in terms of growth, I think 0.5% growth was predicted and this later became 0%. However, this did not affect me or my classmates in getting jobs, even if for some it was in different provinces.”

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EVELYNN 62 | BABY BOOMER {1955}

Chapter 4

MAXWELL 22 | MILLENNIAL

{1995}

Q: How did you find your first job? “Fortunately, I worked in the family business when I left school so there wasn’t a need to job hunt. But at the time your options were limited to either reading about vacancies in the local newspaper, hearing about a job from friends and family, going door to door or knowing someone who was looking to hire.”

“I googled architecture firms around Johannesburg and sent them an email informing them that I was looking for work. I attached a list of my academic credentials and a portfolio of work. I shortlisted the firms I really wanted to work at based on the projects they had done. I persisted with calls and emails frequently – Google and LinkedIn were really the only tools I used to find a job.”

What has undoubtedly changed through the generations is the dramatic shift in how we acquire knowledge and make decisions. Today’s millennials have none of that need for verification from a voice of authority. In their world, the collective wisdom of the masses provides a more reliable resource than the voice of the specialist. Can the same be said of their employers? Probably not. Employers are only now beginning to explore how they can more effectively drive HR decision-making on the basis of what the HR data suggests. This, and more, is discussed in Part 3: Chapter 2.

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EVELYNN 62 | BABY BOOMER

MAXWELL 22 | MILLENNIAL

{1955}

{1995}

Q: How many jobs have you had over the years? What made you change jobs? “After marriage and relocating to Johannesburg, I have had nine different jobs. As a mother of five, the change was always due to chasing a better salary and perks. The most important was medical aid – the companies that paid a larger portion, for example, 60% paid by the company and 40% paid by the employee. I also considered the difference in pension fund benefits, car, cellphone and fuel allowances when those were offered.”

“My very first job was during my high school days – it was at the local Pick n Pay. That job was purely to provide extra pocket money and art supplies. My second job, during early years at varsity, was at a Guess retail store. Similarly, the job at Guess was purely to provide pocket money and subsidise expenses at varsity. The third job was the internship for a year. I changed jobs to suit my needs at the time. I left Pick n Pay to focus on matric studies, I left Guess to focus on varsity, and I left the architecture firm to go back to varsity to complete my honours.”

Re-thinking the concept of goals and expectations

Years Reality

Years

Expectations

Positive net happiness; satisfaction

Millenial career path expectation Empowered optionality

Success

Baby boomer career path reality Retirement

Because just wait till the world sees how amazing I am

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EVELYNN 62 | BABY BOOMER {1955}

Chapter 4

MAXWELL 22 | MILLENNIAL {1995}

Q: How would you say technology changed the way you worked? “With the introduction of the computer and Internet, we were always sent on computer literacy training, but most times the company sent us on ‘in-house’ training on programmes and processes that were relevant at the time.”

“I actually don’t think that millennials are in any way more superior to baby boomers, aside from understanding technology. No one can deny their experience and knowledge within any given company or industry. I do however believe that their reluctance to adopt technology holds them back from connecting to work and the social aspects.”

Q: What are your views on what talent the baby boomers can offer organisations versus that of millennials? “I believe baby boomers have a more mature view of the world and business in general. We are more structured, have better work ethics and understand what is required of us in a work environment, and more come with holistic experiences. We are also more hands-on.”

“But there’s probably more than just the technology side that divides us from baby boomers. I look at my parents and it’s all about what they own – the car, the house, the living room suite. My world is beginning to wonder: why be so restrictive? If I can just use Uber as and when I need to and then use my savings more effectively to say, buy the art that I want, then why bother with the car? Why bother with the living room suite when I can rent what I need as and when? I would rather spend my money on the things that really change the quality of my life – the art, the travel, the food, the friends. It’s all about accessibility to the things that I need – if I can get that, do I really need to own it?”

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Summary The stories tell it all. Our employees are becoming an increasingly diverse and complex population to engage with. Standard solutions simply wonâ&#x20AC;&#x2122;t capture any one groupâ&#x20AC;&#x2122;s needs or wants. Creating a viable employee benefits framework that can better cater to this changing population demands that we understand the history, the values, the psychology, and the relationship lens of our employees. If we can understand that then we will at least have the right starting point for a meaningful discussion. Designing the optimal answer is the question we will try to answer in Part 4 Chapter 2: Benefits that Matter.

WHY A CHANGING WORLD OF WORK MATTERS TO RETIREMENT FUNDS

PART 1 Chapter 5

WHY A CHANGING WORLD OF WORK MATTERS TO RETIREMENT FUNDS

UNDERSTANDING AND RESPONDING TO THE IMPACT OF CHANGE It may well be that if this changing world of work continues on its current trajectory, the role of the employer will become less and less important. And if the role of the employer is less important, it may well be that we see a significant rethink of employer-led benefit structures.

What is not likely to change in the foreseeable future is the need for individuals to have access to value-for-money mechanisms for savings, income protection and medical cover. Who will be tipped to provide this access may well be a subject for debate for some time to come, as policymakers grapple with the feasibility of funding and administering a National Social Security Fund and National Health Insurance. Until then our current guardians, the boards of trustees and management committees who oversee the medical schemes, pension and provident funds of South Africa, cannot afford to take a passive role. While most stakeholders are formulating a clearer picture of what the future world of work could look like, it’s less clear how retirement funds – and, by extension, their trustees and management committees – will be affected by the changes. But there will be an impact on retirement funds and a response will be required. This chapter seeks to understand that impact and postulate what the response might be.

From fund governance to benefit outcomes We start with a recognition: the basic outcomes required by individuals remain the same regardless of how the world of work may change. In addition to their immediate needs – housing, education, basic savings, food and improving their lifestyle – they want to accumulate assets, protect their household human and financial capital along the way, and ultimately de-cumulate assets to provide an income, leave a legacy, or both. Pension reforms are beginning to wake up to the notion that for benefits to be meaningful they must better address the needs of members (in all their variable forms). In a sense, initiatives like Treating Customers Fairly are pushing fiduciaries to recognise that their ambit of responsibility now extends beyond fund governance to ensuring that benefits are indeed meeting member needs – not just in their promise, but in their delivery.

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Connecting the dots between policy, employer and employee

Chapter 5

Government provided benefits

But the changing world of work may well mean that connecting the dots between government policy, employer and employee may not be so clear and obvious in the future. The key changes we have identified in Benefits Barometer which are relevant to this discussion are discussed below.

Understanding the current retirement fund environment Before we can understand what the potential impact of these changes might be, itâ&#x20AC;&#x2122;s useful to have a high-level view of the current retirement fund environment and how it is structured.

Legal and regulatory framework

Employer-employee negotiations

The current retirement system is illustrated in Figure 8. Retirement funds are an important source of social security, as they provide an income when individuals have ceased to earn. They are also an important source of savings and, therefore, investment in the economy. Because they effectively relieve government of the burden of providing for the aged, they are tax-incentivised and sheltered to some degree, and are protected by legislation from creditors.

Benefit design

Implement through trustees or manco

Implement directly

Figure 8: Overview of the retirement system in South Africa

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Retirement funds consist of three broad categories: ■■ those linked to employment (pension and provident funds) ■■ those not specifically linked to employment (retirement annuity funds) ■■ others with specific purposes (beneficiary funds, unclaimed benefit funds, preservation pension and provident funds)

Occupational retirement funds Our discussion will focus on the funds linked to employment, the so-called occupational retirement (pension and provident) funds that are established by an employer or union as the sponsor, or where an employer has agreed to participate in an umbrella fund. To enjoy the tax benefits of these funds, all eligible employees must become members. The Pension Funds Act and Income Tax Act are the two main legislative texts that govern the setup and operations of pension and provident funds. Trustees (and management committees in umbrella funds) take their guidance from three main sources: 1. what is already provided, typically by the state 2. legislation and regulatory framework around benefits 3. employer–employee relationships

The actual solutions or benefit structure created are a function of the last two, and comprise a range of parameters or inputs: ■■ tax structure (pension and/or provident) ■■ type of fund (standalone or umbrella) ■■ pensionable salary determination ■■ contribution rates ■■ investment strategy ■■ associated risk benefits (death, disability, funeral, dread disease) ■■ retirement age ■■ preservation and pension options ■■ how much flexibility is provided around each parameter ■■ how the parameters change over time The changing world of work will affect the employer–employee relationship and, by definition, the design of retirement and other employee benefits provided. The extent of the change will be determined by how the legislative and regulatory framework evolves in parallel.

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Trustees and management committees as agents for change Where does this leave trustees and management committees? Do they still have a role to play and, if so, what should it look like? The most important role trustees and management committees can play in designing meaningful employee benefits is by acting as a strategic execution point for change. And in such a role, being a passive participant is not enough. To protect their funds and members, and fulfil their fiduciary duties, trustees and management committees will need to take on a far more proactive role than in the past. Against this backdrop, we look at some of the trends we believe trustees must start paying attention to if they are indeed to respond proactively: the demographic trend of longevity; trends affecting the workplace or jobs, and those that affect the individual worker.

Trends impacting the future of retirement funds Longevity: Retiring later to retire on more The notion of retiring at 65 is no longer relevant. Many view the concept of working to 65, then ‘tending to a small garden until death’, as outdated. But now what? We have already seen this in practice. Over the last few years, average ‘normal’ retirement ages have been rising ever so slightly, from 63 in 2012 to 63.6 in 2017. Notably the appetite for changing the age of retirement has been fairly variable from one industry to the next (see accompanying graphs). Although retirement age is a parameter set by the employer, this change has largely been initiated by trustees. Understanding that a member’s expected outcomes are poor as a result of a record-low interest rate environment, increasing longevity, low returns generally and lack of preservation historically, trustees have driven the conversation about how to improve these outcomes. One of the easiest

Chapter 5

and most effective ways of improving one’s retirement income is by retiring later. Consequently, trustees have engaged with employers on these issues and we are seeing the resultant change. Although the motivation behind this was typically poor outcomes expected at retirement, by increasing retirement ages trustees have enabled an effective response to one of the global megatrends affecting the workplace: increasing longevity and a rise in our health-related quality of life before death and, connected to this, the rise of the ‘second career’. Regulators, too, have done their bit – In 2015, the Income Tax Act was amended to delink retirement from both employment and the employee’s pension or provident fund. The benefit now accrues not when the individual leaves the employer but when they choose to receive the benefit. Those who have technically reached retirement age but who wish (or need) to continue working in some capacity no longer have to draw down on their assets at ‘retirement’. Trustees have amended fund rules to align with this.

The most important role trustees and management committees can play in designing meaningful employee benefits is by acting as a strategic execution point for change.

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Are employers changing retirement dates yet?

All industries

Construction

Energy

Average normal retirement age

2017

2016

2015

2014

2013

2012

60.00 61.00 62.00 63.00 64.00 65.00

Fishing, forestry and agriculture

Manufacturing

Mining

Average normal retirement age

Average normal retirement age 2017

2017

2016

2015

2014

2013

2012

60.00 61.00 62.00 63.00 64.00 65.00

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WHY A CHANGING WORLD OF WORK MATTERS TO RETIREMENT FUNDS

Personal services Average normal retirement age

Professional and business services

Chapter 5

Public service Average normal retirement age

Average normal retirement age 2017

2017

2016

2015

2014

2013

2012

60.00 61.00 62.00 63.00 64.00 65.00

Retail, wholesale and hospitality

Transport and telecommunications

Average normal retirement age

2017

2016

2015

2014

2013

2012

60.00 61.00 62.00 63.00 64.00 65.00

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The Fourth Industrial Revolution This was the topic for the World Economic Forum’s gathering in Davos in 2017. The inexorable rise of automation, machine learning, artificial intelligence and robotics has the following implications for the workplace – and jobs – of the future: ■■ fewer unskilled or repetitive jobs, as these will be done by machines ■■ reskilling of employees to do different jobs, especially jobs that integrate with technology ■■ increase in higher-end jobs (jobs higher up the value chain) ■■ decline of whole industries and creation of new ones Scenarios worth considering and implications for retirement funds and trustees 1. Industries which rely heavily on unskilled labour may see drastic reductions in the workforce. Labour unions and governments may seek to protect certain industries against this but, in the long run, such moves are likely to make those industries globally uncompetitive. –– T rustees in these sectors may experience reductions in the number of members over time. In fact, we have already witnessed this in several industry sectors in South Africa (mining springs to mind). –– T here will be payments out of funds – cashflow will be required. This has an implication for investment strategies.

–– Fewer members generally means lower economies of scale, and consequently standalone funds may migrate to umbrella funds in order to manage overall costs. 2. There may a shift in the type of employees employed in certain sectors, resulting in more technical specialists higher up the value chain. –– Our previous studies have shown that different income groups value different employee benefits, so the mix of benefits may need to be adjusted to accommodate the changed workforce. –– There may be a need for more flexibility, protection of income and individualisation than before. 3. While employees are being reskilled, or this transition takes place, there may be temporary periods of unemployment or fluctuating income levels. –– Retirement funds should consider ways to keep members invested and investing during such periods as far as possible. –– This may mean getting creative about contribution rate and pensionable salary definitions, as well as allowing preservation options. –– Associated emergency savings vehicles become important to ensure that retirement monies can be used for retirement, rather than funding people during the inevitable ‘emergency’ as the workplace transitions.

Digitalisation and communication The world is increasingly connected, mobile and digital. The Internet of things infiltrates almost every aspect of our lives. Retirement funds will be no different. Implications for retirement funds and trustees This offers trustees fantastic opportunities to communicate effectively with members – many funds and providers are embarking on this journey already. Communication is perhaps the area of retirement funding that has remained so difficult to get right so it has a positive and lasting impact. The ideas being communicated are often esoteric; they relate to distant problems, so getting and holding the attention of members is tough. With the vast improvement in digital platforms and portals, it should be far easier for fiduciaries to communicate with members using a wide range of media and engagement devices. Learning and communication can now be tailored to members who have different needs, knowledge and levels of understanding when it comes to retirement funds, and financial services in general. But digitalisation goes further than this – employees will expect not only to see and hear about their benefits digitally but also to be able to manage them digitally. This requires everything from the right digital engagement strategies to the ability to process instructions and provide individuals with a consolidated view of their benefits over a digital platform.

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And finally, in this digitally enabled world of big data and analytics, they will expect benefits and strategies personalised to them and focused on the individual.

Individualisation This broad term essentially refers to the needs and wants of individuals to be treated as individuals, with benefits that speak to them. In this new world, employees will be treated as clients. The evidence supporting a more personalised and customised journey is becoming overwhelming. Research suggests that as the workplace evolves towards one that is aligned to the needs of individuals, employees will look for more flexibility in work options, including benefit options. Employees will want an increased focus on their well-being (physical, mental and financial)1. In fact, according to the same research, employees pay almost as much attention to their benefits as they do to their pay. Furthermore, as businesses â&#x20AC;&#x153;go globalâ&#x20AC;?, so do employees. Employees will consider themselves global citizens, not content with

Chapter 5

localised benefit structures but comparing what they are offered (and what they offer) to whatâ&#x20AC;&#x2122;s best-in-class globally. And as digital development means we are able to reach more people, in more personal ways, individuals will become the centres of information and the focal point of all strategies. The value proposition becomes employee-centric. Implications for retirement funds and trustees Of all the changes, this is perhaps the most immediate. We have seen retirement funds and employers respond with flexibility in allowing choices around investment strategies, risk benefits and contribution levels. This should continue and we would expect to see a greater adoption of flexible benefit structures. But the reality is that most individuals find finances scary, and avoid engaging with their finances. Furthermore, retirement is just too far off a concept for most to even think about. With the changing world of work, this apathy towards saving for tomorrow could get even worse.

Learning and communication can now be tailored to members who have different needs, knowledge and levels of understanding when it comes to retirement funds, and financial services in general.

1 Mercer. 2017. Global talent trends 2017.

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The next revolution here will be default strategies – not the one-size-fits-all defaults we’ve had in place for years but defaults which are the right size for each individual and that require limited interaction from individuals. Lifecycle risk benefit structures are a default that changes according to average lifecycle needs, with the ability to customise. These represent a more appropriate structure than a single, flat benefit structure. Investment strategies face a similar evolution, with managed accounts creating personalised investment strategies. The theory here is that every person’s unique savings history, contribution rate, salary progression and expected retirement income will necessitate a different, unique mix of asset classes which change over time, in order to reach the goal. These are the traditional aspects of retirement savings. As we argued in Benefits Barometer 2016, the retirement fund could be the platform for delivering a wider range of financial planning aspects targeted at meeting individual needs and helping people

manage the balance between short-term and long-term needs. We argued that trustees and employers could consider making solutions available to deal with housing, education, emergency savings, post-retirement medical savings, and other aspects of personal and financial well-being. We still believe that this institutional platform is the one to use for delivering financial well-being to individuals. In other chapters, we look at additional aspects that could be included, such as transportation. But the principles remain. Efficiency will be the watchword of the day: the goal of the individual will be to get as much mileage, spread and personal relevance out of their limited allocation as possible. And the role of retirement funds is to help them achieve this. This particular aspect is both a combination of the changing workplace as well as the changing worker. And that takes us to the next section – how the changing worker affects retirement funds.

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The changing worker The rise of the free agent As individuals work for themselves, on their own terms, the speed at which employees rotate from one job to the next, or in and out of employment, will increase. Jobs will be about the functions performed and not who they are performed for. This is perhaps one of the scarier trends affecting retirement funds and their members. At the member level, individuals in defined contribution plans already typically carry the financial planning risk associated with their finances, but with the guardrails introduced by forced savings into retirement and the inability to access funds while still employed. Introduce a world where employees are effectively self-employed, contracting out to one or several employers at a time on a project-by-project basis, and the financial planning risk becomes more acute. They will face the same issues that the self-employed face today but there will be many more such cases. The financial planning problem thus reaches a whole new, epic-scale. Yes, they can still use various vehicles to save, like retirement annuities, tax-free savings accounts, unit trusts and the like – but will they? And how much do they need to save? Where should they invest? At what fee? Where will the guidance come from? These are the challenges the individual faces. What about funds and their trustees?

Implications for retirement funds and trustees This is where things get interesting – without any formal employer–employee relationship, the ability to create an occupational fund covering such members will be tested. The rationale for creating one may simply disappear as well. Employers may therefore simply say that it is not their problem – meaning there will be no fund or board of trustees. Members could be left to their own devices to source savings and protections. This already happens to some degree, often in smaller business, as South Africa does not have mandatory enrolment in pension funds. Alternatively, new types of funds may be created in which multiple employers participate and contribute towards the same individual’s record in that fund. Retirement annuity funds could already fulfil this function but have some limits to accessing capital before retirement. Or, a slightly amended form of umbrella fund may be constructed. Funds may be linked to an industry or may be chosen by the employee. Such changes would probably require enabling legislation. To attract individuals, such funds may embark on marketing campaigns, which would involve some cost and effort. Another issue with a direct business-to-consumer model is that of representation. Trustee boards are governed by trustees, at least 50% of which the members would have

Chapter 5

had the right to elect. Without trustees, this proportional employer and employee representation falls away, and with it, collective bargaining to some degree. The individuals may have control, but many will not know how to exercise it.

Personalisation and customisation We recently had an external company conduct interviews with employers and employees to understand their needs around financial well-being. Several insights emerged that speak directly to the needs of the workers of the future. An individual’s mindset and attitude towards finances is often influenced by their situation (including lifestage, partner and responsibilities). It is important to understand how individuals view the world. In many instances, this is shaped by their background, culture, faith and values. For most people, life does not follow a planned or linear trajectory, with many sharing the sentiment that ‘life is a journey of ups and downs’. Is this happening? To some degree it is. There is a growing appreciation among all stakeholders involved in employee benefits that an individual is at the centre of who is being provided for. On the flip side, the general view among employers is that members couldn’t care less about employee benefits. This is amplified in the younger age groups, but there is a general apathy towards benefits.

PART 1 Chapter 5

WHY A CHANGING WORLD OF WORK MATTERS TO RETIREMENT FUNDS

So where will it all end? These dynamics will change the nature of our investments, our risk benefits, the choices we will be allowed to make in terms of add-on benefits and, by necessity, the way they are administered, accounted for and reported on. The world will wake up to the idea that what used to be a pension fund can, with the right platform and structuring, be translated into a powerful financial planning tool for individuals and their families that can go significantly beyond solving for simply two parameters of our lives: retirement savings and income risk. What would happen to public policy or the current conventional structure if such a dynamic were likely to emerge? How should policymakers respond? Government is already somewhat concerned with the outcomes of the existing system, with inappropriate access to savings and generally low savings rates. They have proposed a range of reforms, but these are based largely on the existing framework and the existing world of work. Even recent social security proposals are based mostly on backward-looking research and thinking. The reality is that governments

are facing the same changes as retirement fund trustees – how to keep up with the fast pace of change affecting citizens. It may require a complete rethink of what is required. And a one-size-fits-all social security may not be the answer. There may be different solutions required for the unemployed, the informally employed, the temporarily employed and the traditionally employed. And what about boards of trustees and fiduciaries? How could they continue to play a role here? The acts which govern retirement funds and the employer–employee relationship, the embedded nature of benefits and collective bargaining to some extent limit the ambit of trustees and inhibit innovation. As legislation evolves and the employer– employee relationship changes, trustees will be required to get involved. And we think that the best way for trustees to respond is proactively, acting as agents of change and leading the charge on the individualisation and customisation of benefits.

PREVIOUS PART I HOME I NEXT PART

PART 2 LONGEVITY: THE DEMOGRAPHIC DISRUPTOR Chapter 1: What we need to understand

Chapter 2: The demographics of ageing in South Africa

Chapter 3: Shifting sands â&#x20AC;&#x201C; families on the move

Chapter 4: Reimagining long-term care

105

Chapter 5: How are we doing here?

113

Chapter 6: An action plan for ageing reform

125

PART 2 Introduction

LONGEVITY THE DEMOGRAPHIC DISRUPTOR The issue of increasing longevity – or, more correctly, an increase in our health-related quality of life before death – is a ‘disruptor’ of significant proportions that is quietly stealing its way into our lives in South Africa. In this section, we step back to examine just how we are experiencing this ageing and longevity phenomenon, how this will shape our social and economic futures, and what we could be doing to better address this constantly changing world.

PART 2 Introduction

BENEFITS BAROMETER 2017

We start by looking at some of the dynamics impacting on ageing in South Africa, beginning with a discussion on different cultural experiences and ‘traditions’ relating to retirement and death – and how these are starting to shift. We see how advances in medicine and the systems that support our physical well-being mean we’re not only living for longer but are also better able to enjoy our ‘golden years’ in good health. A closer exploration of the particular demographics of ageing in our country makes it clear that the way our population is ageing requires our serious attention. Research shows that our lifestyle choices (or circumstances) have a greater impact on how long we live than genetics and family history. For some time, at least, our differentiated histories will provide the most powerful explanation for how we experience the ageing process: because of our past, the ageing experience is – and will be – different for different populations. The traditional model of intergenerational family support is starting to take strain. The shifting sands of demographic flow are playing out against a background of growing economic prosperity, which is slowing down fertility rates and speeding up urbanisation, and the after-effects of the HIV/AIDS epidemic, which has ‘hollowed out’ a population of economically active adults.

On the one hand, a small portion of our population is hitting the same type of ageing wall as ageing populations in developed countries. On the other, the rest of the South African population is in a state of flux, potentially even a point of inflection. Understanding the interplay between the different trajectories of these population groups will have implications for addressing the needs of all South Africans. The questions we ask about a policy on ageing suggest that we need a far more inclusive discourse on the topic. If the expression ‘it takes a village’ springs to mind here, it’s because getting it right across our complex population will demand just that. In reimagining long-term care, we use lessons from developed economies as a starting point for considering how to address this issue. We explore how ageing has moved from being a natural, family-centred problem to a medical problem (people dying in hospitals), then an institutional problem (people dying in retirement homes). We look at three interventions that point to a process which reduces healthcare costs and increases quality of life at the end by reaffirming the family and community support systems: palliative care, gerontology, and asking older patients what constitutes a life worth living (and under what conditions) in an effort to improve quality of care.

So, how are we doing here? In South Africa, the litany of issues is particularly concerning. While the attention of policymakers is focused on the issues of our youth and unemployment, demographic changes – specifically increasing longevity and urban migration – are placing an increasing strain on our assumptions that a culture of reciprocity will mean that families will take care of their elders. It’s the fact that we remain so much a ‘barbell economy’ that’s problematic. For higher income groups, retirement may not be desirable because of longevity, but it’s do-able. For lower income groups, this is almost untenable without the support of family. The answer may lie with the private sector, or with a hybrid for-profit/notfor-profit model. We end by considering some creative approaches to addressing the inequality of health and care, and set out an action plan for ageing reform that suggests a way forward for different stakeholders: government; health professionals and carers; health insurance and financial services providers; employers; employees and retirees.

WHAT WE NEED TO UNDERSTAND

PART 2 Chapter 1

WHAT WE NEED TO UNDERSTAND

WE NEED TO TALK: AGEING IN SOUTH AFRICA

When we think disruption, we tend to think technology. But there is one ‘disruptor’ of significant proportions that is quietly stealing its way into our lives in South Africa. It demands our attention on so many different levels that it’s hard to know where to begin this discussion. What we are talking about is the issue of increasing longevity. Or, to be more correct, perhaps we should say an increase in our health-related quality of life before death. As the chapter ahead maps out, we are only just awakening to the implications this compression of morbidity will have – not just on the historically privileged but on all South Africans. And it’s complicated. Here is where we need to step back and ask: Just how is South Africa experiencing its own ageing and longevity phenomenon? How will this shape our social and economic futures? And what could we be doing to better address this changing world?

Economic upliftment will affect the long-term care of South Africa’s ageing population As we pointed out in Benefits Barometer last year, South Africa doesn’t have an age problem, it has a youth problem. But the topic of ageing in Africa allows us to examine some of the complex issues we need to grapple with as South Africa teeters between being a developing and a developed nation. If policy is going to meaningfully lead change, not just clean up after change has occurred, we need to look beyond the ‘milestones of ageing’ – retirement and death – to understand how we age over the years. We must examine how the dynamic of ageing is unfolding in the lives of South Africans and within cultures that are in transition.

Here is what you probably know The culture of traditional burials The headline in the Financial Mail says it all: ‘Grim Reaping’. In South Africa, death is a R9 billion-a-year business1. Nearly a third of our population (18.9 million people) owns some form of funeral cover2. The number-one financial product pick for many South Africans is funeral policies3. The explanation for this is that funerals are an important custom in many

1 The estimated size of the South African funeral market (excluding insurance). 2 ‘Inside South Africa’s unscrupulous business of death’, Financial Mail, April 27-May 3, 2017. p. 20. 3 Benefits Barometer 2016

South African cultures. But culture has a certain transience to it. It evolves as geopolitical and socio-economic influences quietly shift its foundations. The fairly recent introduction of the ‘after-tears’ celebration, with its additional costs, confirms just how fluid (and commercial) cultural burial ‘traditions’ are becoming.

The ‘retirement experience’ The other ‘big business’ for addressing ageing is retirement funds. Retirement savings in South Africa currently amount to R4.4 trillion, an accumulation of assets that could only have been reached because of policymakers’ insistence that if an employer does offer a retirement fund (or funds) to employees, it is mandatory for all employees to participate in the fund. Glossy brochures of silver-haired couples strolling on beaches or walking down country lanes imply a lifestyle we could have if we simply kept our retirement savings invested over the full course of our working lives. This obsession with the ‘retirement experience’ may also be cultural, but it’s decidedly more of a developed-world phenomenon, which may explain why it’s not given more serious attention by savers on this continent.

The reality beyond the milestones Somewhere in between these two stylised worlds lies a much starker reality that has

PART 2

WHAT WE NEED TO UNDERSTAND

not received enough airtime. Between retirement and death is a process of ageing that demands a variable support system. The problem is that support system may well be on the cusp of change. In light of demographic changes, it may be either absent or ill-equipped to deal with the complex financial questions that we face. This is what this chapter will explore.

Here is what we haven’t talked about enough How has our experience with ageing fundamentally changed? At the close of the Second World War, the United Nations released its Universal Declaration of Human Rights. The leading nations of the world declared that ‘the right to life’ should be one of civilisation’s most cherished values. What the declaration was a bit less clear on, though, was: a right to life for how long? Modern medicine held out a promise of near miracles. Would a 150-year life not be well within our grasp in another few decades? Perhaps our reality will turn out to be something slightly more prosaic.

As Yuval Noah Harari points out in his riveting narrative, Homo Deus: “In truth, so far medicine hasn’t extended our natural life span by a single year. Its great achievement has been to save us from premature death, and allow us to enjoy the full measure of our years4.” For most of our 100 000 years of existence the average lifespan of human beings has been 30 years5. The notion that we could use medical technology to tinker with our own mortality is really only a few decades old6. Go back to a US of 1790 and you will find that people over 65 represented less than 2% of the population. Today, 14% of the population of the US is over 657. Our increasing longevity is owed to far more than just a great leap forward in medical science, though. Running parallel to the explosion in medical insights was a social process that led to better sanitation, cleaner water, fewer toxic substances, and adequate housing. Towards the end of the last century there was also a powerful educational push on the role diet and exercise played in making our bodies more physically resilient to sickness and ageing.

4 Harari, YN. 2015. Homo Deus: A Brief History of Tomorrow. London: Harvill Secker. 5G awande, A. 2015. Being Mortal: Illness, Medicine and What Matters in the End. London: Profile Books, p. 32.

6 Ibid. p. 9. 7 Ibid. p. 32. 8 Harari (2015), p. 2.

Chapter 1

These developments did more than just extend our time on earth. They also fundamentally changed what it would be that we would die from. It was not the Four Horsemen of the Apocalypse – war, famine, conquest and pestilence – that would determine our fate. Now, thanks to modern science, we will more likely die from our body simply wearing out or from the abuse we have inflicted on it ourselves (those non-communicable lifestyle diseases, such as obesity, that we talked about at length in Benefits Barometer 2016). Harari’s eloquent history lesson reminds us just how real this fact has become when he states: “For the first time in history, more people die today from eating too much than from eating too little; more people die from old age than infectious diseases; and more people commit suicide than are killed by soldiers, terrorists and criminals combined. In the early 21st century, the average human being is far more likely to die from bingeing at McDonald’s than from drought, Ebola or an al-Qaeda attack8.” To what extent has South Africa followed a similar path? In the next section we examine where Africa stands with regard to the shifting sands of ageing.

PART 2 Chapter 1

WHAT WE NEED TO UNDERSTAND

EXTENDED LIFESPAN Population over 65 as percentage of total population

US population over 65 years

SA population over 65 years

1790 2%

2017

5.2%

2017 14% Source: Gawande (2015), p. 32

Source: Stats SA, 2015

THE DEMOGRAPHICS OF AGEING IN SOUTH AFRICA

PART 2 Chapter 2

THE DEMOGRAPHICS OF AGEING IN SOUTH AFRICA

THE WAY OUR POPULATION IS AGEING REQUIRES OUR SERIOUS ATTENTION Sub-Saharan Africa is the demographic baby of our global community, with the most significant youth bulge on the planet. That said, compared with the other youth-biased countries on the continent, South Africa has the highest proportion of older people, with over 8.2% of the population over 60 (4.4 million) and 5.24% over 65 (2.9 million)1. By 2025, the total population over 60 is projected to be over 10.5% and by 2050, 14.2% (6.4 million)2. From 2015, South African males who made it to the age of 60 could be expected, on average, to reach the age of 73.5. South African women reaching 60 could potentially live to 783. Note that these estimates have been based on the average quality of care this population has experienced up to this point.

But, as we shall soon see, that quality of care has differed radically for different segments of the South African population. ‘Average’ expectations for South Africa are relatively meaningless as a consequence. When compared with global standards, South Africa is classified as being in the intermediate stage of ageing4 – a classification that masks a serious reality for South Africa’s elderly. According to Statistics South Africa, because this ageing process is taking place at a faster rate and within poorer socio-economic conditions than the developed world, the consequences may be more problematic. It’s time all stakeholders – policymakers, employers, service providers, families and the elderly themselves – start giving the issue of ageing in South Africa serious consideration.

It’s time all stakeholders – policymakers, employers, service providers, families and the elderly themselves – start giving the issue of ageing in South Africa serious consideration.

1 Hoffman, J and Pype, K (Eds.). 2016. Introduction. Ageing in Sub-Saharan Africa: Spaces and Practices of Care. University of Chicago. 2 Ibid. 3 Harper, S. 2016. How Population Change will Transform our World. Oxford: Oxford University Press.

4H offman, J. 2016. Negotiating care for older people in South Africa: between the ideal and the pragmatic. In J. Hoffman and K. Pype (Eds.), Ageing in Sub-Saharan Africa: Spaces and Practices of Care. University of Chicago.

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THE DEMOGRAPHICS OF AGEING IN SOUTH AFRICA

Chapter 2

Population ageing trends The tables below show how South Africa’s population ageing trends compare with those of other countries and regions. Table 1: Population ageing trends in SAGE sites, 1950 to 2050 Country China Ghana India Mexico Russia South Africa

Percentage 1950 7.5 4.1 5.4 5.4 9.2 6.0

of population aged 60 years or older 1975 2000 2025 2050 7.2 10.2 20.2 33.9 4.5 5.2 7.2 11.9 5.6 6.7 5.2 7.2 5.6 7.5 14.2 25.8 13.6 18.5 24.0 31.2 5.2 5.9 10.5 14.8

Source: World Health Organization. 2011. WHO Study on global AGEing and adult health (SAGE).

Table 2: Population ageing trends in southern and South Africa, 2000 to 2020 Region or country

Southern Africa

South Africa

Year 2000 2010 2020 2000 2010 2020

Percentage of ageing trends, by age (in years) 50+ 60+ 70+ 12.4 5.9 2.1 14.9 7.2 2.6 16.9 9.2 3.5 12.7 5.9 2.1 15.4 7.4 2.6 17.7 9.6 3.6

Source: World Health Organization. 2011. WHO Study on global AGEing and adult health (SAGE).

What these statistics don’t tell is a far more complex story about ageing in South Africa. This is what we flesh out here.

PART 2 Chapter 2

THE DEMOGRAPHICS OF AGEING IN SOUTH AFRICA

Lifestyles and longevity The surprising story for longevity is that genetics counts for much less than we would have been led to imagine. High school students have come to understand that their parents’ height is likely to explain as much as 90% of what their own height will be. But, according to James Vaupel at the Max Planck Institute for Demographic Research, genetics and family histories probably explain only 3% of our own personal longevity. Dr Sebastiana Kalula at the Albertina and Walter Sisulu Institute of Ageing in Africa believes that number could be higher, as much as 25%, but it is still significantly lower than most people understand. What this means is that it is lifestyle choices (or circumstances) that are likely to have the greatest impact on how long we live. Factors such as income, education and access to healthcare and other services will have a significant impact on the ageing experience in South Africa. Because of historical inequalities in these areas that were enforced along racial lines, this will result in different challenges for different sectors of the population as they get older.

It might seem decidedly retrogressive in this post-apartheid world to continue referring to race. However, the reality is that our differentiated histories, day-to-day lifestyles and family dynamics provide the most powerful explanation for how South Africans will continue to experience the ageing process, at least in the near term. Because of our past, these dynamics are closely linked to how different race groups experience ageing today, and we therefore use them to examine the phenomenon of ageing in this chapter. While it may seem self-evident that marginalisation and limited access to good health facilities for specific groups played – and continue to play – an important role in ageing, the World Health Organization’s study on global ageing and adult health for South Africa points out that we still have a limited understanding of the magnitude, patterns, dynamics, social determinants, and individual and societal impacts of ill-health in older age5.

The need for better research here is becoming critical.

What we know ■■ The highest impact of ageing is in populations where social and economic hardships are greatest, and where poverty and HIV/AIDS have the greatest impact. ■■ Currently, black South Africans (male and female) have been dying at a younger age than any other group. ■■ Rural provinces, where access to healthcare and services for the elderly may be minimal, have higher proportions of poor elderly persons than urban areas6. ■■ At the same time, we are seeing an alarming increase in the incidence of diabetes, heart disease and stroke, which are effectively lifestyle diseases. This is particularly prevalent among affluent sectors of the population (see a discussion of this in Benefits Barometer 2016 Part 2: Chapter 6).

The reality is that our differentiated histories, day-to-day lifestyles and family dynamics provide the most powerful explanation for how South Africans will continue to experience the ageing process, at least in the near term.

5 Statistics South Africa. 2014. Census 2011: Profile of older persons in South Africa. Pretoria: Stats SA. 6 Ibid.

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THE DEMOGRAPHICS OF AGEING IN SOUTH AFRICA

90%

Chapter 2

Figure 3: Ageing index by population group, 2011

84%

Ageing index

Black Coloured Indian or Asian 34%

White

17%

14% 0

8.0%

Black African

34.8% 37.9%

Coloured

7.7%

Indian or Asian

54.4%

Rich

Poor 80.7%

60.3%

29.4%

10.2%

Average

71.2%

18.6%

0.7%

Other

57.2%

27.7%

1.1%

White

Figure 4: Percentage distribution of elderly by socioeconomic and population group, 2011

27.1% 33.0%

South Africa 0

10%

20%

30%

39.9% 40% 50%

60%

70%

80%

90%

PART 2 Chapter 2

THE DEMOGRAPHICS OF AGEING IN SOUTH AFRICA

The ageing experience is – and will be – different for different population groups We’ve said that our experience of ageing is largely determined by lifestyle factors, which are a product of our income, education, and access to services and economic opportunities. In the past, access to such opportunities was denied to the vast majority of people on the basis of ‘race’. The impact of this history still lingers in the data. Understanding the impact of longevity in South Africa must take into account the differential historical experiences of different population groups in South Africa.

How should we interpret the data on ageing? One way to assess the magnitude of these differences is to apply the ageing index. This index shows the number of people aged 65 and above for every hundred people under the age of 14. It indicates the family and economic support that may be available to help older people meet their needs.

The ageing index for South Africa is substantially below that of other, more developed countries. The Stats SA 2014 report on ageing in South Africa states there were 18 elderly people for every 100 youth (up slightly from 14 in 1994), which is generally considered a healthy ratio of support. But this assumes that most young people have access to work opportunities, whether as employees or business owners, which is currently not the case. With youth unemployment at 45% and no immediate sign of economic growth, these figures are no little cause for concern. As Figure 3 shows, the ageing index reading for whites has almost doubled over the last 20-some years, placing that segment of the population in as precarious a position as the baby boomers in the US and Europe.

Our response to the impact of longevity must take into account the differential experiences of different population groups in South Africa.

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THE DEMOGRAPHICS OF AGEING IN SOUTH AFRICA

90%

Chapter 2

Figure 3: Ageing index by population group, 2011

84%

Ageing index

Black Coloured Indian or Asian 34%

White

17%

14% 0

8.0%

Black African

34.8% 37.9%

Coloured

7.7%

Indian or Asian

54.4%

Average

Rich 80.7%

60.3%

29.4%

10.2%

Poor

71.2%

18.6%

0.7%

Other

57.2%

27.7%

1.1%

White

Figure 4: Percentage distribution of elderly by socioeconomic and population group, 2011

27.1% 33.0%

South Africa 0

10%

20%

30%

39.9% 40% 50%

60%

70%

80%

90%

PART 2 Chapter 2

THE DEMOGRAPHICS OF AGEING IN SOUTH AFRICA

Cause for concern

Figure 5: Percentage of extended households by province, 2011

Should policymakers in South Africa be concerned? The charts on page 95 suggest why they may not be.

51.6%

The same 2014 Stats SA report on South Africa’s older persons concludes that: ■■ 40% of the elderly in South Africa are poor 63.5%

■■ 27% are classified as rich ... with 80.7% of whites and 71.2% of Indians or Asians sitting firmly in that ‘rich’ categorisation

On the surface, our data analysis suggests different populations will have very different priorities for addressing the dynamic of ageing in South Africa. But that could be a short-lived illusion, as we shall discover in our next section. Understanding the interplay between the different trajectories of these population groups will have implications for addressing the needs of all South Africans.

57.6%

23.3%

16.7%

18.3%

20.2% 53.5% 52.5%

55.7%

19.5%

18.7%

The traditional family support model – will it hold? For now, at least, 72% of the noninstitutionalised8 elderly population in South Africa live in multigenerational households9. The irony is that the more economically successful South Africans become, the greater the strain placed on that support model. As Figure 5 shows, these extended households are mostly in the more rural provinces, with single and nuclear-family living arrangements dominating the urbanised provinces of the Western Cape and Gauteng.

18.6%

38.7%

■■ 33% make an average living

So, the white and Indian or Asian populations may have a problem on the horizon, but many will have the financial resources to potentially manage it. For the majority of the black and coloured populations, there are no warning signs, no dependency problems. Surely the family reciprocity system will provide the necessary support for now7?

22.6%

57.5% 23.5% 30.5%

Percentage of elderly living in extended households by province, 2011 Percentage of elderly living alone by province, 2011

South Africa total 50.6 %

20.2 %

7 KPMG. 2013. An uncertain age: reimagining long term care in the 21st century. 8 ‘Non-institutionalised’ means not already in a health facility. 9 Hoffman, J. 2016. Negotiating care for older people in South Africa: between the ideal and the pragmatic. In J. Hoffman and K. Pype (Eds.), Ageing in Sub-Saharan Africa: Spaces and Practices of Care. University of Chicago.

SHIFTING SANDS â&#x20AC;&#x201C; FAMILIES ON THE MOVE

PART 2 Chapter 3

SHIFTING SANDS – FAMILIES ON THE MOVE

WHAT’S IMPACTING DEMOGRAPHIC CHANGE AND AGEING? Dr Jaco Hoffman, leader of the sub-programme Ageing and Generational Dynamics in Africa at Optentia Research Focus Area at North-West University, argues there are three factors that define the demographic flow of a given population: longevity, fertility and migration. The factor with the most enduring impact on how these play out in a country or region is economic prosperity. As his study on ageing in Africa highlights: “A major difference between population ageing in the more developed and still developing regions of the world is that ageing in the latter largely takes place against a backdrop of considerable economic, infrastructural and personal strain, with family seen as the main (if the only) source of care1.”

How fertility and mortality have affected ageing in Africa As we prosper, our technological capability to keep death in check both at the beginning and the end of our lives improves. The Stats SA Profile on older persons in South Africa notes that South Africa was one of the first countries in sub-Saharan Africa to experience a decline in the fertility rate, from 6.0 births per woman in the mid-1950s to an estimated 2.6 in 20162. This 2016 number is only slightly above the fertility rates of developed economies. Economic prosperity has, in effect, become a form of birth control. Our work opportunities carry us out of the fields and into centralised hubs of production and service. We don’t need more children to help plant or harvest crops. Nor do we want more children, as they affect our ability to move around for work. This is a key development. After an analysis of 103 current and former developing countries, the conclusion of the Berlin Institute Study on Africa’s Demographic Challenges was that no single country has developed socio-economically without a parallel decline in the birth rate3.

1 Hoffman, J and Pype K (Eds.). 2016. Introduction, Ageing in Sub-Saharan Africa: Spaces and Practices of Care. University of Chicago. 2 Stats SA Demographic and Health Survey, 2016 p. 1.

Mortality plays an equally important role in shifting population share towards the elderly. Sub-Saharan Africa’s experience with mortality, even in the face of increasing economic prosperity, is markedly different from that of other nations (developing or developed). Theoretically, as living standards improve, mortality declines. Sub-Saharan Africa, though, has been at the epicentre of the HIV/AIDS epidemic. It had to endure a protracted period where efforts to curb, contain and relieve HIV were minimal at best, resulting in high mortality rates among economically active adults. This had the effect of ‘hollowing-out’ a population at its most economically critical core. A by-product of this tragic episode has been the formation of skipped-generation households, where grandchildren are left behind by their deceased parents and are the sole responsibility of their elderly grandparents. Even worse has been the emergence of child-headed households4. In populations where this has occurred, the demographic shift towards an elderly population can occur more rapidly than policymakers have anticipated.

3 Sippel, L, Kiziak, T, Woellert, F & Klingholz, R. 2011. Africa’s demographic challenges: how a young population can make development possible. Berlin Institute for Population and Development. 4 Ibid. p. 2.

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SHIFTING SANDS – FAMILIES ON THE MOVE

17.7% 17.4%

Black African

13.9% Coloured

29.9%

Nuclear 15.9% 35.4%

4.0%

Complex

33.0%

Extended

44.7%

Indian or Asian

4.7%

Single

50.1%

6.2%

White

Figure 7: Percentage distribution of elderly persons by household composition and population group, censuses 2011

61.6%

3.2%

52.6%

9.8%

10%

Chapter 3

20%

30%

40%

50%

60%

70%

80%

% Source: Statistics South Africa. 2014. Census 2011: Profile of older persons in South Africa.

The more modernisation combines with the prospects of prosperity from urban migration, the more there will be an understandable strain on the ‘cultural norm’ of intergenerational reciprocity.

101

PART 2 Chapter 3

SHIFTING SANDS – FAMILIES ON THE MOVE

Who will take care of us? A closer look at the intergenerational support model As life expectancy increases, so do the odds of different generations within a family being alive at the same time. This should be good news, as the idea of intergenerational reciprocity implies that, when it comes to family care and finances, everyone can benefit from mutual support. Grandparents provide much-needed childcare and often contribute to funding familywide educational needs, for example by contributing their grant funds to the family pot5. In turn, when they need support in the face of increasing frailty and decreasing economic viability, the younger generations will step in to fill that critical gap.

Intergenerational reciprocity or economic dependency? Intergenerational reciprocity in caregiving is a double-edged sword, though. While the model can serve to bring families together and, as a collective, enable them to be more resilient to financial shocks, it also can result in more economic dependency between generations. Witness such phenomena as ‘black tax’ or the ‘sandwich generation’.

100

While this model of reciprocity provides a measure of social protection for the extended family in a country where the social protection net has gaping holes, it can also hamper social mobility and economic growth, which is why this ‘cultural norm’ demands our attention.

Changes in the ‘culture of reciprocal care’ We established at the beginning of this chapter that cultural norms evolve, sometimes imperceptibly at glacial speeds, and sometimes with violent, wrenching twists and turns. If we look at the way our living arrangements are subtly changing, it seems that a culture of reciprocal care is shifting, too. Figure 7 shows that there is a similar pattern emerging for every population group: the number of people living in extended families is declining and the number of people living on their own is increasing.

Intriguingly, the rate of increase in single households seems to be the most dramatic. This may simply be a function of increasing longevity or, as Atul Gawande points out, it may be more generally associated with increasing prosperity. Affluence tends to lead people to seek greater independence as they get greater control of their economic lives6. By contrast, the decrease in extended families appears to be less dramatic among black South Africans. While the slight uptick in extended-family households for the white population is worth noting, the presence of the extended family is nearly seven times greater in black families than it is in white families. The important reality here is that, as we have already seen, the bulk of these multigenerational households tend to be in the rural provinces. Change is in the air, but why? Two factors have a significant impact: HIV/AIDS and urban migration.

5 Standish-White, J and Fiin, A. 2015. Unconditional cash transfers and children’s educational outcomes: Evidence from the old-age pension programme in South Africa. Southern Africa Labour and Development Research Unit: University of Cape Town. 6 Gawande (2015), p. 19.

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SHIFTING SANDS – FAMILIES ON THE MOVE

17.7% 17.4%

Black African

13.9% Coloured

29.9%

Extended 15.9% 35.4%

4.0%

Single

33.0%

Nuclear

44.7%

Indian or Asian

4.7%

Complex

50.1%

6.2%

White

Figure 7: Percentage distribution of elderly persons by household composition and population group, censuses 2011

61.6%

3.2%

53.5%

9.8%

10%

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20%

30%

40%

50%

60%

70%

80%

% Source: Statistics South Africa. 2014. Census 2011: Profile of older persons in South Africa.

The more modernisation combines with the prospects of prosperity from urban migration, the more there will be an understandable strain on the ‘cultural norm’ of intergenerational reciprocity.

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The impact of HIV/AIDS on living arrangements With HIV/AIDS affecting a significant portion of economically active adults, elderly people are now responsible for caring for their affected (and sometimes infected) grandchildren. They have to do so under conditions where the parent is either absent or ailing, which places an additional physical and financial burden on caregivers who themselves are becoming increasingly frail and financially stretched.

The impact of urban migration on living arrangements An equally important dynamic is one of the three mentioned at the beginning of the chapter: migration. According to the World Health Organization, this is the first time the majority of the world’s population live in cities. Rapid urbanisation is perhaps the migratory phenomenon with the greatest socio-economic impact. As we move from an agrarian to industrial and, finally, a service-dominated economic path, an urban move is a natural shift. So much so that, as Gawande points out, “the prosperity of whole countries now depends on children’s willingness to escape family expectations and follow their own path7.” In South Africa, 62% of the population lives in urban areas and more than 52% of older people live in rural areas, although the proportion varies by province8. This has the potential to be another double-edged sword: the more modernisation combines with the prospects of prosperity from urban migration, the more there will

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be an understandable strain on the ‘cultural norm’ of intergenerational reciprocity that has served the ageing population in certain groups for so long. Global connectivity makes it easier for younger generations to migrate to areas of growth, but with increasing urbanisation there has also been an increase in HIV/AIDS. As a result, older family members back in poor rural areas are left without traditional family structures for support. Now, for example, 30% of older women head up skipped-generation households, where they are responsible for at least one grandchild without the presence of middlegeneration family members. Similarly, as education has risen and fertility decreased, there has been an emergence in economic opportunities for women – again, primarily in urban areas. This means their caregiving services may not be available when they are most required. While women may be able to secure greater financial stability through work, this additional income doesn’t always allow them to ‘contract out’ long-term care for the simple reason that there is no longer anyone available on the home front to perform that function.

Where, then, are these changes taking us? Although the number of generations in a family may have increased, today they are more likely to live separately. In South Africa, the number of single-member households has risen dramatically, from 16.3% in 1996 to 26.7% in 2011.

Single-member households headed by an elderly person grew from 14.6% in 1996 to 20.2% in 2011. There has been a rise in the number of elderly people as the declared financial head of the household. Between 1996 and 2011, this number increased from 1.7 million to about 2.9 million households – 19.9%. We can only guess at the factors directly responsible for this increase, but it is likely that the impact of HIV/AIDS in ‘hollowing out’ the multigenerational family, and increased unemployment among the youth have played an important role9. Another interesting change is that elderly people also appear to be continuing to work later in life (Figure 8). This could be because of economic pressure to continue generating an income, or it may be a reflection of a global trend: educated individuals are beginning to see that they still have value to offer professionally, even if they have hit some arbitrary cut-off date.

How are these changes affecting intergenerational care? Whatever the explanation, a more important consideration is whether these subtle demographic shifts are translating into (or reflecting) a change of heart regarding the commitments embedded in the reciprocity of care.

7 Gawande (2015), p. 20. 8 Kalula, S. 2016. Ageing and health in emerging economies: policies and programmes in South Africa. International Longevity Centre South Africa: University of Cape Town. 9 S tatistics South Africa. 2014. Census 2011: Profile of older persons in South Africa. Pretoria: Stats SA, p. vi. 10 Hoffman, J. 2016. Negotiating care for older people in South Africa: between the ideal and the pragmatic. In J. Hoffman and K. Pype (Eds.), Ageing in Sub-Saharan Africa: Spaces and Practices of Care. University of Chicago.

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Figure 8: Percentage of elderly persons who were employed by population group, censuses of 1996 and 2011

50% 22.0% 19.3% 11.3%

9.2%

1996

Total

10.7 %

12.7%

28.6% 15.1%

26.0 %

2011

Here we are best served by the qualitative microeconomic research conducted by Hoffman. His study on the Emalahleni, and the ‘changing narrative’ of intergenerational care and reciprocity, acknowledges some tension between ‘the told story’ and ‘the lived story’. Elders understand their obligations here, but words such as ‘must’ are beginning to creep in, suggesting a rising level of resentment (and a recognition that reciprocity of obligation may not be well balanced). By contrast, the youth are more circumspect.

More and more, they are assessing their own capacity and hierarchy of needs before determining the level of commitment they can provide to their elders.

an important financial resource to the whole family. This could well be why so many families elect not to take up the elder’s offer to move out.

The net effect is that two competing scenarios appear to be emerging:

Scenario 2: Younger generations lobby for the institutional care of the elderly, arguing that this allows them to pursue work opportunities which are vital to overall family survival. What can be earned through these opportunities will more than make up for the lost OPG income.

Scenario 1: The elderly capitulate and accept institutional care. The family no longer can benefit from their Older Person’s Grant (OPG), which can introduce a different sort of tension to the decision. That grant provides

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Whichever scenario, the hand of change is at work here and it’s time we start to consider the longer-term implications. In Being Mortal, Gawande notes that, while we tend to think nostalgically of the ‘good old days’ when families maintained their intergenerational dependencies, the harsh truth is that “as soon as people got the resources and opportunity to abandon that way of life, they were gone”, with both the elderly and children regarding the move as a form of freedom11. Although they have typically been cared for in extended households, the more economically empowered the elderly become, the more likely they are to choose a new form of living arrangement altogether – what social scientists are now calling ‘intimacy at a distance’ (living alone but maintaining the ties)12.

Renegotiating the lines of power between generations Instead of viewing this cultural shift as an indication of hard times ahead, Gawande talks rather of the lines of power between the two generations requiring a renegotiation. Hoffman’s Emalahleni narrative captures just such a process of renegotiation. As Gawande describes it, “The aged did not lose status and control as much as share it. Modernisation did not demote the elderly. It demoted the family [...] The veneration of elders may be gone, but not because it has been replaced by veneration of youth. It’s been replaced by veneration of the independent self13.”

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Our analysis so far suggests that, over the near term, our answers will have to address two very different sets of challenges that are emerging from different segments of the population as a result of their disparate circumstances and experiences with ageing. On the one hand, a small portion of our population is hitting the same type of ageing wall as ageing populations in developed countries. But services that provide quality care can probably accommodate only 2% of the population over 65.

■■ Who is ultimately responsible or should be made accountable? What aspect of responsibility belongs to the state? What belongs to the private sector and what belongs to the individual and their families? At what point does the state take over from the private citizen? ■■ And finally – that overarching question: “How do we get to a common discourse on good but affordable care for older people in need?14”

As these two worlds start inching towards each other, there are any number of policy questions to consider. The study Ageing in Sub-Saharan Africa presents some questions we all need to address:

These questions relate to policy around ageing. And they certainly suggest that we need a far more inclusive discourse on the topic between families, the Department of Social Services, the Department of Health, medical aid schemes, and employers and service companies engaged in grey-market services such as housing, care facilities, care services, the training of carers, and relevant financial services.

■■ Whose priority is care provision? (Is this a health service priority? A social services priority? A financial services priority?)

If the expression ‘It takes a village’ springs to mind here, it’s because getting it right across our complex population will demand just that.

Questions for a policy on ageing

■■ Where should funding come from? ■■ What is needed in terms of good care? (What is good care anyway?) And what are actual care practices? ■■ Where can the necessary capacities be found? ■■ Who is helping and who should be? ■■ What about older people’s responsibilities to take care of themselves?

11 Gawande (2015), p. 20. 12 Ibid. p. 21. 13 Ibid. p. 22. 14 Hoffman, J. and Pype, K. 2016. Conclusions. Ageing in Sub-Saharan Africa: Spaces and Practices of Care. University of Chicago.

REIMAGINING LONG-TERM CARE

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LESSON

ONE In the developed world, the concept of long-term care was subjected to a dramatic rethink over the course of the last 50 years. The lessons that were learned over that period provide an important starting point for considering how South Africa might avoid some errors of judgement.

Ageing is not a sickness Until the mid-1900s, it was assumed that most Americans in the US would spend their declining years in the care of their families. But after two world wars, a global depression and an epidemic of Spanish flu that would kill and displace between 3% and 5% of the earth’s population, the fabric of family life began to fray. Old people were turning up in droves in poor houses as the only viable option for long-term care. Policymakers in the US saw a pension system as an antidote to the problem, but even after the Social Security Act was introduced in 1935, the numbers of elderly who turned to poorhouses for refuge refused to drop.

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1 Gawande (2015), p. 70. 2 Ibid, p. 70.

Obtaining enough money to pay for a home wasn’t the issue: “Pensions hadn’t provided a plan for that final, infirm stage of mortal life2.”

From dying at home to nursing homes At the same time, advances in medical science were fundamentally changing the way we viewed ageing. As age-related health problems invariably arose, we turned more and more to the medical profession for answers. As a medical problem, this meant ageing was potentially ‘fixable’. Philosophically, we would shift from thinking of death and dying as the inevitable, to ‘find out what’s broken and then fix it for me’.

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In 1945 in the US, most deaths occurred at home. By 1980, though, only 17% occurred at home3, as ageing was migrating to medical centres. The more the aged in frail conditions stayed on, the more untenable the pressure became on the hospital system. Out of these capacity constraints, the concept of the nursing home emerged.

Beyond nursing and old age homes

Ageing had moved from being a natural, family-centred problem to a medical problem, then to an institutional problem. But the institutionalisation of ageing would have (and continues to have) its own perverse outcomes. Entering into such institutions as nursing homes and old age homes effectively meant relinquishing autonomy over one’s life. In the interests of keeping people safe and keeping costs as low as possible, people in long-term care institutions found their lives regulated on every possible level. Controlling quality of care was not the same as creating quality of life.

Ironically, the biggest impediment would turn out to be the insurance industry. It insisted on keeping a firm grip on how much free will people could have in these facilities. It incentivised the medical support system to do just about anything to keep elderly people alive, but did little to help them come to terms with the inevitability of ageing. As Gawande points out: “We pay doctors to give chemotherapy and to do surgery but not to sort out when this is unwise …The issue isn’t merely a matter of financing. It arises from a still unresolved argument about what the function of medicine really is – what, in other words, we should and should not be paying doctors to do5.”

The net effect: “We achieved some important societal goals of freeing up hospital beds, taking burdens off families, coping with poverty, but never the goal that matters most to the people who reside in them – how to make life worth living4.” As Gawande describes it, we had lost the ability to be the authors of how our story would end – and this was an important exercise in giving meaning to our lives.

3 Gawande (2015), p. 72. 4 Ibid. p.77. 5 Ibid. p. 187 6 World Health Organization

In response, a continuum of care evolved over the next 50 years. From retirement villages that could mirror home life to assisted living, frail care, and finally to hospices, each facility would try to strike the right balance between the need for medical care and individuals’ autonomy.

This changed in an interesting but important way as a new concept of care moved to centre stage: palliative care. Palliative care first emerged in Canada in 1979 and was specifically developed to serve patients with life-threatening illnesses. Thought of another way, palliative care actually cares for those

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who are dying – for whatever reason. What made it unique was that it focused not on healing, but on relieving pain and identifying the best ways for an individual to feel as comfortable and ‘normal’ as possible in their remaining months. Its approach is holistic: the best palliative care programmes go beyond the purely physical to address social, legal, economic, psychological, spiritual and human rights considerations. Essentially, palliative care is about quality of life – or what’s left of one’s life6. Perhaps the most important lessons from palliative care were the insights it provided the medical profession into the destructive power of treating ageing too much as a medical problem. A 2016 study in the International Journal for Quality Healthcare highlighted the fact that, on average, 33% to 38% of patients who had entered the end-of-life period received invasive treatments that were of no medical benefit to them. Between 33% and 50% of patients who had expressly requested do-not-resuscitate were similarly subjected to these non-beneficial treatments. On some level, this highlights just how difficult the decision is about when to treat and when not to treat. Near death, hope springs eternal7. When patients were provided with palliative care options, the impact was significant. In a number of randomised studies in the US

7 Cardona-Morrell,M., Kim, JCH, Turner, RM, Anstey, M. Mitchell, I.A. and Hillman, K. ‘Non-beneficial treatments in hospital at the end of life: asystematic review on the extent of the problem. International Journal for Quality in Healthcare, 2016, p. 456-469

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and UK, patients who received palliative care were found to have lower depression, less pain, and actually lived longer than those who underwent traditional interventions of chemotherapy or surgery8. If medical interventions meant individuals ended their lives separated from their loved ones in sterile hospital wards and enduring the indignity of painful medical procedures, eating tubes and breathing machines, surely palliative care provided a better quality of life at the end. As a further bonus, palliative care also appears to reduce post-death trauma for family members. Palliative care can relieve the financial pressure of using expensive medical interventions and hospital beds while at the same time restoring autonomy and dignity to peopleâ&#x20AC;&#x2122;s lives. In South Africa, the palliative care movement is gaining significant traction. In many ways, it is ideally suited to the South African social environment. The power of palliative care is that it can be integrated into community-based home care. The most visible presence of palliative care in this

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regard has been in relation to the treatment of HIV/AIDS in rural areas. In fact, there have already been a number of successful programmes, specifically in KwaZuluNatal, demonstrating a model of care that integrates hospice, home-care, and palliative services specifically to address the needs of HIV/AIDS patients9. The next big challenge for palliative care will likely be dementia. Already, dementia is set to be the next big killer globally. In the UK, researchers from Kingâ&#x20AC;&#x2122;s College have projected that dementia will overtake cancer as the number-one killer by 2040. There is an all-out call to double the current capacity for palliative care capabilities to meet this eventuality. In South Africa, dementia, and not necessarily ageing, may provide the critical wake-up call to policymakers about the tsunami of long-term care capacity that will be required here. Dementia is most decidedly not an aspect of ageing that families can manage on their own. But we will get to the issue of how unprepared South Africa is in this regard in the next section.

8 The Economist. 29 April 2017. End-of-life care: A better way to care for the dying. 9 Defilippi, K. 2005. Integrated community-based home care: Striving towards balancing quality with coverage in South Africa. Indian Journal of Palliative Care, 11(1), 34.

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LESSON

TWO

Ageing is a young science One outcome of placing so much medical attention on ageing is that we are beginning to understand how different the medical needs of the elderly are. However, ensuring medical and nursing professionals are properly trained in those distinctions has not been seen as a priority. But the consequences of not knowing are severe. Consider these examples: ■■ An older body can respond to medication and treatments very differently, and with serious consequences. ■■ Elderly people often suffer from multiple medical conditions that are treated by multiple medical specialists whose various treatments may not be coordinated by any central function.

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Overmedication or incompatible medical treatments are common and can leave patients in a more debilitated state than normal ageing would suggest. ■■ Medical professionals will frequently make assumptions about the ageing process: our memory becomes poor, our senses and nerves become impaired, we develop incontinence or lose control over other bodily functions. When they are confronted with these ailments in an older person, they choose to leave the problem untreated. Frequently, these problems are treatable. The question is often: Should we bother? ■■ Medical professionals work on a process of triage: identify the worst problems and treat them first. But care for the elderly needs a different process because so many problematic things are happening to the body at the same time. It’s not so much a process of ‘fixing’ as ‘fine-tuning’ so that the elderly can live as expansive a life as possible. That means the gerontologist must know every detail about how a person is living their lives and identify ways the process can be fixed. How do we make sure that person can still move without falling, get the right nutrition, ingest and digest what they need? How can we make sure there’s adequate attention to daily hygiene? For the elderly, these small things about one’s day-to-day care can have great significance.

Table 3: Conventional care versus older-person-centred and integrated care Conventional care

Older-person-centred and integrated care

Focuses on a health condition (or conditions)

Focuses on people and their goals

Goal is disease management or cure

Goal is maximising intrinsic capacity

Older person is regarded as a passive recipient of care

Older person is an active participant in care planning and self-management

Care is fragmented across conditions, health workers, settings and life course

Care is integrated across conditions, health workers, settings and life course.

Links with health care and long-term care are limited or non-existent

Links with healthcare and long-term care exist and are strong

Ageing is considered to be a pathological state

Ageing is considered to be normal and valued part of the life course.

Source: World Health Organization. 2011. WHO Study on global AGEing and adult health (SAGE).

10 Gawande (2015), p. 46.

Medical care for the aged is a separate area of specialisation that focuses less on fixing problems and more on knowing how to anticipate and better manage them. This is not about saving lives any more â&#x20AC;&#x201C; itâ&#x20AC;&#x2122;s about helping people manage the winding down of the clock. Studies of patients who use these specialists suggest that these patients are 25% less likely to become disabled, 50% less likely to suffer from depression and 40% less likely to require home health services10. Yet although these specialists add significant value to life, this area of medical specialisation is on the decline. Not only is the funding not there (our far higher priority is youth, which is probably understandable) but thereâ&#x20AC;&#x2122;s no glory in it. There were only six gerontologists in South Africa at the time of writing.

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LESSON

THREE Asking the right questions makes the critical difference When medicine took over the ageing process, medical professionals made the triage decisions. Depending on the medical technology available and the associated costs, medical professionals would determine what your body would be subjected to. The answer? As much as possible, if medical insurance was available. The most important insight to come out of palliative care and gerontology is that much of this life-end physical abuse, trauma and cost could be avoided by following one simple process: ask the patient. Itâ&#x20AC;&#x2122;s a principle that seems to run counter to the medical assumption that your doctor knows best. Yet when medical professionals took the time to have that difficult conversation with their patients about what constituted a life worth living, and under what conditions, the results were astonishing.

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11 Gawande (2015), p. 179.

They asked questions such as: Do you want to be resuscitated if your heart stops? Do you want aggressive treatments such as intubation or mechanical ventilation? If a surgical process left you incapable of movement, would you still proceed? In hospitals that undertook these discussions, medical costs dropped to half the national average, patients spent half as many days in hospital and, the greatest surprise of all, life expectancy actually increased by as much as a year11. Each one of these lessons points to a process that ultimately reduces rather than increases healthcare costs, and increases quality of life at the end by reaffirming family and community support systems. Can South Africa not benefit here? The next session addresses the particular challenges for our country.

HOW ARE WE DOING HERE?

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PROSPECTS FOR THE RETIREMENT PROCESS IN SOUTH AFRICA As economies develop, they tend to go through three stages of medical development: Stage 1: In the least developed economies, people die at home. Health services are typically limited and provided mainly through outpatient clinics. Stage 2: As economies become increasingly successful and medical facilities are more widely available, people turn to healthcare services to address ageing issues. A larger proportion of the population is likely to die in a hospital than at home. Stage 3: In the most prosperous economies, quality of life starts to play a more critical role in decision-making. Here, even in sickness, people would rather go home to die1. South Africa is designated a lower-middle-income emerging economy by the United Nations. We are less developed but not least developed2.

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1 Gawande (2015), p. 192. 2 Harper, S. 2016. How population change will transform our world. Oxford: Oxford University Press. p. 182.

How does the outside world see the prospects for the elderly in our country? In 2015, an index produced by Natixis ranked South Africa 130th out of 150 countries in retirement welfare, using four themes to cover key aspects of the retirement experience: ■■ the material means to live comfortably in retirement ■■ access to quality financial services to help preserve savings value and maximise income ■■ access to quality health services ■■ a clean and safe environment

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Figure 9: Natixis Global Retirement Index: retirement experience themes Health Finances in retirement Material well-being Quality of life ■■ Life expectancy ■■ Health expenditure per capita ■■ Non-insured health expectation

■■ ■■ ■■ ■■ ■■ ■■ ■■

Old-age dependency Bank non-performing loans Inflation Interest rates Tax pressure Goverance Government indebtedness

■■ Income equality ■■ Income per capita ■■ Unemployment

■■ ■■ ■■ ■■ ■■

Happiness Air quality Water and sanitation Biodiversity and habitat Climate change and energy

Source: Natixis Global Asset Management, 2015

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Figure 10: Natixis Global Retirement Index Rankings – bottom 30 countries Colour scale

Rank

91%–100% 81%–90% 71%–80% 61%–70% 51%–60% 41%–50% 31%–40% 21%–30% 11%–20% 0%–10%

121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150

Country Botswana Senegal Afghanistan Madagascar Yemen, Rep. Burkina Faso Ethiopia Benin Myanmar South Africa Mozambique Djibouti Zimbabwe Sudan Haiti Guinea Tanzania Chad Malawi Mauritania Mali Burundi Liberia Niger Sierra Leone Lesotho Comoros Congo, Dem. Rep. Central African Republic Togo

Source: Natixis Global Asset Management (2015).

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Health index 29% 22% 21% 20% 29% 19% 19% 20% 17% 50% 17% 35% 18% 28% 35% 18% 16% 12% 18% 26% 9% 17% 18% 13% 8% 21% 27% 11% 13% 20%

Finances in retirement index 66% 44% 51% 51% 44% 44% 34% 44% 33% 62% 60% 57% 33% 26% 56% 34% 55% 55% 55% 55% 55% 48% 57% 42% 49% 56% 58% 45% 52% 38%

Quality of life index 45% 47% 35% 43% 37% 47% 50% 37% 57% 54% 49% 53% 60% 41% 25% 43% 25% 36% 63% 51% 33% 40% 33% 40% 36% 25% 22% 43% 41% 7%

Material well-being index 22% 38% 46% 38% 36% 42% 39% 42% 44% 8% 25% 11% 31% 30% 22% 37% 45% 37% 13% 11% 32% 21% 20% 29% 47% 16% 10% 14% 10% 27%

Global retirement index 37% 36% 36% 36% 35% 34% 34% 34% 34% 34% 33% 33% 33% 32% 32% 32% 32% 31% 31% 30% 30% 29% 28% 28% 28% 26% 24% 23% 23% 19%

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Figure 11: Understanding South Africa’s rankings in the Natixis Global Retirement Index

On the positive side Declaration of Rights for Old People

On the negative side HIV/AIDS

Older person’s grant Material wealth Good healthcare systems

Source: Natixis Global Asset Management. (2015)

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The reason South Africa ranked so poorly was a function of combined extremes. On the positive side, South Africa has a Declaration of Rights for Old People. We have relatively high pension coverage (92.6%) thanks to our non-contributory state pension, the Older Person’s Grant. That said, this pension is just R1 510 a month. But, importantly, we also have a high rating (relatively) on quality of life and one of the highest quality healthcare systems. If we consider only the private sector component of healthcare, this competes with world-class facilities elsewhere. On the negative side, our image as a retirement destination is marred by perceptions of widespread poverty and an HIV/AIDS problem that has ‘hollowed out’ our caregiving resources. Our measure of material well-being (only 8%) was the lowest of all countries assessed. This measure assesses factors such as income per capita, unemployment levels and income equality. It’s the fact that we remain so much a ‘barbell economy’ that’s problematic. For higher income groups, retirement in South Africa can be highly desirable. For lower income groups, this is almost untenable without the support of family. The report points out that although older people are integrated into a development framework, there is no clear strategy for implementing this framework, or insight into who should be responsible for such a strategy.

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If we scan the studies that assess the ageing experience in South Africa, the litany of issues is particularly concerning. These are highlighted as follows: ■■ Ageing and South Africa’s policy agenda “Despite the potential impact of population ageing, the needs and interests of older people have largely been invisible on the South African policy agenda. This is largely because of other sizeable development and health challenges affecting the youth and working-age populations, such as: the HIV epidemic, poor education outcomes, unemployment, lack of access to basic services and general poverty3.” • Primary healthcare in South Africa prioritises maternal and child health, HIV and AIDS. • There is little clarity on who is responsible and accountable for different areas of government oversight, resulting in poorly coordinated delivery between the Department of Health and Department of Social Development4. • There is no comprehensive, holistic, integrated policy for older persons. • Long-term care and rehabilitative services are underdeveloped. ■■ Funding for long-term care According to The Association for the Aged (TAFTA), “The current government funding model is woefully inadequate. When funds are forthcoming, they fall far short of the true costs of providing services to vulnerable elderly citizens.”

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In 2015, TAFTA highlighted that the Department of Social Development had failed to honour its commitment to maintain its contributions in line with inflationary increases in service delivery costs in the following areas: • Frail care: Only 51.9% of costs were covered, a shortfall of about R3 800 per person per month. • Assisted living: There is no subsidy for this, leaving an approximate shortfall of R2 950 per person per month. • Social services at lifestyle centres: The department allocates R16 per person, per day, for a maximum of 100 people at each lifestyle centre, leaving a shortfall of R64 per person per day5. ■■ Administering the solution South Africa is not short of innovative ideas about how to deliver more effective, humanistic long-term care solutions. There have been any number of excellent programmes that have targeted community development and training around longterm care. But inadequate administrative skills, fiscal imprudence, the absence of sustainable funding models and the absence of true sponsorship has meant that many public sector initiatives have simply shut down programmes prematurely.

3 Statistics South Africa. 2014. Census 2011: Profile of older persons in South Africa. Pretoria: Stats SA. 4 Kalula, S. 2016. Ageing and health in emerging economies: policies and programmes in South Africa. International Longevity Centre South Africa: University of Cape Town. 5 TAFTA website: www.tafta.org.za.

■■ Healthcare for the elderly “The quality and accessibility of healthcare for older persons in South Africa, who may have multiple health conditions and impairments and face both individual and systemic barriers to access, is particularly concerning. In an overburdened and underperforming health system, the needs of the elderly are often neglected. One of the most obvious indications of the low priority given to the elderly in the health system is the removal of gerontology and geriatrics from the South African Nursing Council curriculum6.” • Health coverage of the elderly is around 48%, which suggests most of them are not using or are underusing health services, or end up impoverished by having to pay for health services which may or may not provide the care they need7. • Although elderly people are entitled to free public healthcare, they struggle to access quality care because of capacity constraints and age-related barriers to access. Health services tend to be clinic-based and focus on acute conditions. The health system has no capacity to deal with the complex needs of older people who have multiple chronic conditions8.

6S amson Institute for Ageing Research (SIFAR). Assessing the needs, health and well-being of older adults in Cape Town, South Africa. 7S tatistics South Africa. 2014. Census 2011: Profile of Older persons in South Africa. Pretoria: Stats SA. 8 Ibid.

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• Staff shortages, time and resource constraints, and weak management systems lead to poor service delivery and the negligible treatment of patients9. • Given the limitations of the health system, people who are not healthcare professionals are sometimes used to help identify problems in communities, but little has been done to ensure they are trained and accredited, and use the correct resources. ■■ Housing for the elderly An audit of housing facilities available for long-term care, conducted by the Department of Social Development10, presented the following findings:

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• The distribution of residential facilities for the elderly is disproportionately high in the provinces of Gauteng and the Western Cape, with distinctly fewer facilities in provinces such as Limpopo, Eastern Cape and Free State. Most facilities (79%) are concentrated in formal metropolitan or small, formal urban areas. Only 5% are in informal or squatter areas while 16% are in rural areas. • The service providers that run significant sections of these facilities are mostly large non-governmental organisations and, in some outlying areas, smaller faith-based or community-based organisations.

South Africa is not short of innovative ideas about how to deliver more effective, humanistic long-term care solutions.

9 SIFAR. 10 Department of Social Development. 2010. Final report: audit of residential facilities, April 2010.

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Figure 12: Housing for the aged: total capacity, total residents, % homes with waiting list12 140

100% 90%

120

80%

100

70% 60%

50%

40%

30%

20% 10%

Eastern Cape

Free State

Total home capacity

Gauteng

KwaZulu-Natal

Limpopo

Total residents at present

• Most homes were not able to comply with current norms and standards, and were of the view they would require a huge financial investment in order to comply. • As Figure 12 suggests, all homes were below their allowed capacity, yet had waiting lists of people who needed to be admitted. In most cases (89%), the waiting period for admission to a home was less than a year. In 2% of cases, it was between three to five years, and in 9% of cases people had to wait more than five years11.

Mpumalanga

North West

Western Cape

% of homes with a waiting list

■■ Ageism “Societal ageism feeds perceptions that older people have little to contribute to society or the economy. Although the Older Person’s Act of 2006 exists to maintain and promote the rights, status, wellbeing, safety and security of older persons, the act and its regulations are poorly implemented and these issues are overlooked as older people retreat (often without wanting to) from economic and social life12.”

11 Department of Social Development. 2010. Final report: audit of residential facilities, April 2010. 12 World Health Organization. 2015. World report on ageing and health. p. 16. 13 Ibid.

Northern Cape

Although the South African Constitution expressly protects its people from ageism, employers generally employ mandatory retirement policies. ■■ Retirement savings and long-term care Most people are unable to save enough money for their long-term care. Families are too small to pay and provide long-term care for the older generation. “We need to change the current ideology of expecting individuals and families to finance long-term care13.”

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HOW ARE WE DOING HERE?

What now? What can we conclude then from this lengthy discussion of ageing in South Africa? The data is starting to tell an important story. While the attention of policymakers is focused on the issues of our youth and unemployment, demographic changes – specifically increasing longevity and urban migration – are placing an increasing strain on our assumptions that a culture of reciprocity will mean that families will take care of their elders. The title of one study on this phenomenon says it all: Who will take care of the caregivers? What will happen in the absence of a policy focus? The biggest issues lie not with ‘who’ and ‘how’ but rather with ‘what funding’ and ‘if funding exists, who ensures that it is properly administered?’

Potentially the answer may lie with the private sector, or with a hybrid for-profit/notfor-profit model. Probably one of the most successful models for funding long-term care solutions for both those who can pay and those who can’t is the Rand Aid Association, a non-profit organisation that addresses the needs of both older people who can pay for long-term care facilities and those who can’t. Two elements of the Rand Aid model make it stand out: ■■ It uses a portion of its profits from the sale of life rights retirement accommodation to fund the development and management of long-term care solutions for the aged in need, and men suffering from substance abuse. It in turn provides all the administrative and management support for both sets of solutions.

■■ It was the first long-term care facility in South Africa to adopt The Eden Alternative. This is a transformative model of care that advocates person-directed solutions of care as opposed to the conventional practice where the institution dictates the daily routines for an individual (see The Eden Alternative below).

Getting creative If we really want to start thinking creatively here, then perhaps it’s time that South Africans consider a model that has already been put to good use in both Japan and Germany. Both countries experience a double whammy when it comes to providing longterm care to their ageing population. Not only are medical care and caregiving expensive, but there is a serious shortage in locally

The Eden Alternative – a radically different approach to long-term care The Eden Alternative is an international not-for-profit organisation dedicated to transforming care environments into habitats for human beings that promote quality of life for all involved. The brochure on The Eden Alternative uses the term ‘culture change’ to describe how the initiative is transforming our notions of long-term care globally. Their care model advocates a shift from institutional models of care to person-directed values and practices that put the person first. This means it focuses on the unique needs, preferences and desires of each individual. Decisions and actions for care reflect the choices of the people receiving care, as opposed to standard routines designed to suit the care-giving institution. For The Eden Alternative, self-determination and purposeful living are at the heart of quality ageing. That means preserving choice, dignity and respect throughout an individual’s life is paramount. As a living environment, The Eden Alternative recognises how life-enhancing a steady flow of exposure to youth, animals, plants, the outdoors and a rich and diverse daily life can be for the elderly. But where The Eden Alternative has had its greatest impact is in the training of the carer. The Eden Alternative model for caregiving training infuses a much-needed sense of purpose into the caregiver’s function. Here, caregivers are provided with the skills and tools to add real value to their patients’ lives. This training can be applied to caregivers servicing people in a retirement residence, the community or their homes. This makes it a model that is ideally suited to caregiver training in South Africa.

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sourced caregivers. The answer for many lies in a transnational care model. For the Japanese, the Philippines plays a key role. Any number of nursing homes have been set up by Japanese and Filipino businesses to take advantage of low medical care costs, the availability of English-speaking health professionals, and an attractive setting with a desirable climate. This is simply another variation of ‘medical tourism’, a phenomenon that has already proven to be an important foreign revenue generator for South Africa.

■■ Caregiving training and employment could be extended to currently unemployed people.

While this certainly challenges the notion that older people would prefer to stay near their loved ones, or are unwilling to make such drastic changes late in life, in European and North American contexts, finding lower-cost alternatives for retirement is making this a ‘must-consider’ option.

What makes this model particularly attractive is that it builds on aspects of strength for South Africa:

Could retirement tourism work in South Africa? Consider what the implications could be for South Africa if such a model became more fully developed: ■■ Policymakers could make the licensing and visa facilitation conditional on the model supporting the funding and coadministration of a residential model for local indigent elders.

Chapter 5

■■ A life rights model of residential ownership would ensure that all property ownership would remain in South African hands. ■■ The model would provide an attractive source of foreign revenue for South Africa. ■■ A franchisable model would provide another ideal opportunity to develop a niched SMME business.

■■ Our private medical care and caregiving capabilities are recognised as world-class. ■■ We have a large population of unemployed people who need training in skills that can’t easily be automated – ensuring sustainable job prospects. Caregiving as envisaged by such models as Eden Alternative requires high levels of compassion and emotional intelligence (EQ), something that is difficult to automate. ■■ The costs of such a service would be approximately a tenth of what would be available in Europe or North America. It could work!

■■ This would in turn provide a further source of funding and development for muchneeded frail care centres for low-income South Africans. ■■ Training of caregivers for both facilities would be paid for and facilitated by the long-term care facility operator.

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WHY WE NEED TO START PAYING ATTENTION – NOW! Perhaps the most chilling cautionary around the issue of ageing in a world that is making extraordinary medical studies is the one Gratton and Scott pose to governments, echoed in Yuval Noah Harari’s book, Homo Deus. All of these authors see health inequality as being the biggest challenge of longevity. For Gratton and Scott, the problem is as follows: “Life expectancy gains are not spread equally across the population and an ever-widening gap between rich and poor is developing within countries. It is also clear that many of the options we explore to make the most of a 100-year life are most easily available to those with professional or technical backgrounds with high income. A long life requires resources, skills, flexibility, self-knowledge, planning and respectful employers. The danger is that the gift of a long life will only be open to those with the income and education to construct the changes and transitions required14.”

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14 World Health Organization. 2015. World report on ageing and health. p.12.

For Harari, inequality of health could be an even greater disruptor to social order than financial equality. Here we return to our discussion of the Fourth Industrial Revolution and remember that, in addition to robotics and artificial intelligence, this revolution incorporates biotechnological advances. Harari paints a fairly realistic picture of a future where we have so mastered the art of body-part replacement and genetic re-engineering that amortality (not quite immortality) is within reach. He argues, though, that if only the wealthiest had access to these developments, we could well see the emergence of what he terms ‘biological castes’. There would be a segment of the population that could afford upgraded bodies and access to unprecedented creativity and skill enhancements and then there would be the rest of humanity. It’s a concept that might seem extreme to contemplate – but is it entirely outside the realm of possibility? What it does suggest is that we start paying close attention to how health, ageing and caregiving play out in South Africa, lest this climate of inequality increase further.

AN ACTION PLAN FOR AGEING REFORM

PART 2 Chapter 6

AN ACTION PLAN FOR AGEING REFORM

AN AGENDA FOR ACTION Governments should: ■■ Create a holistic policy for the elderly rather than differentiate between welfare, health, housing and social care • The fragmented and uncoordinated framework is creating massive inefficiencies of delivery. • There is no central repository of information people can turn to for assistance and guidance. • Consider global budgeting (creating a common funding pool for institutional care and home- and community-based services) instead of separate budgets. ■■ Seek a sustainable funding model

The KPMG report An uncertain age: reimagining long term care in the 21st century ends with an action plan. We wholeheartedly agree with the concept. We looked at their comprehensive call to action and asked: How could this applied to South Africa? Here’s how we see the way forward for different stakeholders.

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• This is where it begins and ends. We see no way for government to be able to motivate this on its own. This must be developed as a public–private partnership or at the very least a forprofit or not-for-profit partnership. • Currently, what policy exists is hugely dependent on NGOs to provide the servicing. If we are going to create a sustainable model that builds on cross-subsidisation and shared resourcing, we need to include the for-profit private sector.

• Engaging the private sector will demand careful considerations as to how tax breaks and regulatory enablers could be framed. The problem is that the political appetite for addressing ageing is almost non-existent. ■■ Address workforce shortages with education and training, and support informal carers financially or non-financially • The Samson Institute for Ageing Research (SIFAR) is planning to develop a training programme approved by the South African Qualifications Authority (SAQA) that can be offered by organisations accredited with the Health and Welfare Sector Training Authority (SETA). Accredited carers would be registered in the Carer Licensing Register, with the view being that only accredited carers hold positions in licensed facilities. Consider our current crisis with medical income placement. The needs are huge but the funding is inadequate. Unless we can resolve this, extensive training programmes will be pointless. This is where a public–private partnership model for funding may be the only way forward.

PART 2

AN ACTION PLAN FOR AGEING REFORM

• Consider how to mobilise more youth into the care profession. Promote the care industry to the youth as one where jobs are not likely to be replaced by automation. • Provide better models for communitycentred care that can promote intergenerational support systems through volunteer groups. ■■ Change attitudes to ageing • Too often the emphasis is on ageing and performance decline rather than their potential to contribute actively to society and the economy • Ageism can lead to depriving an increasing proportion of the population of their basic rights of dignity, respect and healthcare. ■■ Regulate quality and promote transparency about outcomes and costs • The challenge here will be to ensure that funding will depend on quality care outcomes and not just on cost containment. ■■ Consider changing regulations to make homes and communities more age-friendly and dementia-friendly

1 KPMG (2013).

• In South Africa, what will be needed most is a way to ensure that long-term care facilities are adequately resourced and supervised. Again, strict standards of care and accreditation need to come into play.

Health professionals and carers should: ■■ Incentivise integration, care planning and specialist medical input to make it more person-centred • Quality of life should take priority over systems and procedures. This requires a significant change in the culture and skills of carers with improvements in recruitment and training and greater support from management from those carrying out difficult jobs at low pay1. • Find ways to keep the elderly out of institutions and in the community. ■■ Rethink the use of medication, with less emphasis on cure and more on managing declining health in a way that maximises quality of life

Chapter 6

• Develop new approaches to goal-oriented medicine for people in long-term care. ■■ Appoint a consulting specialist who can coordinate different medical regimes and specialists who might be required to ensure a smooth transition through the various stages of the ageing process ■■ Consider models of care that promote intergenerational interactions and personal care plans • Eden Alternative is a model for retirement living which recognises that creating a community where life revolves around close and continuing contact with people of all ages, as well as with plants and animals, is the only way to counter the three great deterrents to retirement living: loneliness, helplessness, and boredom. ■■ Embrace technology to help people and their carers self-manage and maximise staff productivity

• Concentrate on social rather than medical models of care.

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Health insurance and financial services providers should: ■■ Focus on the value they provide to the individual. Reward quality and professionalism rather than cost-cutting ■■ Create products and services where there are real needs • At this point in South Africa, long-term care is effectively a no-go zone for insurers. Typically, open-ended medical aid schemes don’t cover Alzheimer’s. Providing frail care insurance is proving to be prohibitively expensive. South African financial institutions need to start considering how this could be better addressed. • There is a desperate need for advisers who can help individuals navigate their way through the maze of considerations around their lifestyle and long-term care options. This demands financial planning acumen, a knowledge of housing models and care-support options for the elderly as well as the cost of medical aid for these services, and an appreciation that the consulting is likely to be with the extended family and not just the individual.

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Employers should:

Employees should:

■■ Do away with mandatory retirement ages

■■ Assert their rights, demand information and participate in planning

■■ Change attitudes and policies towards ageing. Until we start to recognise the considerable contributions that older people can make to society we are simply going to turn our back on a topic none of us are ever ready to acknowledge – ageing ■■ Provide pension schemes that allow members to continue saving

■■ Encourage employers to consider innovative benefit programmes that facilitate a way to use their skills after formal employment has ended ■■ Explore opportunities to provide mentoring and leadership training that could extend past retirement date

■■ Create more opportunities for intergenerational teams and mentorships

Retirees should:

■■ Reform pension systems that incentivise early retirement or penalise a return to work

■■ Get as informed as possible

■■ Consider incentives that encourage employers to retain, train, hire, protect and reward older workers ■■ Help older adults plan for the next phase of their lives and invest in lifelong learning ■■ Introduce HR policies to accommodate: • Compassionate care leave • Leave to attend to critical illness • Leave related to death or disappearance of a child • Bereavement leave

■■ Find a reliable financial guide who is able to provide our new-generational advice framework ■■ Plan, plan plan ■■ Walk, walk, walk

PREVIOUS PART I HOME I NEXT PART

HOW WE NEED TO RESPOND IN A CHANGING WORLD Chapter 1: The modern organisation

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Chapter 2: The promise of workforce analytics

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Chapter 3: Can holistic well-being programmes change the face of family care? 147 Chapter 4: South Africaâ&#x20AC;&#x2122;s skills development journey

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Chapter 5: Solving for SMMEs and sole proprietors

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PART 3 Introduction

HOW WE NEED TO RESPOND IN A CHANGING WORLD The word ‘disruptive’ is fitting when describing the changes we’re seeing in our societies, economies, places of work and daily lives. It accurately captures both how new and unsettling these changes are, and implies we need to do more than simply adapt if we want to do more than simply exist in their wake.

PART 3 Introduction

BENEFITS BAROMETER 2017

In the previous sections, we looked at the disruptors behind the disruption – mostly, at how technology has had an impact on every aspect of life, from how we live to how long we may live. Here, we move on to a discussion of what would be deemed an appropriate response to the shifts we’re seeing across the globe and here at home. What do we need to be doing to ensure the long-term success of our economy, our businesses and, most importantly, our people? We start by looking at how shifts in the employer–employee relationship are placing new demands on the employer, and how the modern organisation will need to start managing human capital in a way that encourages employee engagement, participation and long-term commitment. Here, we suggest that the co-creation of individualised employee benefits would go a long way to achieving this, demonstrating the organisation’s understanding of and ability to add value to the unique needs of the employee. We see how workforce analytics can be used as an effective tool for engaging and retaining human capital, and look at a case study from Mercer, a global leader in pension, benefit, investment and HR consulting. The study demonstrates the usefulness of data analytics in addressing questions of employee turnover in the modern organisation. Workforce analytics also make a powerful contribution to how we set employment policies as we adapt to the changing world of work. With South Africa facing the challenges presented by two major demographic developments – a youth bulge and the prospect of greater longevity

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– the debate as to how long people should be allowed to work in a company can become particularly emotive. We show how workplace analytics can take the issue of age off the table when we start to think more broadly about what drives productivity. Choosing to invest in rather than ignore the older segment of the working population can result in significant pay-offs – and not at the expense of the younger workforce. An emerging concept that organisations can embrace in order to better manage human capital is what our HR departments are calling ‘employee well-being’. Organisations that focus on employee well-being seek to reap the rewards associated with a healthy workforce: lower absenteeism, fewer workers’ compensation claims, reduced work-related disabilities, and greater workplace safety, productivity and performance – all of which contribute to a competitive and sustainable organisation. There’s no one, ideal solution yet, but many of the pieces are already in place. It’s now a question of how to put them together to form a holistic programme that proactively ensures behavioural change and equips individuals to successfully deal with the physical, financial and emotional issues that affect their individual and family well-being. We ask some serious questions about how to create a sustainable well-being programme that will ensure commitment and ongoing engagement from all stakeholders without introducing possible conflicts of interest. We also look at the example of employee health programmes as an integrated benefit that, if well managed, can make a significant contribution to employee – and organisational – well-being. We address some of the complex issues of

implementing these programmes and suggest useful metrics and measurements employers can consider to ensure everyone gets the most value from what is offered. Another area requiring a complete rethink is that of skills development. Wherever they are in their careers or life stage, and whichever industry they work in, all employees will need to be properly equipped with the skills our new world, and new world of work, demands. The rapid rate of automation coupled with advances in technology will radically change more than just the way we work. Industry, policymakers, employers and trainers need to get together – now – and accelerate our skills development journey if we are to meet the challenges of an interconnected future and compete within a rapidly changing global labour market. And it’s not just individual skills development that need to be fast-tracked: the future of our entrepreneurs and SMMEs is also at stake if we can’t provide an environment that will encourage transformation and growth in a way that’s competitive and sustainable. Our final chapter explores what can be done to help entrepreneurs develop the right skills and provide a safety net that not only encourages entrepreneurship – at any age – but also goes a long way to enabling the long-term success of our businesses of the future. From these discussions, the need for a comprehensive life planning package is apparent. We will need to take a more creative approach to designing benefits that extend beyond the traditional offerings if we are to enable and empower our workforce for the future – something we go on to consider in Parts 4 and 5.

THE MODERN ORGANISATION

PART 3 Chapter 1

THE MODERN ORGANISATION

MANAGE HUMAN CAPITAL, NOT JOBS What is clear from recent Mercer and Deloitte studies1 is that, in calling for the design of the future organisation, there are strong arguments for what organisational behaviour theorists2 term ‘modern organisations’. These are organisations that focus on managing human capital rather than being preoccupied with management control or managing the jobs that individuals occupy. Organisational theorists established that managing human capital is particularly beneficial in knowledge-based organisations whose core deliverables rely on employees’ problem-solving skills rather than routine tasks. As we move progressively towards a world where repetitive tasks across the board are likely to be automated, it is likely that this will hold true for the bulk of businesses that survive. These organisations reward their employees by encouraging participation and long-term commitment – for instance, they are likely to empower employees with decision-making power and discretion on the job3. They reward employees for accumulating multiple skills and they protect their human capital by rewarding and reinforcing long-term commitment to the organisation through long-term compensation offers such as ownership or shares in the company. Routine, task-oriented organisations may require a different approach to that of knowledge-based organisations.

Co-creating individualised benefits As we’ve seen, employees are as diverse and unique as the industry sectors themselves. Organisational theorists therefore recognise that no single set of employee benefits will meet the needs of all employees and organisations. However, if fairness, equity and inclusion are as critical to the success of organisations as they are to building organisations of the future, then the solution here would seem to be the co-creation of individualised employee benefits. This would

facilitate the development of policies that are sensitive to all manner of workforce needs, not just those that fit neatly into such demographic buckets as age or generation, gender, race, religion and sexual orientation. This approach requires being guided by the workforce on what is considered a benefit in a specific context and how to structure that benefit to meet both employee and business objectives. It means creating a unique employee experience through culture and engagement.

Figure 1: Organisations with an integrated employee strategy 60

54%

30%

16%

0 Partially, we have components but not a complete employee experience strategy

No, we do not have an integrated employee strategy

Source: 2017 Deloitte South Africa Global Human Capital Trends

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1 Mercer LLC. 2017. Global Talent Trends Study 2017: South Africa. Johannesburg: Mercer LLC. 2 Bakker, AB. 2008. Positive organisational behavior: engaged employees in flourishing organisations. Journal of Organisational Behavior, pp. 147–154. 3 Spreitzer, GS. 2005. A socially embedded model of thriving at work. Organisational Science, pp. 537–549.

Yes, we have an integrated employee experience strategy

PART 3

THE MODERN ORGANISATION

With this said, the Deloitte report states that 30% of South African organisations indicated they do not have an integrated employee strategy in place, while only 24% are confident they are appropriately using compensations and rewards as part of a differentiated employee experience. Still, 66% of organisations measure employee engagement at least once a year. Increasingly, employers are beginning to appreciate that it pays to be responsive to what their employees think4. But we need to go beyond deploying engagement surveys to something more tangible. It’s clear that there’s an opportunity for South African organisations to engage with employees more frequently to find out what their needs are, and how compensation and reward programmes can address those needs. These programmes could be integrated with both the organisational culture and central HR and leadership practices to create a differentiated employee experience. Key to this is the design of an all-inclusive process that is adaptable to the needs of both the current and future workforce.

Building blocks for the modern organisation Consider what’s required for creating the modern organisation: in a world where employee dependence on the employer becomes less and less of a necessity, employee retention will depend much more on whether the employee can see value in

4 Deloitte (2017).

maintaining a close relationship with the employer. This is not about compensation as such, although we know from Part 1: Chapter 3 that the non-negotiables around compensation are transparency and fairness. It also doesn’t speak only to employee benefits or other perks. Rather, what’s required, as one employee phrased it, is: “a bit more effort on understanding who I am and what would make me work harder for you”. What this suggests is that in the modern organisation, the HR toolkit becomes considerably expanded. We see this expansion manifesting itself in four very specific areas: ■■ HR data analytics It’s no longer enough to simply guess what employees will be responsive to or benchmark oneself against other companies in the same sector with the idea of at least being competitive. Companies that are interested in repositioning themselves to be responsive to rapid change will be ill-served by employment policies that simply keep up with a retrospective picture of where their industry has been. Employers sit on top of significant databases of employee information, and technological advances are making it far easier to produce useful insights from that data. The key here will be to demonstrate how employers can enhance both productivity and profitability by taking the time to do the analysis.

Chapter 1

In Part 3: Chapter 2, we highlight how HR data analytics can add value to reducing employee turnover and determining a company’s retirement date policy. ■■ Integrated employee wellness Employers have long recognised the value of employee assistance programmes (EAPs) for providing employees easy and cost-effective access to such support services as legal assistance, financial assistance, mental and physical health assistance and general family counselling services. For the most part, these programmes provide an as-and-when, on-tap resource for employees, and in that regard employers believe they add value. But where employers are not getting value from these programmes is in determining whether the assistance programme is able to address the core of a given problem and whether that problem has actually gone away. Two factors frustrate these outcomes. EAPs are designed to be stop-gap solutions, when many of the problems that need to be addressed, such as debt, addictions, chronic lifestyle health problems, and psychological and family dynamics issues, demand long-term solutions that target behavioural change. Additionally, the feedback provided to the employer from the EAP provides little insight into whether the intervention and support process is actually working.

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PART 3 Chapter 1

THE MODERN ORGANISATION

Integrated employee wellness programmes provide a way to ensure the links between providing employees with essential support services, determining whether the problem at hand has actually been addressed, and assessing the return on investment from such an initiative, which might be derived from increased productivity and employee engagement. Most importantly, they achieve this without betraying the personal confidences of the individual employee.

But none of these conditions address the issue of whether the employee is actually learning what they need to learn to do their job effectively or whether the employee feels they have enhanced their own personal value. Without this connection, skills training becomes a grudge activity from both the employer and the employee’s perspective.

The challenge here is that there are any number of models for delivery of these services. Some come with inherent conflicts and risks. In Part 3: Chapter 3 we flesh out the pros and cons of the various models for financial well-being and we show how a similar, integrated well-being model can be applied to the issues around health.

In Part 3: Chapter 4 we discuss in depth the problems inherent in the skills development landscape for South Africa. And in Part 5: Chapter 5 we introduce a revolutionary approach to skills training that we think has the potential to change the meaning of ongoing education to our employees. Here is where skills development will genuinely become an employment differentiator.

■■ Ongoing expansion of employee skills and education

■■ Customised employee benefits platform

Every employer believes they are addressing the issue of skills development and training on some level. The Skills Development Act of 1998 speaks directly to employers’ obligation to do so. In fact, all companies with an annual payroll in excess of R500 000 are required to pay a Skills Development Levy of 1% of wages, which in turn is applied to a

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planned and structured approach to learning.

Our previous chapters have been emphatic on two points: • Employee benefits have become devalued in the eyes of most employees simply because they speak only remotely to their specific needs.

• Attracting and retaining talent demands a complete rethink as to how a customised employee benefit platform could redress this situation. Such a platform provides a way for employees to obtain cost-effective, life-enhancing benefits that speak directly to their specific needs while at the same time enabling the employer to deploy the kind of income and health protections that ensure ongoing employee productivity. Parts 4 and 5 go to great length to describe not only the issues that matter most to employees but also what a customised employee benefit platform could look like in terms of its breadth of offering. Each one of these elements should be seen as an essential building block for the modern organisation. Taken separately, each one addresses some aspect of the challenge set before us by the changing world of work. Taken together, though, they provide a powerful mechanism for protecting the sustainability of any business – and, of course, its people – in these fast changing times.

THE PROMISE OF WORKFORCE ANALYTICS

PART 3 Chapter 2

THE PROMISE OF WORKFORCE ANALYTICS

THE MOVE TO EVIDENCE-BASED DECISIONS

This chapter is a condensed version of the study Workforce analytics: the gap between the rhetoric and the experience, by Aaron Sothmann and Siddharth Mehta (not peer reviewed).

Data-driven decision-making in HR Aaron Sothmann and Siddharth Mehta, authors of Mercer’s article Workforce analytics: the gap between the rhetoric and the experience, state that the vast majority of HR departments are under pressure to make better decisions, faster. As a result, they rely on intuition, personal experience and corporate belief systems rather than the analysis of data when making decisions. Workforce analytics – and evidence that organisational performance can be improved by adopting data-driven talent management

Figure 2: Use of HR analytics in South Africa

practices – have been around for the last 70 years. Yet despite this compelling promise, organisations continue to favour ‘gut feel’. The biggest challenge to embracing a more objective approach to decision-making is not the cost but the inertia of leaders when it comes to embracing a digital mindset. That said, the use of HR analytics in South Africa is still in its early stages. The authors therefore advise HR professionals to identify high-impact opportunities, where solving a defined people problem would generate significant return on investment, to demonstrate the value of workforce analytics to business outcomes.

The quest for insight MORE OPPORTUNITY FOR PROGRESS

Less powerful

Strategic value

More powerful

STAGE 2 Benchmarking and correlations with business metrics

STAGE 3 Cause/effect analysis of key workforce outcomes

2017

2016

Analytics not used

Source: Mercer (2017)

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STAGE 1 Basic reporting and trend analysis

STAGE 4 Predictive analysis

PART 3

THE PROMISE OF WORKFORCE ANALYTICS

CASE

STUDY Workforce analytics model predicts employee attrition A manufacturing company was struggling to attract and retain employees in a manual production role. To support business growth objectives, the company would need to hire approximately 900 people in this role over the next three years. Owing to a 25% attrition rate for this role, replacement hires made up a large proportion of this target. The cost of replacement was about R129 500 per employee – R48.6 million a year. This presented a high-impact opportunity to apply workforce analytics and demonstrate significant business value. The Mercer team summarised the premise of the problem as follows: Can we apply predictive analytics to identify high-risk attrition targets so the organisation would have enough time to determine if a highperformer was worthy of a retention effort?

A common challenge to applying workforce analytics is the misapprehension of ‘not having enough data’. But the question of data sufficiency can’t be answered without actually conducting the analysis. Only then can we determine whether the results can be generalised beyond the sample. In this case, the company had a human resource information system (HRIS) which had been storing employee transaction data since day one. The team took three years’ worth of data, such as hire and exit date, pay changes, manager changes, job changes and compensation, to conduct the analysis. Using this data extract and additional insights gathered from employee focus-group discussions and manager interviews, they applied a disciplined data science approach to develop several predictive models of varying complexity and accuracy.

Model predicts employee churn with 83% accuracy The best model had an 83% accuracy rate in predicting which individuals would leave two months before their actual resignation.

Chapter 2

It’s typical to find these models have a lower predictive power in reality than in simulations. But even at a 30% accuracy rate, the organisation would be able to save close to R3 million a year through reduced attrition. Interestingly, the model with the lowest accuracy in predicting churn revealed the most compelling features leading to an employee’s exit from the organisation. These insights could be used to update HR policies and programmes in order to address this.

Model identifies determining factors for employee attrition ■■ Employees who took more days to complete probation were at greater risk of quitting. • Anyone who took more than six months to complete probation eventually quit (nearly 50% of total attrition). • Significant costs could be avoided by terminating employment earlier (e.g. by having a maximum time to complete probation). ■■ As pay increased, the likelihood of quitting reduced (you don’t necessarily need to pay top dollar for retention; just enough will suffice). • The optimal range for scaled pay appears to be between -1.0 and 0.5 (scale pay is compensation moderated by tenure within the organisation). The organisation’s leaders saw the business value that could be generated through solving the attrition problem. By investing a relatively small number of resources, they could solve a large business problem – all thanks to the application of workforce analysis.

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PART 3 Chapter 2

THE PROMISE OF WORKFORCE ANALYTICS

Workforce analytics is a learning journey

senior executives globally are not getting the kind of talent analytics they need to make business decisions.

Technology is providing huge opportunities to advance the way we gather, combine and analyse data about people at work. We now have exponentially more data (and, more importantly, better access to data) than ever before – both structured and unstructured. However, we don’t yet know how all this data will help us.

For example, executives say that understanding the key drivers of engagement would be most value-adding, but only 35% of HR leaders globally are able to provide this information. This is especially surprising given that most companies today have at least some sort of engagement survey in place. Predictive analytics, such as identifying which employees are likely to leave in the next six to 12 months, are even less common and productivity outcomes even less likely.

Workforce analytics is an experiment, and not all workforce analytics projects will lead to solutions. But failures will lead to insights and actions that will further our ability to harness value from data. An empowered workforce needs good data to drive decision making. Just as marketing data and buyer insights are leading business transformation efforts, talent insights have the potential to deliver accelerated success on the people agenda – both to enhance the employee experience but also to drive better decisions around how to retain and engage people. But are companies getting these insights? Compared to last year, companies – both globally and in South Africa – didn’t move the needle an awful lot on the type of analytics that HR is able to provide. Very few report being able to translate data into predictive insights, and nearly one in three is still only able to produce basic descriptive reporting and historical trend analysis. Companies in the financial services and logistics industries globally are ahead of the curve but still have a long way to go. Even with all of the data that is being collected,

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1 World Economic Forum. 2016. The future of jobs: employment, skills and workforce strategy for the Fourth Industrial Revolution.

HR and employees recognise that the disconnect may be due in part to a capability gap — both groups ranked data analytics and predictive modelling among the top three in-demand skills for the next 12 months. The risk of not leveraging talent data is especially acute when there is so much organisational change on the horizon. When decisions are informed only by financial and marketing data, there can be unintended people consequences. For example, the World Economic Forum’s Future of Jobs study1 found that “women are at risk of losing out on tomorrow’s best job opportunities” as disruption and displacement are likely to occur in job families with the largest share of female employees. When HR is able to partner with the business to facilitate an evidence-based decision-making process, they help to mitigate these risks and ensure that the talent implications are being considered, especially when companies are making structural changes that will see great talent – along with the roles – leave.

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The missing age dividend The issue of increasing longevity and whether retirement ages have been set too low would seem like a low priority issue for South African employers and policymakers. Surely addressing the crisis of youth unemployment warrants greater attention? The problem here comes when we see these two concerns as mutually exclusive. By promoting the needs of youth at the expense of the aged, we ignore the interconnectedness of intergenerational dynamics. We prioritise because we believe limited resources dictate prioritisation, but occasionally we find that suppressing the interests of one group only exacerbates achieving the needs of another. What follows is a discussion of the missing age dividend. Framing our understanding of the value of older workers should give employers pause for thought – and a deeper appreciation of what stands to be lost.

Taking age off the table when deciding who should work where As we’ve seen, making HR policy decisions based on hunches and intuition can result in some disastrous business choices. With transformation a priority in South Africa, employers tend to assume the most obvious way to achieve it is to have older employers step aside to create opportunities for a new generation of workers. On what basis have we made that assumption? The power of HR data analytics is that we can test these assumptions empirically. As we discussed in last year’s Benefits Barometer, studies from Scandinavia and Germany are challenging these conventions by suggesting that productivity and, by extension, job creation can actually increase when older, experienced workers are retained. But why rely on secondary information when we can do the research ourselves? 142

CASE

STUDY Workforce analytics and the productivity contribution of older workers Consider the work that Mercer has done on examining this question of the productivity contribution of older workers in a range of different industry settings. Haig R. Nalbantian, Senior Partner at Mercer, provided a particularly insightful study that highlighted how effective HR data analytics can go a long way towards resolving these types of emotive policy debates. Nalbantian argued that when traditional economic approaches for measuring productivity are applied to older workers, they typically pick up a decline in productivity. But this type of assessment may well miss a big part of the productivity story. What the analysis may miss are spillover effects, or productive ‘externalities’, that might be so significant that they more than compensate for the fall-off in productivity or performance.

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For example, including older workers can add value by: ■■ stabilising a work unit by lowering turnover, which in turn increases unit productivity and performance ■■ increasing the productivity of other team members through information sharing and legacy knowledge ■■ assisting in the growth of human capital by enhancing the development and career progress of those they supervise or mentor ■■ enabling innovation ■■ strengthening group cohesion, collaboration, conflict avoidance, and resolution Nalbantian’s study goes on to point out that it’s only by doing the data analysis that we can really understand whether these factors are at play. His analysis showed that the results could be quite variable across different companies. For example, in a case study

on a company in the professional services sector, length and dispersion of experience proved to be the strongest drivers of year-toyear sales growth. By contrast, a case study involving a retail company showed older employees performing less well. And in a natural resource company, it turned out that older workers drove productivity in one unit, whereas it was length of service that drove the performance of another unit in the company. Nalbantian’s concluding points are as follows: ■■ Productivity and performance in older workers may wane, but this may be offset by the value of these employees’ firmspecific knowledge. ■■ Gauging the value of an older worker by looking only at their specific productivity may completely miss the far greater benefit achieved from that individual’s presence in the group.

Productivity decline

Chapter 2

■■ There may well be tensions between how external and internal labour markets ‘price’ this experience premium. The skill by itself may be valuable to the broader economy or other employers but may block the career developments of younger employees in a specific company. ■■ Strengthening ‘after-markets’ for older workers to enable them higher mobility might be a better way to align social and private value. Nalbantian’s most forceful conclusion, though, is that there is simply no substitute for applying a careful, disciplined measurement of performance drivers to prevent rash decisions being formulated.

Year-on-year growth

ANALYTICS

RETAILER COMPANY

PROFESSIONAL SERVICES

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Older people can – and do – contribute to the economy

of small business enterprises that are the backbone of developing a robust SMME sector for job creation.

Let’s extend the discussion of older people to beyond the immediate workplace. We tend to assume that older people are an economic deficit. As the 2015 World Health Organization (WHO) study on ageing and health argues, “we need to start adapting to shifts in age structure in ways that minimise the expenditures associated with population ageing while maximising the many contributions that older people make … economic analyses of the implications of population ageing are evolving, and the models that are often used today may lead to inappropriate responses2.”

In addition, people over 65 may have retirement savings that can be redeployed into the economy through assisting with the education needs of younger family members, the funding of ‘second-start careers’, spending on ‘grey-product’ consumption, intergenerational wealth transfers, and taxation ... to say nothing of the benefits elderly people provide through volunteer work and social care in their communities.

The report cites an economic indicator known as the dependency ratio, which defines anyone older than 65 as a ‘dependant’, ignoring the fact that “chronological age is only loosely associated with levels of functioning3”. As we’ve seen, there are many people over 65 who are earning incomes. More importantly, a large percentage of people in post-65 careers are engaged in mentoring, consulting and the creation

A 2010 study from the UK reframed the costs of caring for the aged against these economic contributions. It became apparent that older people were actually making a net contribution to society of nearly £40 billion (R683 billion). This was expected to grow to £77 billion (R 1 314 billion) by 2030. While we don’t have comparable research for a developing economy, we do believe that South Africa’s cut-off age of 60 for being a productive economic contributor is simply nonsensical.

There is simply no substitute for applying a careful, disciplined measurement of performance drivers to prevent rash decisions being formulated.

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2 World Health Organization. 2011. WHO Study on global AGEing and adult health (SAGE). 3 Ibid.

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Chapter 2

The pay-off of investing in the elderly The WHO study introduces us to a different economic model that helps us understand that investing into addressing the needs of the elderly actually has a meaningful pay off.

Figure 3: Investment in and return on investment in ageing populations

INVESTMENT

BENEFITS

RETURN

■■ Health systems

■■ Health

■■ Individual well-being

■■ Long-term care systems

■■ Skills and knowledge

■■ Workforce participation

■■ Lifelong learning

■■ Mobility

■■ Consumption

■■ Age-friendly environments

■■ Social connectivity

■■ Social protection

■■ Financial security

■■ Entrepreneurship and investment

■■ Personal dignity, safety and security

■■ Innovation ■■ Social and cultural contribution ■■ Social cohesion

In addition to the economic benefits we have described, that pay-off includes: ■■ increased participation in society ■■ allowing women to remain longer in the workforce ■■ fostering social cohesion in the community ■■ providing a critical resource for practical training and mentoring

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Framing the discussion on ageing in this light allows policymakers to have a more considered view of the fair distribution of society’s resources. As the authors of the study argue, “reframing the economic questions in this way shifts debate from a singular focus on minimising the costs of population ageing to an analysis that considers the benefits that might be missed if society fails to make the appropriate adaptations and investments4.” But let’s return to our opening discussion where we suggested that the interests of the elderly and the youth are not mutually exclusive. Intergenerational reciprocity is still the most prevalent fall-back position for caring for the elderly. So, when our institutions fail to provide the necessary support (as seems to be increasingly true in South Africa), many employees, particularly young black women, have no option but to pick up the slack for their families. Conversations with HR directors across large and small employers alike, confirm this pressure persists. After the loss of employees to maternity or paternity obligations, the next big impediment to employment continuity is loss of an employee to family care obligations. In Benefits that Matter (Part 4: Chapter 2), we believe this is one area where employers could identify potentially creative solutions. Are there not ways employees could apply for paid (or unpaid) family-care sabbaticals, much like maternity leave, so they could leave work for a period of time to provide basic care to a significant other?

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4 World Health Organization (2015), p. 17.

Canada, for example, has recently changed its labour laws to allow for the following types of leave: ■■ Compassionate care leave – an employee can take up to 28 weeks of compassionate care leave to look after a family member who is gravely ill. ■■ Leave related to critical illness – an employee whose child is under 18 years of age and is critically ill may take up to 37 weeks of leave to provide care or support to the child. ■■ Leave related to death or disappearance – an employee whose child is under 18 years of age and has disappeared or died as a result of a probable crime may take up to 52 weeks of leave, in the case of a missing child, and up to 104 weeks of leave if the child has died. ■■ Bereavement leave – all federally regulated employees are entitled to paid bereavement leave for the death of an immediate family member, provided the employee has worked for their employer for three consecutive months beforehand. If they have not, they are entitled to leave without pay. Are these not benefits that would speak directly to the heart of the care crisis in South Africa? Can we actually afford to not consider them?

Take age off the table and the decisions about how someone is best deployed in a company should be consistent with the best HR policies. These policies (discussed in detail in Part 4: Chapter 2) argue for the benefits of diversity, non-hierarchical management structures, flexible schedules and the desperate need for continuous training and mentorship in South Africa. HR departments and employers generally know which employees are contributing, and how much, and where they could be best deployed at any given time. Performance measurement is a well-entrenched practice. The decision to work (or continue to work) should be a win-win for both parties – continued value to be contributed and a continued desire to keep contributing. We all work for different reasons: ■■ because we need to financially ■■ because our historical circumstances of employment may have left us with a savings deficit ■■ because work is stimulating ■■ because work provides critical opportunities to stay connected and socially engaged ■■ all of the above The workplace will be a better place when ageism is removed and people remain because they passionately want to be there.

CAN HOLISTIC WELL-BEING PROGRAMMES CHANGE THE FACE OF FAMILY CARE?

PART 3 Chapter 3

CAN HOLISTIC WELL-BEING PROGRAMMES CHANGE THE FACE OF FAMILY CARE?

CONNECTING THE DOTS TO EMPLOYEE WELL-BEING

There’s a bit of revolutionary thinking that’s starting to emerge from our HR departments these days. It’s still in its infancy, but if we can embrace it, give it breadth and depth and a good hard nudge, it’s a concept that has the potential to completely change our thinking about optimal family care. It’s a concept HR departments are learning to call employee well-being.

Consider this scenario: You book off work with a pounding headache. You go to your doctor – a general practitioner – who sends you to see a neurologist. The neurologist sends you to get a CAT scan. When the CAT scan shows up nothing, your partner suggests you start seeing a therapist. Four sessions on with your therapist you stop, as this is all your employee assistance programme will cover and you just don’t have the money to continue. What your partner doesn’t know – and what you can’t bring yourself to tell them – is that your unemployed son is quietly pushing you towards financial ruin as he battles with a drug habit, which is why the money is running out before the end of each month. Bottom line: you can’t afford to pay all these people to help you solve problems you can’t seem to find a beginning or end to. For outsiders to the story, it’s easy to see how interconnected all these elements probably are in this protagonist’s life. Unless the son’s addiction, the financial debt, the secret that’s being kept from the partner, and so on, are addressed, the migraines are likely to continue. But this is not how our care professionals currently engage with us. Our doctors try to help us address health problems; our therapists help us address emotional problems; and our financial advisers help us address financial problems,

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1 See Benefits Barometer 2015 and PwC. (2017). Employee Financial Wellness Survey, 2017 results.

each in their own exclusive domain. It’s when we connect the dots and look holistically at the problem that the healing can really begin – and this is the critically important insight that employee well-being programmes are beginning to unearth.

Seeing the value of employee well-being programmes Value to employers Interestingly, employers have seen value in these concepts for some time. Well-being programmes, and now specifically financial well-being programmes, have emerged as the number-one trend in employee benefits in both the US and the UK. In South Africa, most employers have some form of well-being strategy embedded in their employee engagement initiatives. A number of surveys and studies provide compelling cases for why these programmes add value to maintaining or enhancing productivity in the workplace1. We can even calculate a return on investment (ROI) employers can hold up to their boards that shows the money spent on these interventions both saves the company money in human capital management costs and adds to the bottom line by increasing productivity. Other potential cost improvements are reductions in group life premiums and reductions in healthcare premiums.

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It is this win-win benefit for both the employer and the employee that is making employee well-being programmes the hot commodity that they are becoming. Outside this environment, ‘care’ simply isn’t structured to be addressed this way.

% Garnishments because of debt problems ($443 413)

19%

From the employees’ perspective, the attraction of these programmes is that they aren’t paternalistic. Rather, they give employees an opportunity to structure what they need, how they need it, while (hopefully) at the same time guarding the integrity of employee data. Employees are beginning to appreciate how unique this value proposition is. For many families, this type of workplace wellness solution is a particularly effective way to access a holistic framework of care.

A paper by Greg Ward published by the Society of Actuaries in 2017 showed that when financial wellness improves by just 10%, the projected annual savings for a large employer (1 000 people or more) are as follows:

Value to employees

Figure 4: The impact to the employer’s bottom line:

The financial case has been made and the intent of this chapter is not to make it again2. From the employer’s perspective, the appeal of these programmes is that they address the ‘care conundrum’:how to ensure that employees maintain financial, physical and mental stability and vitality without the employer becoming overly paternalistic and intrusive.

Chapter 3

Absenteeism ($4 264 396) Healthcare ($13 575 000) Delayed retirement ($1 950 000)

Annual savings $23 370 038

For many families, this type of workplace wellness solution is a particularly effective way to access a holistic framework of care. 2 Robison, J. 2010. The business case for wellbeing, Gallup Business Journal (June 9, 2010) Foundation for Financial Wellness. Financial wellness: enabling a productive and healthy workforce.

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Questions to consider when constructing a holistic well-being framework As we cautioned, we are only just starting the journey of discovery in terms of identifying how this framework could best be structured. No one has the complete picture just yet ... but the pieces are coming together fast. Some are being tackled by the healthcare industry, some by the financial services industry, and some by the EAP industry. Perhaps one reason no one has cracked this servicing model is that these players are trying to tackle the problem through their own operating lenses, whether that be through the lens of their business models, servicing models, or technology and data management models. Therein lies the heart of the problem. What would it take to make such a powerful concept really take flight? In trying to answer this bigger question, we look at each key component in turn and ask: ■■ What should a holistic well-being programme strive for?

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■■ What is a sustainable business model? ■■ How do we measure success, and for whom? ■■ What is the role of technology and data in delivering these programmes? ■■ Who should provide these programmes?

1. P roactive support for positive change What are our expectations of a holistic well-being programme? What would it have to achieve for us to regard it as a success? In the lengthy literature and research we have produced around well-being (see Benefits Barometer 2014 and 2015), what makes well-being programmes distinctively different from employee assistance programmes is that they operate proactively to ensure behavioural change. Unlike employee assistance programmes, which tend to reactively provide support services when employees need them, well-being programmes start with how you are living your life. They focus on behaviours you could change or insights you could gain to increase your and your family’s general stability and well-being.

More than that, these programmes are about equipping individuals to successfully navigate life’s general challenges – whether these challenges are physical, financial, emotional or some combination of all. This is all about a process that helps people to change their thinking and actions around managing debt, their daily consumption needs and ongoing health and physical well-being, creating the basis for a work–life balance, and other actions that help them function optimally and achieve their goals.

From education to action The only way we will know if the programme is working is if we can actually see actions following insight. That means these programmes need to be more than just educational exercises. Let’s return to our medical analogies. Medical centres have become a powerful addition to the suite of medical care options. What has made them so successful at changing community-level health (and addressing the logjam of medical care that was being experienced at the general hospital level) is that they have facilitated access to

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various components of everyday healthcare on an outpatient, walk-in basis, all through one convenient touchpoint. You have access to your GP, your specialist physicians, the various testing labs (X-ray, CAT scan, blood tests, etc.), the pharmacy that will fill your prescription right there and then and, in some centres, an array of community health programmes such as prenatal care or child healthcare. The point is, by making it easy for individuals to exercise each step in the process of addressing a physical ailment or pursuing proactive healthcare, the success rate for community healthcare increased exponentially. Financial well-being should work on a similar model. We know that financial education by itself has failed to move the behavioural dial towards better financial capability. In Benefits Barometer 2014, we spoke at length about what it would take to move that dial. When it comes to financial capability, the bottom line is that it’s only when an individual feels confident enough about their ability to make effective financial choices that they will take action and do the right thing to address their needs.

Chapter 3

An effective workplace well-being programme isn’t just about offering on-site education and counselling. It’s also about making it as easy and cost effective as possible for people to take action that translates insight into outcomes. Actions could range from visiting a debt counsellor and setting up and sticking to a budget, to seeing a financial adviser or buying a financial product. The point is, the action is directly related to the problem the individual is trying to address. Making decisions from scratch is hard and cognitively expensive

The goal is getting people to take action (and to take the right actions)

Obtain information

Weigh alternatives

Form opinions about options

Make a decision

Take action

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2. E nsuring a sustainable model Who pays? Let’s go back to our medical centre example. We would be deeply concerned if we thought our medical centre doctors earned their keep from prescribing medicine through their centre’s pharmacy or stipulating that specific medical tests be conducted by the centre’s labs. By the same token, we should be concerned if the funding of the financial well-being aspect of our programme was also based on the sales of financial products. Yet, this is a business model that many financial services companies follow. It’s a model that, in the long run, will do more to raise concerns about the merits of these programmes than it will to allay them. The reality is that the best well-being programmes will, by necessity, be particularly demanding of resources – both the human kind, in terms of time and effort required for programme development, interventions and ongoing coaching – and the technological kind, in terms of creating and maintaining the necessary digital delivery for continuous engagement. Who, then, should pay for all of this?

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Here are the options – and the issues: ■■ Financial services company pays (offers it for free) How sustainable is that model likely to be without an expectation of products being purchased? There is an argument that the cost of such programmes could be absorbed into a company’s corporate social investment or skills development spend. It may even be argued that shareholders would happily absorb the costs if there were adequate evidence that this translated into more responsible product sales or better client retention. Still, at this point, the model is raising questions for regulators. ■■ Employer pays Currently a number of employers will willingly pay monthly, per-member fees for employee assistance programmes that provide limited access to emergency services such as legal, financial and family therapy support. It’s an important starting point, but three problems emerge: • These programmes are not designed to provide continuous support and direction. Nor do they address

fundamental behavioural change issues that demand a more hands-on approach. • The employer may have insight into how often these services are used and by which segments of their employee base, but they have little insight into whether the issues involved were actually resolved. • There is no integrated wellness programme reporting results at either the individual or employer level. A comprehensive programme such as the one we have envisaged here would cost the employer significantly more than a superficial employee assistance programme. This makes the ability to demonstrate that the programme is having an impact that is translating into an ROI that much more important. But another debate here is whether getting stakeholders to commit, whether they be the service sponsor or the service receiver, demands that there be something at risk as well. When we are dealing with sensitive issues that demand behavioural change, a fully funded programme from the employer could open up the potential for moral hazard: why bother to change if your employer is always there to bail you out?

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■■ Employee pays

■■ Co-payment

Currently, companies that require their employees to maintain contracts with medical aid schemes have, on average, shifted that burden of cost to the individual. Typically, this cost is embedded in a total cost to company calculation. We have already seen with the medical aid scheme choice that it’s typically the employees who require these services the most that end up opting for the lowest cost options, mainly because of financial constraints. Perversely, this outcome would be the case even more so if employees had to shoulder the full burden of financial wellness programmes.

We believe that until this type of holistic family care model really gets traction, each of the stakeholders – employer, employee, financial services provider, government – should shoulder a portion of the cost (government in the form of tax concession, perhaps).

Charging an individual a per-member, per-month rate to address a wider array of needs (adding financial and mental wellbeing to the physical well-being pot) may make the best sense as this would mean that ownership for the programme would be in the hands of individuals and their families – as opposed to being dependent on an employer. But it may require more time for these programmes to demonstrate their potential value before employees are prepared to shoulder the full cost.

Co-payment means that everyone has a vested interest in making sure the programme is working: • The employer and/or unions need to be committed because these programmes may well require some measure of work time and resource. They also fill a vital need in the realm of meaningful employee benefits. • The employee needs to be committed to stick with the programme to ensure the outcome is achieved. • Policymakers need to pay attention here because if the working community can get this right, it could take a massive burden off a very stretched fiscus by providing a way to proactively promote and maintain family health and financial stability.

Chapter 3

There are any number of variations on a copayment model. The share of costs could be determined by how aligned the outcomes might be to the different stakeholders’ interests. Getting any stakeholder to buy in to the value proposition of such programmes would demand that there were identifiable benefits to such an investment. This then takes us to the next condition for success of a sustainable wellness programme: the feedback mechanism.

3. F eedback mechanism for measuring success Are we winning? And was it worth the investment? With each of these stakeholders invested, how will each one know whether the investment has paid off? This is where these programmes can be particularly powerful. For an employer to know that the programme is working, for example, demands better feedback than utilisation rate calculations. And therein lies the challenge. What measures of financial well-being or physical well-being or mental well-being could be used?

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Financial well-being at its best is the ability to manage the trade-offs necessitated by existing financial constraints so that an individual can achieve what matters most to them and their families. Similarly, at the heart of mental well-being lies work–life balance. It’s something our HR departments tell us employees want most. How exactly is that measured, given that this would be interpreted differently by every single South African family? If we understand and accept these points, we can start assembling bits and pieces of information and data that, when taken collectively, start painting a picture. It’s this collective picture that we can assess over time, on two levels: that of the employer and that of the employee.

The employer level At one level, the employer needs to see a picture of the de-identified aggregate of their workforce through any number of different lenses and from any number of different perspectives. But the aggregate picture of ‘improvement’ needs to be translatable into a direct return on investment that can be shown to both current and potential shareholders.

The following (quantifiable) factors not only have an impact on lowering human resource costs but can also be measured against yardsticks of increasing productivity: ■■ To what extent have the programmes reduced the costs of employee turnover, absenteeism and presenteeism? ■■ To what extent have healthcare costs been optimised? ■■ How has control of employee debt translated into reduced administration costs from garnishee orders and payday loans? ■■ To what extent are employees staying engaged with their well-being programmes? ■■ To what extent have the education and skills development facilities been used, and how has this enhanced the overall resourcing needs of the employer? ■■ To what extent are employees contributing more to their retirement savings or other (emergency) savings vehicles? ■■ Has there been better preservation, better annuitisation? ■■ Has there been a reduction in group life premiums? ■■ Has there been a reduction in fraud? Each one these elements not only has an impact on lowering human resource costs but can also be measured against increasing productivity.

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Chapter 3

Financial Well-being Day Onsite debt consulting Onsite financial well-being consulting Degreed online learning programme Communication campaigns Member Education Services

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The employee level The employee also needs to be given a picture of achievement, which can be assessed in the following ways: ■■ Have they acted on the recommendations they have been given for addressing what matters to them? ■■ Are they getting to where they have said they needed to go? ■■ Do they feel secure in the path they have chosen? ■■ Have they developed the confidence that they have the means to cope with whatever life throws at them? ■■ Have they got their debt under control and is their credit rating improving? ■■ Are they making the most efficient choices about their medical scheme options? ■■ Have they established an adequately funded emergency savings fund? ■■ Do they have adequate protection for their perceived risks? These lists can go on and on as we capture more data sources for rounding out our insights into an individual’s degree of well-being for both themselves and their families.

Where the feedback becomes vital Feedback provides oil that greases the ongoing machinery of well-being. It’s our verification and validation starting point. We are not just using feedback to measure success but also to provide an ongoing assessment of whether our

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engagements and interventions are translating into actions, so that we can constantly improve on our delivery.

4. A technological interface that deals with continuous engagement and data integration What is the mechanism of engagement? Who owns and has access to the data? An effective employee well-being programme lives and dies by both its mechanism of engagement and the data that can be sourced and aggregated to provide the basis for this engagement. This, too, is a work in progress for many companies, particularly at a time when regulations such as the Protection of Personal Information Act (PoPI) mean that this data must be protected at all costs. What makes this particularly difficult is the pace at which technology is developing better solutions to these security issues. We’ve spoken at length about how technology will be changing the way we work. Technological developments such as blockchain will also challenge where personal data and information will be stored and who will have the ultimate control over who can access it. This is one debate that the consumer might actually end up winning. We are rapidly moving towards a world where personal data will no longer sit with a service provider such as your bank, medical aid,

insurance company or financial services company, and be aggregated by ‘scraping tools’ that collect this information into one place for analysis. Instead, we will likely see a model where the individual owns all their data and allows access to it only at the request of the service provider (except when there is a legal requirement for the service provider to have such access). Say what you wish about how long this conversion of data ownership is likely to take ... the one thing we know for certain about technological development is that it’s happening much faster than we ever imagined. Watch this space. Alongside the great leaps forward in data aggregation are the advances we are making in understanding how people learn and what keeps them engaged with that learning process. The bad news is that we know we each learn in very different ways and respond to very different stimuli (and those aren’t differences that can be neatly categorised into generational bands). This is a key insight for well-being programmes. Making these programmes scalable demands that we use some form of digital engagement. Developing an interaction framework that learns what the learner responds to then expands the engagement to incorporate this new insight is where these programmes must go. In Part 5: Chapter 4 we delve further into one way that Alexander Forbes is already developing solutions in this area.

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5. Putting it all together Who is best positioned to provide these programmes to the employer? On one level, we should be heartened to see how many players in the financial services industry see financial well-being programmes and even holistic employee well-being programmes as important additions to their servicing capabilities. What this suggests is that the industry is finally seeing value in placing the client at the centre of focus. This should only be good news for the consumer. But let’s explore that premise a bit further. Most financial services companies have evolved over the last 30 or 40 years to become more product-centric. With that product-centricity comes the legacy business model, data access and technology architecture models. Potentially better positioned are companies that exist in the consulting and advice space. Here, an interesting model that is emerging is one where the consulting group works with

Chapter 3

the employer to assess what the workplace well-being needs would be for their specific employee population and industry. The consulting group then takes the responsibility for sourcing the most appropriate and cost-effective solutions or external partners required to meet the company’s range of needs. Further, they take responsibility for overall programme monitoring, for both the employer and the employees, to ensure that what has been recommended is delivering. We think this may be the model of the future for well-being programmes. It’s a model that Mercer has been employing in the US and the UK, and employers appear to feel that it ticks all the right governance boxes. It also has the potential to produce outcomes that employee assistance programmes can’t address. Most importantly, a model like this can provide the basis for delivering the vision we articulated at the beginning of this chapter: could employee well-being programmes not change the face of what it means to provide holistic family care?

We think this may be the model of the future for well-being programmes.

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A human-centric approach reinvents the core fundamentals

Business model

Architecture

Anti-fragile, non-perverse monetisation is required where success is dependent on human outcomes and optimal experience.

Open distributed and common human-centric technology needs to be at the core of how we build.

Data

HUMAN

Connecting learning and personalising from previously disconnected data input points for better human outcomes.

Product-centricity negatively influences all critical aspects of modern business

Experience High engagement, always on, social, ubiquitous and mobile experiences are par for the course with future expectations being shaped through imagining experiences.

Business model

Architecture

A product-centric business model forces the growth and all supporting profit and loss metrics to rely on more product sales in order to be successful.

As a result, legacy systems and infrastructure have been created in accordance with product-supporting silos.

PRODUCT Data

Experience

Producing data that is distributed in multiple product-centric areas â&#x20AC;&#x201C; most of the time not compatible with others.

And the resulting customer experience is fragmented, not holistically owned and accountable for across disparate divisions.

Source: Davel, C, Inggs, K. Williams, D. van der Heever, S, 20Something presentation, June 2017.

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Chapter 3

Summary Well-being programmes make intuitive sense as an employee support and engagement model. More importantly, if employers are going to offer a broad range of benefits options to employees, (something that we will describe in more detail in PartÂ 4), a well-being programme becomes an essential component, if only because it helps employees determine how to assess which benefit options provide the greatest value to them and their families. Think of holistic wellness programmes as providing a guidance and educational framework for decision-making.

This chapter has attempted to take the conversation a bit further by helping employers appreciate that there are important qualitative differences in how these programmes could be structured, and they need to be clear on the distinctions. An important message is that unless these programmes provide properly integrated feedback to both employers and employees, the result can be a considerable waste of time, resource and money. In the next section we zero in on the healthcare component of a well-being programme as a case in point.

There are important qualitative differences in how these programmes could be structured and employers need to be clear on the distinctions.

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CASE

STUDY

A lot of time, energy and financial resources go into workplace wellness. In large companies, you often find a plethora of employee health management (EHM) programmes and employee-health-related costs, some of which include: ■■ medical scheme(s)

The merits of employee health management programmes

■■ IAS19 valuations ■■ primary care programmes ■■ occupational health programmes ■■ primary care nurse, doctor or on-site clinic

The merits of employee wellness have been largely accepted by organisations worldwide. There is an acknowledgement of the interrelatedness between employee health and organisational health. Healthy employees are generally more productive, have lower rates of absenteeism, and are more engaged. They’re also better able to manage stress and change, have higher job satisfaction and a positive morale. Organisations that focus on employee well-being seek to reap the rewards associated with a healthy workforce: lower absenteeism, fewer workers’ compensation claims, reduced disabilities, and greater workplace safety, productivity and performance – all of which contribute to a competitive and sustainable organisation.

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■■ employee assistance programme ■■ gap product cover, hospital cash plan, accident policy ■■ expatriate cover ■■ wellness programme(s) ■■ executive wellness programme ■■ sickness and absenteeism management ■■ incapacity management ■■ workers’ compensation ■■ death benefits ■■ funeral benefits Owing to the magnitude of the employee health management portfolio, it is often divided among different areas within the organisation. Human Resources may deal with health policies, employee engagement and the psycho-social aspects of health; Benefits and Compensation may deal with

PART 3

CAN HOLISTIC WELL-BEING PROGRAMMES CHANGE THE FACE OF FAMILY CARE?

health programmes, death and funeral benefits; occupational health and safety may sit in a different department and employee wellness and education in yet another. As a result, there is seldom any integration of data from the various EHM programmes.

Integrating available EHM data with organisational metrics on employee engagement, absenteeism, disability cases and productivity will assist the organisation in better answering some of these questions. It will also assist with:

Benefits of measuring employee health management programmes

■■ understanding the health and well-being issues that employees are grappling with, and their impact on the health and well-being of the organisation

Is your organisation reaping the benefits of the basket of EHM programmes offered? Are your workers healthier, happier, less stressed, and more engaged and productive as a result of your time, effort and expenditure? Are their health and well-being improving or deteriorating over time? With the Protection of Personal Information Act, it is often very difficult to effectively integrate the data from EHM programmes in order to measure their relative success at an individual level. However, the data received from these programmes can be used to create a dashboard that provides the organisation with a big-picture view on employee well-being.

Chapter 3

■■ showing the impact of the organisation’s policies, culture and environment on the health and well-being of its employees ■■ identifying both short- and long-term strategic objectives for employee and organisational health ■■ identifying where targeted interventions are required ■■ providing insight into the duplication of benefit offerings, enabling greater cost efficiencies within EHM programmes ■■ identifying the efficiencies and effectiveness of EHM programmes to ascertain whether these programmes are achieving the desired outcomes and if they are the most efficient mechanism for doing so

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If organisations don’t integrate this data, it’s likely that EHM data won’t be used at all. For example, medical scheme wellness reports provide information on the many aspects of employees’ physical and lifestyle health. However, if the organisation doesn’t understand the impact this is having on the business, very little is done with this data.

What to measure There are many measurement models available to guide organisations on what to measure with respect to their EHM programmes. The Health Enhancement Research Organization (HERO) and Population Health Alliance (PHA) have developed a model which incorporates the following metrics: ■■ Financial outcomes: This metric seeks to measure the savings derived from implementing EHM programmes. This is not always easy to do, particularly in the case of programmes that operate within a community rating framework, such as medical schemes where contributions are not risk rated for the organisation. For example, the organisation may have implemented successful initiatives to reduce body mass index, resulting in fewer claims from the medical scheme, which could in turn reduce the costs of medical scheme contributions for all members ... but this would not be realised as an immediate cost reduction for the employer exclusively.

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Some risk-rated insurance products may result in reduced contributions for the organisation thanks to the improved health of its employees. Such programmes are easier to measure under this metric. For example, reduced BMI may result in fewer employees with high cholesterol, which may result in fewer heart attacks and could yield lower group death cover rates3. ■■ Health impact: This metric assesses the impact of EHM programmes on the overall health and well-being of targeted populations. It includes an assessment of physical, mental and emotional health as well as the behaviours that affect these dimensions of health. This metric also includes a review of the prevalence of health factors across all EHM programmes. Over time, any initiatives instituted by the organisation to improve aspects of health should be reflected in this metric. ■■ Participation: It is important to measure the uptake and ongoing use of EHM programmes by employees. Without adequate employee participation, the efficacy of these programmes is diluted and their cost effectiveness comes into question. This measure also assists organisations in understanding the effectiveness of the communication strategy for their EHM programmes.

■■ Satisfaction: This metric measures how satisfied both the organisation and its employees are with the benefits and services of the EHM programme. This assists in refining the benefit offering and improving the service delivery of the providers. ■■ Organisational support: This metric measures the level of organisational support for each of the EHM programmes. It looks at policies, procedures and facilities that make it easier for employees to make healthier choices. ■■ Productivity and performance: It is not always easy for employers to measure the productivity of their employees, especially in the service industry. In the absence of a definitive productivity metric for an organisation, these metrics often review absenteeism, disability and employee engagement ratios. ■■ Value on investment: This metric seeks to measure the value received (as opposed to savings derived, measured under the financial metric) by the organisation for each rand spent. It tracks the cost of EHM programmes, and the improvement and deterioration of health, satisfaction levels, employee engagement and productivity scores over time.

3 Health Enhancement Research Organization; Population Health Alliance. 2015. Program measurement and evaluation guide: core metrics for employee health management.

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Chapter 3

The evolution of employee health management programmes Whatever metrics an organisation uses to review its EHM programmes they should assist in establishing a greater understanding of what works, what doesn’t, and which aspects of health to focus on to enable the organisation to achieve its strategic objectives with regard to employee health. EHM programmes are dynamic, and successful EHM programmes go through a cycle similar to that depicted in Figure 5, which encompass the following steps4: ■■ Mobilise: For EHM programmes to succeed, buy-in from leadership (shareholders, executives, unions, operational management) within the organisation is paramount, as it demonstrates organisational support. Employee wellness and well-being should form part of the organisation’s DNA, incorporated in its policies, and aligned with its mission, values, objectives, operations and cultural norms.

to compare this to the desired levels of employee and organisational health. There are many tools to assist in this endeavour, including the metrics listed above. ■■ Prioritise: The committee should agree on priorities that would benefit the organisation and its employees. Once again, collaboration is key to obtaining buy-in from all stakeholders. ■■ Plan: This is where the plan of action is established. The plan should include short-term goals (current year) and long-term goals (three to five years). The plan should be drawn up for each of the priorities and should include the policy changes required, if any; budget requirements; processes; and any resources required. ■■ Do: This stage includes assigning responsibilities and rolling out the programme.

■■ Assemble: Effective EHM programmes use collaboration as a means of driving the programmes. Break down silos by creating a committee that incorporates all stakeholders, including unions and employee representatives.

■■ Evaluate: We have looked at the importance of evaluating the EHM programme in this section; establishing what works, what does not, and what is impeding the success of the programme. This exercise establishes the gap between the planned objectives and the actual results.

■■ Assess: The committee’s first responsibility should be to assess the present levels of employee and organisational health, then

■■ Improve: If gaps are identified or there is a need to adjust priorities, this is the time to review the plan and repeat the cycle.

4 Burton, J. WHO healthy workplace framework and model: background and supporting literature and practices. World Health Organization.

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Weâ&#x20AC;&#x2122;ve heard that the cost of healthcare is prohibitive. But has your organisation adopted a strategic and structured approach to implementing and running an employee health management programme? Measuring the effectiveness and efficiencies of EHM programmes is key to developing the right structure and refining your strategy to ensure it the programmes deliver maximum benefits to both employer and employees. If youâ&#x20AC;&#x2122;re not already doing this, now is the best time to start.

Figure 5: Typical EHM programme cycle Mobilise (stakeholders)

Improve

LEADERSHIP ENGAGEMENT

Evaluate (assessments)

ETHICS AND VALUES

WORKER INVOLVEMENT Do (implement) Plan (long term, short term, current year)

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Assemble (integrated team)

Assess (the gap)

Prioritise (risks, costs, areas of influence)

SOUTH AFRICAâ&#x20AC;&#x2122;S SKILLS DEVELOPMENT JOURNEY

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SOUTH AFRICA’S SKILLS DEVELOPMENT JOURNEY

GETTING PERSPECTIVE The legacy of the education divide It is often difficult to view South Africa’s realities at any given point without reflecting on the apartheid legacy as the root cause. Skills development is one of them. The democratic government inherited a nation of more than 7.5 million people aged 15 and above who were illiterate or severely undereducated. A further 3 million were completely unschooled and 4.5 million had so little primary education that they were barely literate. The country had an overall illiteracy rate of 29%. A large number of the population had never been exposed to any formal training nor had they received recognition for the skills acquired on the job over the years1. As if that was not enough, the provision of further education was also a problem. A total of 39 different education systems and respective regulating laws meant there was no nationally accredited and assured qualification framework. This limited the transferability of qualifications across learning institutions and industry sectors. In addition, performance levels varied across institutions, with formerly white education and training institutions being highly resourced while often dysfunctional rural colleges with poor curricula and infrastructure existed in black communities. This pattern extended to workplace and

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industry training. Training by the employer was mostly in the form of informal, in-house sessions addressing basic skills with a narrow focus, such as health and safety or computer skills, to serve specific employer needs. This training was not externally accredited. The practice of the employer serving as a partner in formal work-based training did not exist in South Africa because there were few incentives to do so.

■■ enhance the quality of education, training and skills development

Skills development and the National Qualifications Framework

The NQF vision was manifested through various legislation, such as the South African Qualifications Authority (SAQA) Act, Skills Development Act, Skills Development Levies Act, Further Education and Training Act, Employment Equity Act, and others. Specifically, the Sector Education and Training Authorities (SETAs) were introduced as the key implementation agencies for establishing and maintaining quality in workplace-based training and learning. SETAs are governed by the Skills Development Act and Skills Development Levies Act of 1999. They are responsible for overseeing training and skills development in a specific national economic sector, and developing Sector Skills Plans (SSP) to outline the strengths and challenges of a sector in terms of employment and skills development.

The democratic government in 1994 was obviously faced with the challenge to change all of this, and priorities had to be set. The first thing that was done was to embark on a comprehensive reform process for skills development, involving legislation, structures and organisations. The aim was to change the cultural and institutional landscape for skills development and vocational training at all levels. This is when the idea of the National Qualifications Framework (NQF) was born. The main objectives of NQF are as follows: ■■ create an integrated national framework for learning achievements of different learning sites ■■ facilitate access to, and mobility and progression within, education, training and career paths

■■ accelerate the redress of past unfair discrimination in education, training and employment opportunities ■■ contribute to the holistic personal development of each learner and the social and economic development of the nation at large2

1 Heitmann, W. 2000. Case Study South Africa. Systems Building and Consulting through Networking with Social Partners. Reforming vocational education and training. In W. Zehender (Ed.), Networking with Partners (pp. 99–123). Eschborn/Germany: Deutsche Gesellschaft fuer Technische Zusammenarbeit (GTZ) – Division 41: Economic Development and Employment Promotion. 2 Mummenthey, C. 2010. Skills development in South Africa: A reader on South African skills development arena. Johannesburg: German Development Services (DED).

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The NQF has not been the perfect solution to the skills development challenge but it has been a huge start and progress has been made. Challenges with the NQF include the time-consuming and costly process of generating and registering a qualification, and the lack of recognition of the diversity of approaches to skills development. There is also a problem of general apathy shown by some employers who seem to be engaging in development programmes only to claim back from the Skills Development Levy, rather than being effective partners in generating a highly skilled workforce for the betterment of the country. These limitations pose a key challenge in our fast-paced, continuously evolving and highly competitive world of work.

Chapter 4

The history behind the development of the NQF model should be respected for all its good intentions. However, the model can be modernised to keep pace with and respond to workplace trends in order to future-proof skills development in South Africa.

Skills development and unemployment in South Africa The unemployment rate in South Africa has been fluctuating but has been on the increase since 2004. It is currently sitting at 27.7%; 36.4% if one includes discouraged job seekers (see Figure 6)3.

Figure 6: South Africaâ&#x20AC;&#x2122;s unemployment rate (Quarterly Jul 2014 to Jan 2017)

27.5 27

26.5 26 25.5 25 24.5 24

Jul 2014

Jan 2015

Jul 2015

Jan 2016

Jul 2016

Jan 2017

Source: tradingeconomics.com, Stats SA

3 Statistics South Africa. 2017. Quarterly labour Force Report. Pretoria: Stats SA.

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The link between education and (un)employment There appears to be a positive correlation between unemployment and education, with the unemployed consisting largely of individuals with a matric or lower level of education. The more skilled individuals are, the more likely they are to be employed. This is a challenge for South Africa because, owing to the historical reasons painted earlier, a large sector of the population is unskilled4. Given the correlation between education and probability of employment, this suggests a very low likelihood of this sector of the population being employed. This makes the situation highly emotive and political. As a result, it’s often difficult to effectively and objectively deal with the problem because those involved may be either motivated to remain on the ‘politically correct’ side of the story or, in some instances, are simply apathetic.

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South Africans hold a university degree in higher esteem than an FET qualification (for example, a certificate or diploma), which results in fewer students pursuing FET qualifications. And in many cases, the quality of the training obtained at these colleges is insufficient to meet current demand, let alone future demand. The danger is that South Africa will sit with highly skilled elites at the one end, low employment opportunities for unskilled workers at the other, and a hollowing-out in the middle. We are already seeing, for instance, that manufacturing is underperforming, as reflected by the 4.1% year-on-year decrease in April 20175.

Exposure to the Fourth Industrial Revolution

The skills shortage gap

Will upskilling programmes meet the mark?

To exacerbate the situation, the primary sectors of the economy that absorb unskilled labour, such as mining and agriculture, have been shedding jobs in recent years. The economy has been favouring secondary and tertiary sectors, which tend to absorb skilled labour. There is also a massive shortage of intermediate-level skills of the type that are often required by secondary sectors such as manufacturing and services. These are skills obtained at a Further Education and Training (FET) level. The shortage is partly a result of low perceptions of vocational training and education. For historical reasons,

But is that really the crux of our problem for the future? Google ‘skills development in South Africa’ and you will invariably stumble on the work of Suzanne Hattingh. Hattingh is more than a skills development specialist. She’s someone who has thought long and hard about what South Africa will require to meet the challenges of an interconnected future and compete within a rapidly changing global labour market. Right now, she is deeply concerned. South Africa has been in overdrive in its efforts to address the employment problems of our youth. There has been a massive effort to create a widespread

4 Bhorat, HG. 2013. Changing dynamics in the global labour market: evidence from South Africa. International Labour Office: Geneva. 5 Stats SA. 6 Harari, YN. 2015. Homo Deus: A Brief History of Tomorrow. London: Harvill Secker.

upskilling effort. Her concern is that unless we understand how dramatically the future of work is changing globally, these programmes could fall short of the mark. We need to talk – industry to policymaker, employer to trainer. We need to think carefully about what it would mean to get us all on the same page.

The impact of automation on skills requirements We may not know exactly what’s coming but we know what’s almost here because it’s already creating ripples throughout the global work community. Top on the list of concerns is not just a continuation of the rapid rate of automation that has swept the world of work over the last decade, but something that is being heralded as the Fourth Industrial Revolution. Technology has evolved to the point where it can fuse robotics and digital with artificial intelligence, biotechnology, and the Internet. This means we can now do far more than simply automate jobs; we can actually change the way that people and living things organise themselves, regenerate themselves, and interact with the world around them6. With the Fourth Industrial Revolution bearing down on us, we have no choice but to consider how our world of work in South Africa is going to meld with the global world of work.

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Chapter 4

South Africa, along with Kenya, is probably more exposed to the disruptions of the Fourth Industrial Revolution than other African nations7. Indeed, information and communication technology (ICT) intensity has increased by 26% over the last decade and it’s anticipated that 41% of all work activities in South Africa will be susceptible to automation. At this rate, by 2020, 39% of the core skills required across occupations will have changed8. What makes this a serious problem is that while South Africa has the highest exposure to this rate of change, it has one of the lowest capacities among the more developed economies in Africa to meet this change (see Figure 7).

Figure 7: Africa’s capacity to adapt and exposure to the future of jobs Capacity (0-1 scale)

1.0

The current quality and breadth of workforce’s 0.8 post-basic education

Average capacity: 0.44 High capacity, low exposure

High capacity, high exposure

Average capacity: 0.63

0.6

South Africa

0.4

0.2

0.0

Low capacity, low exposure

0.0

Low capacity, high exposure 0.2

0.4

0.6

0.8 Exposure (0-1 scale)

Spread of latest technologies and diversification of local labour markets

By 2020, 39% of the core skills required across occupations will have changed.

7 World Economic Forum. 2017. The future of jobs and skills in Africa, p. ii. 8 Ibid. p. 3.

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The graphs below sum the story up succinctly. The poor quality of our educational system results in an inability to create jobs for our youth.

Figure 9: Quality of Africa’s education systems

Figure 8: Economic activity, unemployment and inactivity among Africa’s working-age population

World average: 3.8 Madagascar (5%)

Employed Unemployed

Rwanda (0%) Guinea (4%)

Inactive

Burkina Faso (14%) Ethiopia (12%)

Mauritius Côte d’Ivoire Zambia Ghana

Tanzania (10%)

Lesotho

Malawi (0%)

Botswana

Ghana (3%)

Cameroon

Cameroon (12%)

Senegal

Burundi (0%)

Ethiopia

Benin (3%)

Uganda

Zambia (–)

Namibia

Botswana (7%)

Tanzania Malawi

Mozambique (0%) Mali (39%)

Mali

Côte d’Ivoire (36%)

Madagascar

Kenya (14%)

Gabon

Mauritius (36%)

Nigeria

Lesotho (19%)

Mozambique

Senegal (35%)

Burundi

Namibia (11%)

Chad

Nigeria (24%)

Benin

South Africa (19%)

South Africa Mauritania

Gabon (–) 0

100

Share of population (%) Source: World Economic Forum, Human Capital Index 2016 Note: Percentages in parentheses after country names refer to the labour force participation gender gap. For example, Madagscar has a 5% gap in women’s labour force participation.

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Kenya Rwanda

Uganda (5%)

Quality rating, 1–7 (best) Source: World Economic Forum, Executive Opinion Survey

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Chapter 4

The question is – are we going in the right direction? And are we going fast enough? Given the rapid pace of change, business model disruptions are resulting in a nearsimultaneous impact on employment and a demand for new skill sets. This is calling for an urgent and concerted effort for adjustment9. The McKinsey Global Institute warns that by 2055 nearly half the jobs performed by humans are likely to be automated. Not only will robots replace manual labour but, through artificial intelligence (AI) and machine learning, the same tasks performed by specialist skilled workers will also be automated10. The McKinsey report indicates that, based on currently known technologies, 60% of all occupations have at least 30% of activities that are technically automatable. Already, studies of the changing world of work in the US have identified that out of 974 jobs, there has been a change of more than 50% in the nature of the work. Since 2000, for example, the job that changed the most was that of photographer. The job that changed the least: economist11. This implies that most occupations will change, and more people will have to work with technology. Highly skilled workers working with technology will benefit while low-skilled workers working with technology will be more productive and achieve more output. Indeed, the changes to our working world that have led to positive outcomes

for workers have actually occurred more in low-skilled than highly skilled jobs. That said, low-skilled workers may experience salary pressures because of the potentially larger supply of similarly low-skilled workers, unless demand for the occupation grows more than the expansion in labour supply. But the more concerning conclusions being debated here are as follows: if the expectation is that automation will result in a 47% upheaval in jobs in developed economies, in emerging economies, that number could be closer to 77%.

Automation of tasks and the demand for ‘uniquely human’ work Here is where the work by David Autor at the Massachusetts Institute of Technology (MIT) and Joe Davis at the Vanguard Investment Strategy Group perhaps provides a more useful way of looking at the problem. They suggest that the way to gauge these changing demands is to identify exactly which tasks may be embedded in a given job. They make a distinction between basic tasks, repetitive tasks and advanced tasks. In the US, 80% of the tasks that make up many of the current jobs are repetitive. It’s the tasks that are ripe for automation, not necessarily the jobs.

9 World Economic Forum. The Future of Jobs and Skills in Africa. p.iii. 10 Ibid p. 3. 11 Davis, J. 2017. The Trends that Will Define Our Lifetime. Vanguard Investment Strategy Group, Global CFA Conference.

Consider the role of a doctor. Visit a doctor today and no doubt there are any number of diagnostic tests that can be conducted with highly advanced technological equipment. These functions will be automated. But there is a critical role that the doctor’s care and attentiveness play in creating a sense of well-being that automation can’t come close to replacing at this point in time. The placebo effect and its potential to heal in ways no pharmacological intervention can is a very real part of what makes the medical profession one that won’t be entirely automated. Examine the list of ‘advanced skills’ in Figure 10 carefully. These are the tasks that won’t be easily automated. Note that 99% of future non-automated jobs will require one critical skill: emotional intelligence, or EQ12. This is all about a person’s ability to empathise with others, to perceive and assess others’ emotions, to use emotions to facilitate thinking, and to understand emotional meanings. That’s not a skill that demands advanced degrees from MIT, or years of classroom education. What it requires first and foremost is empathy, imagination, and the ability to engage with other people. Consider the implications this insight has for the way we are currently training our youth! Are we not missing some vital opportunities?

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How longevity will disrupt skills development initiatives as they currently exist

ADVANCED

BASIC

REPETITIVE

Figure 10: Tasks required for work

Now let’s add a further dimension to the whole issue of skills development. This isn’t as much about what skills to develop as it is about how our skills will need to evolve over time to address the increasing reality of a longer working life.

Growing

Inspecting

Maintaining relationships

Harvesting

Monitoring

Interacting with the public

Digging

Assembling

Persuading outcomes

Moving objects

Getting information

Developing teams

Recording information

Processing information

Applying knowledge

Scheduling

Strategising Thinking creatively Solving problems Assisting or caring for others Judging quality C onducting complex physical movements

Davis argues that demand for uniquely human work will actually accelerate to the point that it will be a challenge to fill the demand for those jobs. Consider one such advanced skill that South Africans have in abundance: caring for others. Now go straight to our chapter on longevity (Part 2) and ask whether we aren’t missing a trick here. Source: Vanguard Investment Strategy Group

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12 Gratton, L and Scott, A. 2016. The 100-year life: living and working in an age of longevity. Bloomsbury, p. 5.

As academics Lynda Gratton and Andrew Scott have pointed out in their book, The 100-Year Life, thanks to significant improvements in medicine and our general lifestyles, many of us will still be highly productive long after a nominal retirement date. This challenges the whole current convention of the three-tiered life: first you learn, then you earn, then you learn to live off of what you have earned. To them, our natural evolution as workers and professionals will be to a multistage life12. Consider the implications: ■■ Re-creation will be more important than recreation. There will no longer be two big transitions in life: into the workplace and then out. Instead, there will be many transitions throughout our life. That means that two of the most critical skills for us to embrace will be adaptability and flexibility: the need for workers to keep reinventing themselves. ■■ Preparing ourselves for one career will no longer be adequate. We will need ‘to learn how to learn’. That means that, by necessity, skills development will be an ongoing process.

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■■ Maintaining our competitive edge in the workplace will no longer be about brushing up on existing skills. Instead, it will be about developing a whole new set of skills. ■■ With more time to flesh out our capabilities, career trajectories will be less linear and more circumspect, with any number of sequencing possibilities. We may enter certain careers much later, leave careers at more arbitrary points and potentially re-enter them much later on in life. ■■ We will become more age-agnostic in our skills development, organisational structures and our social interactions. Effectively, we will be ‘younger for longer’ as retaining our adolescent zest allows us to be more flexible, adaptable and resilient. ■■ The nature of our partnerships and relationships will change and, with the fall of historical age barriers within these relationships, family structures will change, too. As Grafton and Scott argue, we are likely to see an even more dramatic emergence of four generations within a family living at the same time13. South Africa will have to urgently respond to these disruptions and develop skills appropriately. But perhaps the best news we have seen on this front relates to the way the world of ongoing skills development is being totally reconceptualised. In Part 5: Chapter 4, we describe an exciting concept that we think finally addresses the issue of how to keep employees engaged with their ongoing skills development, irrespective of their current educational level.

Chapter 4

Figure 11: Options for employees and employers in the new world of work

START OWN START OWN BUSINESS

RETRAIN

BUSINESS

GRADUATE TRAINING SCHEME

CAREER BREAK

RETIRE

GRADUATE TRAINING SCHEME

RETIRE START OWN BUSINESS

31-35

MARRIED

SECOND DEGREE

GET A JOB!

CAREER BREAK

RETRAIN

MARRIED START OWN BUSINESS

31-35

GET MARRIED

KIDS? TRAVEL

GET MARRIED

KIDS?

SECOND DEGREE

Scrap graduate internship programme

RETIRE TRAVEL

RETIRE

Onboard creative entrepreneurs in their 30s

Delink pay and age

Delay retirement

A NEW HR STRATEGY Options for mid-career break

Lifelong consumers, not lifelong employees

12 Gratton, L and Scott, A. 2016. The 100-year life: living and working in an age of longevity. Bloomsbury, p. 10.

Rehire senior managers in junior roles

Individual curation of learning and development

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Skills shortage and talent acquisition According to the 2017 Deloitte Global Human Capital Trends report, acquiring talent and the shortage of skills are two of the global challenges that have become so heightened they are no longer simply an HR professional’s problem. Now they are a C-suite problem. Talent acquisition is rated as the third-highest challenge by business leaders globally. Despite this heightened concern, 35% of organisations in South Africa are currently relooking their talent acquisition strategy, while 15% have no plans to update their talent acquisition strategy. This is problematic because it suggests that organisations are not gearing themselves up for the skills challenge and therefore will not cope in the near future.

Employers at the forefront of skills development The reality is that it is in the best interest of the employer to have an appropriately skilled workforce and, more importantly, to play an active role in developing those skills, as this insulates the employer from wastage and sets them up for business growth. For instance, studies have shown that better skilled employees are more productive, work faster with fewer mistakes, and therefore contribute to greater profit. Employees who are being developed take more pride in their

work because they feel the organisation views them as being important to invest in, and those who feel that the company is investing in them tend to be very loyal to the company. However one looks at it, employers need to be at the forefront of skills development to prepare for both current and future skills. The South African environment is more challenging because we are dealing with both legacy issues of trying to bring large numbers of the population on par, while the world continues to shift and change exponentially. Therefore, both policymakers and employers need to consider a symbiotic partnership model to respond to the skills shortage and talent acquisition challenge.

Updating current frameworks to take skills development forward Through the Broad-Based Black Economic Empowerment (B-BBEE) codes of conduct and points, companies are incentivised to fund the skills development of their supply chains and communities. Companies can spend on skills development and immediately gain points. This strategy can be leveraged because it has been observed to contribute to the upskilling and improvement of the employability of the African workforce in particular.

Chapter 4

However, this strategy will have to be updated because a number of our current qualifications for equipping the workforce are for skills that will no longer be needed in five years’ time, judging by the pace of change. If they will exist, they will be significantly different because, as we’ve seen, the pace of developing qualifications under the NQF model does not keep up with the rapidly changing world of work. In addition, there are unintended consequences to linking the training of people to B-BBEE points because companies are failing to innovate in the training provided to meet core skills of the future. They simply focus on ‘ticking boxes’ of the number of people trained in order to score points. Therefore, such training is often geared towards preparing people for jobs rather than for work, and does not inspire the much-needed entrepreneurial mindset that solves problems of the future and creates entrepreneurs14. Thanks to the NQF model, employers are already contributing to the Skills Development Levy, which sponsors the National Skills Fund. The National Skills Fund is being used to fund the training of unemployed and other vulnerable people in areas where there is potential for growth and employment. This means the foundation has already been laid. What needs to happen now is to include in the model the flexibility to anticipate the future and the skills that will be required by the world of work in the future.

14 Hattingh, S. 2016. Skills planning for the unpredictable, disruptive Fourth Industrial Revolution. Johannesburg: Performance Improvement Solutions.

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Focusing on the skills of the future Central to these skills is the creation of an independent workforce that can think innovatively and solve problems of the future. The Institute for the Future describes 10 skills that will be essential for the workplace of 2020. We believe that these should be the focus of the future for the National Skills Fund: 1. Sense-making: the ability to determine the deeper meaning or significance of what is being expressed 2. Social intelligence: the ability to connect to others in a deep and direct way, to sense and stimulate reactions and desired interactions 3. Novel and adaptive thinking: proficiency in coming up with solutions and responses beyond rote or rule-based thinking 4. Cross-cultural competency: the ability to operate effectively in different cultural settings 5. Computational thinking: the ability to translate vast amounts of data into abstract concepts and to understand data-based reasoning in order to make sense of this information 6. New-media literacy: the ability to critically assess and develop content that uses new media forms, and to leverage these media for persuasive communication

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7. Transdisciplinarity: literacy in and the ability to understand concepts across multiple disciplines â&#x20AC;&#x201C; many complex global problems, such as global warming or overpopulation, require transdisciplinary solutions and approaches rather than narrow specialisation 8. Design mindset: recognising the kind of thinking that different tasks require, and adjusting the work environment in a way that enhances our ability to accomplish these tasks 9. Cognitive load management: the ability to discriminate and filter important information, and understand how to use a variety of tools and techniques to maximise cognitive functioning using a variety of tools and techniques 10. Virtual collaboration: the ability to work productively and drive engagement as a member of a virtual team. Given the large population of unskilled workers in South Africa and an economy that cannot absorb them either now or in the near future, it makes sense that skills and development programmes geared towards addressing this challenge should focus on leapfrogging people into the skills of the future rather than trying to catch them up with current skills. This implies that alternative and innovative ways of learning must be sourced and deployed in large quantities.

SOLVING FOR SMMEs AND SOLE PROPRIETORS

PART 3 Chapter 5

SOLVING FOR SMMES AND SOLE PROPRIETORS

SMALL BUSINESS AND ENTREPRENEURSHIP CRITICAL TO EMPLOYMENT AND ECONOMIC GROWTH At the dawn of his second term in office as President of the Republic of South Africa, Jacob Zuma created the Ministry of Small Business Development and emphasised that the economy would take centre stage. Less than six months after her appointment as Minister of Small Business Development, Lindiwe Zulu addressed the inaugural National SMME Policy Colloquium in Sandton. She said the important role of small business in the South African economy was supported by research by Global Entrepreneurship Monitor, which showed that small businesses created more than 50% of all employment opportunities in South Africa and contribute to more than 45% of the country’s gross domestic product. Zulu acknowledged this was achieved despite high failure rates and low rates of entrepreneurship. This colloquium was underscored by the message: “the right enabling environment is needed if small business is to realise its huge potential for transforming South Africa’s economy.” It closed with some resolutions to inform government’s policies on small business development. These resolutions included: ■■ a call for government’s tendering and procurement procedures to be redrafted so small businesses could do business with the state and thereby play a greater role in the economy

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■■ amending the taxation and accounting rules for small businesses ■■ urging SARS to improve communication with small businesses and offer a service matching that given to large business ■■ intervention into the non-payment and late payment by government to small businesses ■■ introducing entrepreneurship into the curriculum of schools, colleges and universities Three years into the current government’s term of office, we take a look at developments in the world of small, medium and microsized enterprises (SMMEs) in South Africa.

Is government putting money where their mouth is? One of the first signs that government was taking small business development seriously came in the 2015 national budget. Then-Minister of Finance Nhlanhla Nene announced that R3.5 billion would be spent on mentoring and training for small businesses by Minister Zulu’s department over the medium term.

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Chapter 5

Taxation of micro enterprises The environment enabling small business development was further assisted by a reduction in taxation on micro businesses, proposed by the Davis Tax Committee as follows: Table 1: Taxation of micro enterprises (2014 to 2015) Turnover (R)

Rate of tax

0–150 000

0% of taxable turnover

150 001–300 000

1% of taxable turnover over R150 000

300 001–500 000

R1 500 + 2% of taxable turnover over R300 000

500 001–750 000

R5 500 + 4% of taxable turnover over R500 000

750 001+

R15 500 + 6% of taxable turnover over R750 000

Table 2: Taxation of micro enterprises (2015 to 2016) Turnover (R)

Rate of tax

0–335 000

0% of taxable turnover

335 001–500 000

1% of taxable turnover over R335 000

500 001–750 000

R1 650 + 2% of taxable turnover over R500 000

750 001+

R6 650 + 3% of taxable turnover over R750 000

In effect, Minister Nene halved the taxation on micro enterprises with effect from the 2015/16 tax year. The two budgets that have followed the 2015 budget have maintained the taxation of micro enterprises at these rates.

Initiatives of the Department of Small Business Development According to the website of the Department of Small Business Development (DSBD), its mandate is to “support the radical transformation of the economy through the promotion and development of sustainable and competitive entrepreneurs, small businesses and co-operatives, that contribute to job creation and economic growth”.

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The DSBD’s key service offerings are: 1. The Black Business Supplier Development Programme This programme offers a cost-sharing grant to black-owned small enterprises to help them improve their competitiveness and sustainability so they can become part of the mainstream economy and create employment. It provides grant funding of up to R1 million for majority black-owned businesses, with 20% being allocated to training and development and 80% allocated to the acquisition of tools and machinery.

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municipal entities and provincial government entities. Although the direct beneficiaries of this programme are not small businesses themselves, the programme aims to create an environment in which small businesses can operate, trade and grow. 4. National Informal Business Upliftment Strategy The National Informal Business Upliftment Strategy (NIBUS) is driven by the DSBD to address the development of SMMEs, particularly at the lower end. The DSBD has identified five priorities in its strategy: ■■ retail

2. The Co-operative Incentive Schemee

■■ manufacturing

The Co-operative Incentive Scheme (CIS) is a 100% grant for registered primary cooperatives with five or more members to improve their viability and competitiveness by lowering their cost of doing business. The incentive also supports broad-based economic empowerment, as it favours historically disadvantaged individuals (women, youth and people with disabilities).

■■ services

3. The Shared Economic Infrastructure Facility

■■ Strategic Pillar Two: Upliftment through enterprise development

The Shared Economic Infrastructure Facility, managed by the Department of Trade and Industry, is offered on a 50/50 basis. This facility aims to leverage public sector investment to provide infrastructure for businesses, mostly in townships, rural areas and inner cities where economic activity is taking place. The Department of Trade and Industry funding is limited to R5 million and applicants are municipalities,

■■ Strategic Pillar Three: Facilitate intergovernmental relations for delivery

■■ agriculture ■■ construction and maintenance Five strategic pillars govern the kind of support given to entrepreneurs: ■■ Strategic Pillar One: Creating an enabling legal and regulatory environment

■■ Strategic Pillar Four: Partnership and stakeholder management, for example through business and civil society associations ■■ Strategic Pillar Five: Empowerment through information (knowledge) management

The DSBD reported that it trained 1 037 informal traders during the 2015/16 financial year. It also established five centres for entrepreneurship at technical and vocational educational training colleges with the aim of developing entrepreneurs and small business owners. In addition to its key programmes, the DSBD is supported by its two agencies, the Small Enterprise Finance Agency and the Small Enterprise Development Agency.

The role of SARS The role of the South African Revenue Service (SARS) in the life of a small business cannot be over-emphasised, particularly as the business grows or attempts to grow. In conjunction with reducing taxation on micro enterprises, SARS introduced a number of guides on its website to assist owners of businesses to understand taxation for businesses. More importantly, the SARS eFiling system was made available to business owners so they can file their own tax returns. The benefits to small businesses include be a reduction in accounting costs and valuable operating time. One area in which government has not stood out in assisting small businesses is in paying its creditors. Then-Minister of Finance Pravin Gordhan bemoaned the slow rate of payment by state departments in his budget speech of 2017, insisting that creditors be paid within 30 days of invoice.

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An enabling environment, what more? It would seem that government has made significant advances in improving the environment in which small businesses operate since 2014: ■■ Tax has been reduced significantly. ■■ Training has been provided in some areas. ■■ Infrastructure is being developed. ■■ Financing is made available from various sources. ■■ SARS has reduced the administrative burden. In her 2014 speech to the Industrial Development Corporation (IDC), Minister Zulu said, “Our country has yet to see the true value and benefits of SMMEs.” After three years of improving the environment in which SMMEs operate, one wonders whether some of the value and benefits have started to emerge. More importantly, whether the vision of the National Development Plan – that 90% of new employment will be created by SMMEs by 2030 – is realistic. According to Statistics South Africa, the South African economy grew by approximately 8% in real terms between March 2014 and December 2016 (or 2.8% a year). Unemployment in the first quarter of 2017 stood at 27.7% compared to 25.2% in

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the first quarter of 2014. The key indicators suggest that despite efforts to create an environment in which SMMEs would create jobs and contribute to economic growth, this has not happened. In fact, research conducted by Professor Christian Friedrich of the University of the Western Cape (UWC) and his team revealed that 70% to 80% of small businesses fail within five years1. Friedrich also noted that only 1% of small businesses that started with fewer than five employees grew beyond 10 employees. This means not only that these businesses never meaningfully contribute to the tax base but also, more importantly, that the National Development Plan’s (NDP’s) goal of job creation by SMMEs is not being realised.

What can be done to help entrepreneurs? Skills development The DSBD has done and is doing extensive work to development entrepreneurial skills at Technical and Vocational Education and Training (TVET) colleges. These programmes are in their infancy and their results are yet to be seen. Are they enough and should they be extended to other institutions of higher learning, such as universities? Otherwise we run the risk of demoting entrepreneurship and small business ownership to second-rate status.

The research done by Friedrich and his colleagues found that one of the largest factors which contribute to the success of a small business is the business owner themself. Traits such as being a self-starter, being proactive and being persistent were indicators of success. Friedrich writes that “other factors found in our research strongly influencing success of smallscale entrepreneurs were innovativeness, learning orientation, achievement orientation. Furthermore, planning strategies, including goal setting, have a high and positive correlation to success”. In response, Friedrich and his colleagues developed a three-day training programme for entrepreneurs. This programme focuses on the different skill sets they believe are necessary for entrepreneurs to succeed in South Africa: ■■ personal initiative ■■ how to be proactive ■■ how to actively set and implement goals for one’s business and plan with a longterm focus ■■ being innovative ■■ generating and implementing new ideas According to research conducted by UWC, participants in the programme saw an increase in turnover and profitability while being able to employ more staff than a control group that did not attend the programme.

1 Friedrich C. 2016. Why do 70% to 80% of small businesses fail within five years? https://www.moneyweb.co.za/mybusiness/why-do-70-to-80-of-small-businesses-fail-within-five-years/.

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Skills acquisition The development stage of an SMME may also be a guide for the help offered to the entrepreneur. As businesses grow there is a need to attract and retain skills and staff. Small businesses will compete with large businesses for talent and will need more than just the skills of the owner. According to Old Mutual’s SME Employee Benefits Monitor 2017, 65% of small business owners and 70% of staff employed by SMMEs believe that the employee benefits offered by a company affect employees’ decisions to work for the company or not. More importantly, 71% of small business owners believe they are unable to offer the same benefits that large companies offer. With advances in financial solutions such as umbrella funds and medical aids, it’s not clear whether this is only a perception or if a gap really does exist in the employee benefits market. However, when one considers that in an SMME the decision on what benefits to offer is most often left to the owner, financial manager and HR manager (if these are employed), it’s understandable that they may not have full knowledge of what is required for their employees. The financial services sector needs to assist with transparent and easy-to-understand products that are friendlier to SMMEs.

The financial services sector needs to assist with transparent and easy-to-understand products that are friendlier to SMMEs.

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A safety net to encourage entrepreneurship With the failure rate of small businesses as high as it is, one wonders whether more needs to be done to provide a safety net to encourage entrepreneurship. For most business owners, retirement annuities present their only form of retirement savings, as most pension and provident funds do not cater for employers with fewer than five employees. Retirement annuities do not provide a safety net for business owners should their businesses fail, as these savings are available only in the form of an annuity on retirement. It is debatable whether retirement savings should be used for this purpose anyway. In fact, the Income Tax Act frowns upon the use of retirement savings other than for the said purpose of providing an income in retirement. This then leaves a void in the provision of a safety net for aspiring entrepreneurs and small business owners.

Small business ownership and retirement Having said this, very few retirees are likely to retire with more than 75% of their pre-retirement income. Small business ownership presents retirees with the possibility of a second career and an opportunity to earn an income after

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retirement. Retirees may bring their own capital, experience and will to succeed, but the same risks and challenges await them. The need for a safety need is even greater than for those who may have more time to recover from business failure. The DSBD has a number of structured programmes, as do a number of private sector organisations, which guide small business owners in setting up their operations. When these programmes are combined with personal traits such as tenacity and self-belief, retirees can become successful small business owners. Current retirement legislation provides tax incentives for retirees only when annuities are purchased after retirement. Alternative models such as structured small business ownership could be considered by Treasury. If successful, these small businesses could address gaps in the post-retirement income model and gaps in the job creation market, and stimulate GDP growth as envisioned in the NDP. More attention needs to be given to providing a safety net for all small business owners to encourage entrepreneurship at any age.

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GETTING CREATIVE ABOUT EMPLOYEE BENEFITS Chapter 1: Getting creative about value creation

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Chapter 2: Benefits that matter

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PART 4 Introduction

INTRODUCTION RETHINKING THE EMPLOYEE BENEFITS MODEL In light of what we have covered so far, a complete revamp of the employee benefits model might just be in order. In an effort to understand what could be offered to make employees commit to and engage with their employers, we begin by delving into some of the research on what it is that South African employees value from their employers.

PART 4 Introduction

BENEFITS BAROMETER 2017

What we see is a dual message: help employees plan for an unknown future while mitigating expense risk, and give them a clear path to promotion and enable them to thrive at work. What this means is we need to address both the future of jobs and the future of talent. In this section, we make the case for getting creative about value creation. Organisations wishing to position themselves as employers of choice must pay attention to what’s important to employees: a focus on employee health and wellness, for example, and those defining characteristics of the modern organisation – more flexible work options, the ability to create their own career success (which links to having control over one’s learning and development, as we discuss in Part 5), and opportunities to work with the best. There’s also a need for employers to play a far more active role in helping employees manage their money. Anxiety about finances is likely to play out in ways that detract from performance and productivity, so it makes sense

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for employers and policymakers to be directly involved in providing financial services and advice that add value to their employees in this area. In our discussion on benefits that matter, we question whether employee benefits as we know them are becoming obsolete. An important issue here is whether the numerous offerings available to employees are real benefits or simply a grudge purchase. We may have a choice of offerings that provide some measure of social protection, but if we want individuals to engage with long-term savings for retirement, we need to first help them address their day-to-day financial needs. By expanding an employer’s benefits platform to address a range of savings objectives, we could effectively convert the employer’s retirement scheme into a guided financial planning tool for all employees. To change this convention, though, employers would need to believe that an alternative model would be worth the effort.

The best benefits are those that provide value to both employee and employer. We see this as the starting point for introducing benefits that are not only customised and integrated but also fully portable throughout an individual’s financial life. We examine how we could move from transforming the benefits framework into a life-planning tool for a very different type of employee, whether they’re under full-time employment or contract, independent, or even post-employment. We use personas to explore what the process of creating customised solutions could look like for HR departments, and present a complement of offerings to illustrate how rich this could be. As we move forward, it’s clear that an innovative, integrated, multistakeholder approach to employee benefits is required if we are to address the multitude of factors that have an impact on the way people live and work. This is something we tackle in the final section of this year’s Benefits Barometer.

GETTING CREATIVE ABOUT VALUE CREATION

PART 4 Chapter 1

GETTING CREATIVE ABOUT VALUE CREATION

We’ve seen that employer–employee relationships are on the cusp of change. As a result, a complete revamp of the employee benefits model might be in order. This demands that we spend a bit of time examining who our employees are, what their broader needs might be, and how employers could play a more meaningful role in addressing those needs. As we move forward, it’s clear that a more creative, integrated, multistakeholder approach to employee benefits is required if we are to address the multitude of factors that have an impact on the way people live and work.

A workplace for me “Clients do not come first. Employees come first. If you take care of your employees, they will take care of the clients.” – Sir Richard Branson According to the 2017 Mercer Talent Trends Study for South Africa, employees are seeking ways to ‘make work work’ for their individual circumstances, and many are open to new arrangements. What’s clear, however, is that one person’s benefit is another person’s burden. As we’ve opened ourselves up to choice, we are seeing many differences around the world. Culture still plays its role, and there are some very specific asks as one engages with different cultures.

But let’s understand first what we mean by employee well-being. The Occupational Health and Safety Act (No. 85 of 1993) (OHSA) was enacted to legislate and outline conditions for protecting the health and safety of people at work, and

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those using plant and machinery. The Act also provides for protection against hazards to health and safety arising from, or in connection with, the activities of people at work. The Act defines health as being “free from illness or injury attributed to occupational causes”. It outlines the general duties of employers to their employees in this regard: “Every employer shall provide and maintain, as far as is reasonably practicable, a working environment that is safe and without risk to the health of its employees1”. There is no shortage of policy outlining the practices that cover the employer – employee relationship. However, the OHSA is of particular interest given its focus on the health of employees. It is this definition of health we wish to expand on and raise questions about. In this section, we attempt to answer the following questions: ■■ What does a healthy employee look like? ■■ What factors contribute to the health of employees? ■■ What do employees value today?

1 Republic of South Africa. No. 85 of 1993: Occupational Health and Safety Act as amended by Occupational Health and Safety Amendment Act, No. 181 of 1993.

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Chapter 1

Employees want support in balancing their roles as employees, citizens and family members One important insight emerging from the Mercer Global Talent Trends Study 2017 is that employees would like their employers to do more for, and become more directly involved in, their overall well-being. The study highlighted that it’s not just financial rewards that are important to employees. More important is the need to strike a balance between their roles as employees, citizens and family members. Coupled with this is the expectation that employers should help facilitate this balance.

A workplace for me People expect their employer to ‘make work work’ for their individual circumstances. In response, companies are taking a ‘whole person’ approach.

As much as organisations strive to portray themselves as an employer of choice, current and prospective employees are searching for ‘holistic employers’ that understand their unique needs and are at the forefront of changing the relationship between employer, employee, family and finances. Participants in the Mercer study stated that the following benefits and services would contribute to them considering one employer over another: ■■ fitness facilities ■■ well-being services ■■ personal financial advice ■■ recreation facilities

Source: Mercer’s global talent trends study 2017

and emotional health of employees can be directly linked to productivity and performance. (We unpack this relationship and provide some alternative methodologies and recommendations for making it mutually beneficial and sustainable in the case study in Part 3: Chapter 3).

Care for my health – 66% want more focus on health and wellness

The principles for a successful employee health management programme include:

There is significant evidence that employee health and organisational health are interrelated, as the physical, mental

■■ metrics for measuring financial, productivity and performance outcomes

2. Stats SA. 2017. South African unemployment rate, tradingeconomics.com.

■■ positive impact on health ■■ employee participation and satisfaction ■■ organisational support

Balance my time – 73% want more flexible work options Despite South Africa’s high unemployment rate (27.7% in the first quarter of 20172) and annual pattern of retrenchments, the Mercer Study shows that 74% of South African employees would consider working on a contract basis.

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If we consider the responsibility lens, this desire is understandable. Working under contract may give people the flexibility to spend more time with their families – children in particular – pursue further studies for self-development, participate in charitable efforts and even take on a second job to cover the income–expenditure gap, or as a stepping stone to their next career.

work? The World Economic Forum’s Executive Briefing, The Future of Jobs and Skills in Africa: Preparing the Region for the Fourth Industrial Revolution (May 2017)4 indicates that sub-Saharan countries have identified a growing gap in the skilled workforce – a gap that will need to be addressed, as core skills across industries and occupations will be entirely different by 2020.

Flexible time management options include a four-day work week, unlimited paid vacation time, and ‘summer Fridays’ – giving time off on certain Fridays, for example before a long weekend (based on the US practice of giving employees time off on the Fridays between Memorial Day and Labor Day).

Compounding this skills shortage is the estimated 15 to 20 million well-educated young people who are expected to join the workforce in sub-Saharan Africa in the next 30 years.

Interestingly, the global narrative for millennials is the complete opposite. According to the Deloitte Millennials Survey 20173, these employees find stable employment that provides job security and a fixed income more appealing than the thought of freelancing or contract-based work. The catalyst for this is anxiety over macro and micro geopolitical and socio-economic conditions. That said, even millennial employees desire the kind of flexibility that addresses their need for richer engagement practices between employer and employee, enables work–life balance and contributes to their holistic well-being.

Steer my career – 36% do not feel empowered to create their own career success Where and how do we strike a balance between empowering employees to take charge of their careers and gearing industries for the skills required in the future world of

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Given the current shortage of career empowerment and skills, employers face significant challenges in offering enriched employee experiences and quality jobs to fully benefit from this opportunity. The World Economic Forum’s report, The Future of Jobs4, ranked the top drivers of change for the period 2015 to 2020. These drivers will determine the landscape of work in years to come. When reviewing this list, below, consider which are under the control of employees, and which are the ones employers and policymakers can shape, influence and direct, focusing on employees as the beneficiaries.

Table 1: Drivers of change (2015 to 2020) Drivers of change, 2015–2020

Rank

Processing power, big data

Changing nature of work, flexible work

Middle class in emerging markets

Mobile Internet, cloud technology

Geopolitical volatility

Climate change, natural resources

Sharing economy, crowdsourcing

New energy supplies and technologies

Young demographics in emerging markets

Rapid urbanisation

Women’s economic power, aspirations

Internet of Tthings

Advanced manufacturing, 3D printing

Artificial intelligence

Robotics, autonomous transport

Advanced materials, biotechnology

Source: World Economic Forum (2016) Note: Survey based on South Africa only.

3 Deloitte. 2017. Deloitte millennial survey 2017. 4 World Economic Forum. 2017. Executive briefing. The future of jobs in South Africa: preparing the region for the Fourth Industrial Revolution.

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Figure 1: A shift in what we value

A shift in what we value Affinity pride purpose

Career

EMOTIONAL

Workplace lifestyle CONTRACTUAL

Compensation

Benefits

CULTURAL ALIGNMENT

90 %

of companies in South Africa plan to make changes to increase transparency of executive pay

97 %

of employees in South Africa want to be recognised and rewarded for a wider range of contributions

What would make a positive impact on your work situation? 1. Opportunity to get promoted 2. Leaders who set clear direction 3. Compensation that is fair and market-competitive 4. Working with the best and brightest 5. Career path information 6. Transparency on pay calculations 7. More flexible work options

Responding to the new world order FUTURE OF JOBS

FUTURE OF TALENT AN EMPOWERED WORKFORCE

Help me plan for an unknown future, while mitigating expense risk.

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5 Mercer. 2017. Mercer Global Trends Study 2017.

Give me a clear path to promotion and help me thrive at work.

How does this compare with what employees want to see in an effort to improve their work situation? Mercer asked employees, “What would make a positive impact on your work situation?” Their responses indicate a focus on the contractual aspects of the employment equation, with people being especially alert to promotion criteria and market-competitive pay. What’s clear is that employees – both globally and in South Africa – want to be recognised and rewarded for a wider range of contributions (97%), not just financial results or activity metrics. This makes sense in a world that is being disrupted, when there might be a premium paid for future-role potential or current-year innovation. It’s also of interest to note ‘working with the best and brightest’ making the top 4, as differentiated pay will play a significant role in maintaining a ‘best and brightest’ environment. Figure 2, extracted from the Mercer Global Talent Trends Study 20175, shows an ideal model for progressive career management practices alongside the support required from employers. A key take-away is that futurefocused training content is the most important and prevalent form of career support South African employees are seeking. We know that having a compelling career is critical for retention. And from this year’s Mercer study, we also know that employees want to know what opportunities are available to them and what the criteria are for promotion.

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The good news is that in South Africa, HR initiatives are generally in line with what is important to employees – for example, offering training content that is well aligned to future skills and ensuring managers have regular career conversations with their staff. To really charge the growth engine, HR can place even greater focus on areas that are deemed important, but are not yet prevalent, in the employee support model (those in the top-left quadrant of Figure 2), for example, opening a career centre where employees can drop in to get advice, and being more transparent about pay. In Part 3: Chapter 4, we examined the skills required for the labour force of the future to participate effectively in this changing world of work. Part 5: Chapter 3 then looks at ways employers can enable the development of these skills within the South African context.

In Part 3: Chapter 3 we delve into the question of well-being programmes in the workplace, with a specific focus on financial well-being. This naturally raises a question about the extent to which employers should become involved in the financial circumstances of employees.

If employees are spending 13 hours a month worrying about their finances, there’s a likelihood that this will play out in ways that detract from performance and productivity: absenteeism, high-risk behaviour (fraud), an increased number and value of garnishee orders, emotional distress, strain on family relationships, and, in extreme cases, resignation in an effort to access retirement savings to settle debt. We explored this question in considerably more detail in Part 3: Chapter 3.

Figure 2: Career support sought by employees in South Africa

Career support most sought by employees in South Africa “How do I get to where I want to go?” “What are the expectations of roles I’m interested in?” “Where can I move?”

Important

Mercer asked employees: “What is most important in supporting your career and how prevalent is that practice in your organisation today?” The responses are quite revealing.

Manage my money – employees spend an average of 13 hours a month worrying about money

Career stages

What employees want are career options that are clearly articulated, and answers to the questions: How am I doing today? Where can I go? What do I need to get there? And what are the expectations?

Chapter 1

Clearly defined skills for advancement Transparent pay Regular career conversations with manager

Career centre

Career coach

Future-focused training content

Best-in-class L&D tools and technology Peer coaching

Career portal

Onboarding for success

Rotational programmes

Lateral movement

“How am I doing now?”

Work functions

Prevalent Source: Mercer (2017)

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In summary Ultimately, we as employers, employees, policymakers and contributors, should obsess over the question: how do we design and implement employee experiences that solve for engagement, productivity and growth in a responsible, sustainable and transformational manner? As we explore the question, let’s frame it in the context of the organisation of the future, employee experience, talent acquisition, careers and learning, leadership, market differentiation, competitive advantage, performance management, and diversity and inclusion. Global expert on the employee experience, Lisa Morris, makes the point that building an effective employee experience starts with understanding the ‘humanness’ of employees. This is about empathising deeply with the employee’s reality. This is about designing improved interactions with the employee throughout the work experience. What it’s not about is simply focusing on the result of an employee survey or some engagement score. Morris outlines five principles for organisations to practise as part of the ‘employee experience revolution’: 1. Embrace the whole person – empathise with their reality. Appreciate their responsibility lens.

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2. Choose connection over utility – build relevance and value. Employees have a choice – you want them to choose you. 3. Synchronise culture, brand and experience through interactions that are authentic and purposeful. 4. Align internal functions across teams, building organisational bridges that embrace the employee. This is about a holistic experience and breaking down organisational silos. 5. Put employees first in every interaction, internally and externally. Morris goes on to state that employees who find purpose and meaning in their relationship with their employer are 93% more engaged and 117% more likely to remain with the organisation. It therefore makes sense for employers to investigate new, creative ways of adding value to their employees. In Part 5, we explore some of these options, from the ‘traditional’ healthcare benefit offering to a ‘new wave’ of benefits that include assistance with employees’ housing and transport needs, and the provision of early childhood learning facilities at the workplace.

BENEFITS THAT MATTER

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ARE EMPLOYEE BENEFITS AS WE KNOW THEM BECOMING OBSOLETE? Have we lost our way with the concept of employee benefits? In the radically changing world of work, could it be that employee benefits as we know them are becoming obsolete?

Consider the original intention of employee benefits. Ostensibly, they could provide companies with a differentiated employment package for attracting and retaining talent in the face of stiff competition for skills. Over the years, though, a shifting tax regime effectively closed off a number of ‘benefit’ offerings by reclassifying them as fully taxable fringe benefits. The net effect has been that ‘employee benefits’ has devolved into little more than grudge purchases of a mandatory retirement savings fund, group risk scheme and, occasionally, a medical aid scheme. While this array of offerings clearly addresses a need by government and, to a lesser extent, employers, to provide employees with some measure of social protections, these undifferentiated ‘benefits’ do little to engage with employees around their real day-to-day needs. Let’s start with the issue of saving. Retirement savings are the bedrock of employee benefits globally. Savings in general are fundamental to the economic growth of any country. Yet in Benefits Barometer 2016, our survey of members’ views on savings indicated that, while members weren’t averse to saving as such, saving to purchase an income at retirement was the lowest priority for them on a list that included funding funeral cover, saving for a home, saving for education, saving for emergencies and saving to launch a second career or purchase an asset1.

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1 Benefits Barometer 2016 Part 1: Chapter 5. pp. 61–78.

What we recognised through that exercise was that if we wanted individuals to engage with long-term savings for retirement, we needed to first help them address their day-to-day financial funding needs. In fact, we recognised they would save more through their benefit schemes if they had some control over how those savings could be allocated to issues relevant to them and their families over the course of their lives. Last year’s Benefits Barometer showed that by expanding an employer’s benefits platform to address a range of savings objectives such as emergency savings, housing funding, educational funding, medical funding and asset funding alongside retirement funding, we could effectively convert the employer’s retirement scheme into a guided financial planning tool for all employees. This year, we believe we need to take that model even further if we want to achieve that relevance. The insight here is that the more customised an employee benefit can be, the more it is likely to attract the attention and acceptance of the employee. On the positive side, technology has now taken us to the point that such ideas are finally conceivable. But how seriously would HR departments consider such a bold move forward?

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What would it take to get employers to change their current model? Ironically, perhaps the greatest impediment to changing the current conventions around employee benefits is HR departments themselves. Consider how HR departments typically determine what they should offer employees. On one level, government tax policy tends to define the scope of benefits employers consider offering. On another, annual studies such as Benefits Barometer and other benchmarking publications play a role in defining our thinking about what an employer is likely to offer as a benefit. So, most HR departments will start the process by finding out what competitors are offering by way of salaries and additional benefits. A game then ensues between the industry players, where the challenge is to determine how expansive an employer needs to be on salaries and benefits to attract talent, without introducing an uncompetitive drag on earnings. This is where benchmarking exercises can become a deterrent to finding creative solutions. To change this convention, employers would need to believe that an alternative model would be worth the effort:

■■ What would the business have to lose from the benefit on offer? What would they gain? ■■ Would the take-up be worth the effort of structuring the option? ■■ Would anyone be prejudiced by such an offering? ■■ Does the benefit reward the right behaviours and address issues that lead to greater employee productivity and attentiveness? More importantly, employers would need to appreciate the merits of greater transparency around the value of compensation packages, including benefits. Consider this interesting insight: South Africa is one of the only countries in the world to offer a total cost to company in their employee contracts. At the top of the contract is a number that shows what the employer is prepared to pay to the employee. The bottom line shows the employee’s take-home pay after tax and the cost of whatever benefits the company deems mandatory (medical aid, retirement savings, risk benefits). It

also takes into account the impact of the employee’s decisions about pensionable pay, risk pay, contribution rates, medical aid plan, investment portfolio and risk cover. The positive aspect of the total cost to company form of contracting is that it clearly shows what the employer believes is appropriate as a bundled array of protections for the employee. The negative aspect of this form of contracting is that it clearly shows what the employer believes is appropriate ... but does not allow for much variation to accommodate the substantial differences in individual and family needs in South Africa. Getting employees to change the way they engage with their benefits requires that we create a total reward framework that allows employees to understand the value-add of any benefit offering now and in the long term. Getting HR departments to seriously consider these types of radical shifts in policy will demand significant hand-holding based on substantive data analysis. This, of course, is where we believe we come in!

Getting employees to engage with benefits requires a total reward framework that shows the value-add of any benefit offering.

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From benefits framework to life-planning tools How could we make employee benefits a true win-win for both employers and employees? Last year we argued that we could plausibly transform retirement funds into a guided financial planning framework to address a family’s complete funding and risk protection needs. This year, we think we can stretch employee benefits that much further, transforming the benefits framework into a life-planning tool. This would be a life-planning tool for a very different type of employee. Transformation and diversity will introduce very different priorities into any discussion about what makes a benefit attractive. The new organisational models for creating flexibility and rapid responsiveness to fast-changing competitive pressures will mean the traditional hierarchical model for organising and rewarding employees on the basis of ‘years of experience’ will likely fall away. Many companies will derive greater efficiency and productivity through the continual formation and re-formation of project-based teams in which hierarchical roles will effectively be meaningless. The greatest value may not come from the most senior team member. Ultimately, the issue of age or seniority will be replaced by an assessment of the contribution the team member could potentially make. Lifestyle decision-making

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2 Mercer. 2015. The future of HR.

based on whether an individual has reached some arbitrarily decreed retirement date will fall away. Increasingly, we are likely to see employees flit from one job to the next, one company to the next, and perhaps even one gig to the next. The benefits model of the future could well sit outside a specific employer and take the form of a contract between the service supplier and the employee, much as many medical aid schemes now operate.

What would the process of creating customised solutions look like for HR departments? Individualised employee benefits: overcoming the dangers of stereotyping Leading HR specialists such as Mercer2 recommend that if companies want to take advantage of the benefits they believe can be gleaned from individualised solutions, the whole process of benefit creation needs to be changed. We have already set out two important elements in that process: a commitment to co-creation, employer and employee together, and a recognition of the value of data analytics. Let’s see how we can combine these two to create a more effective process. Rather than delineating the workforce by gender, age, ethnicity and salary level,

we took a leaf from market research and identified a range of personas that best reflect the employment population. Personas are characters or people prototypes constructed to capture the essence of different personalities that might be found in the workplace. They add richness to any discussion of employee needs because they capture the essence of that individual’s values, aspirations and emotional needs in addition to demographic characteristics: in other words, their hopes, dreams and constraints. The traditional way that personas are used is to determine which products a given persona is likely to buy. But here we expand the use of personas to flip that question around and test whether the benefits we have structured really address the hopes and needs of people who seem very much like our employees. When we considered the full range of members covered in the pension funds administered by Alexander Forbes, for example, we developed more than 11 personas. These personas captured gender, age, ethnicity, salary level, job type, family or other obligations, education, living arrangements, computer literacy, values and beliefs, and a broad range of other considerations. Each one of these persona elements provided important insights into how the individual might value a benefit on offer: what would attract them to an offering? What might repel them?

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Then we asked how we could group our array of benefits into categories that we felt captured the types of needs all individuals might be interested in addressing: ■■ lifestyle and aspirational needs ■■ financial well-being needs ■■ physical and mental well-being needs ■■ family and personal improvement needs ■■ family and personal protection ■■ policies that could address family obligations Finally, under each group of benefits we identified the types of services that could be offered, and how these could be funded (see Table 2). The main objective here is to identify an array of services that add value to employees’

lives without necessarily adding cost to the employer, either explicitly or because it creates an additional servicing demand on the company’s HR resources. At the heart of this platform model is an array of outsourced services aggregated and administered by the benefits provider. Note that no industry, employer or employee will necessarily need the full complement of offerings. We include them here to illustrate how rich the offering could be. What’s needed here is simply the platform on which the array can be aggregated, administered and reported on for each member. Taken to its logical conclusion, such a platform should also be able to accommodate employees who are under full-time employment or contract, independent, and even post-employment.

The main objective here is to identify an array of services that add value to employees’ lives without necessarily adding cost to the employer, either explicitly or because it creates an additional servicing demand on the company’s HR resources.

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Table 2: Benefit groups linked to an array of different employee needs Key: EF = employer funded EF = employee funded CF = co-funded CFwI = co-funded with employer incentives RF = retirement fund funded

Lifestyle and aspirational benefits A step-by-step action plan for housing: rent, buy, build, maintain, or sell â&#x20AC;&#x201C; for any age, any level. Financing qualification and sourcing, subsidies

Financial well-being benefits Emergency savings

Health and physical well-being benefits Medical aid

Transportation: subsidies, location solutions

Financial stress analysis

Dread disease cover

Entrepreneurship training: guidance, assessment, funding support

Financial well-being programme

Gap insurance

Car acquisition: guidance on right car, financing, identifying the ongoing costs, financing qualification and sourcing

Financial coaching and budgeting

Savings vehicles for post-retirement medical aid and frail care

Discounted services

Debt and credit management

Home-care assistance for elderly or long-term care

DS = discounted costs to fund members

Enhance creditworthiness Concierge services

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Workplace stokvels

On-site health services

Tax-free savings fund

On-site gym or low-cost gym membership

Short-term loan access

Employee assistance programme (EAP)

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Second-life benefits

Family and personal Family and personal improvement benefits protection benefits On-site early learning centre at Auto insurance the workplace

Policies to meet family obligations Compassionate care leave (three months’ paid leave to attend to an ill or dying loved one)

Post-retirement medical and frail care saving funds

Savings programmes for education

Credit life

Bereavement leave (three months’ paid leave to address a death in the family)

Post-retirement financial advice and guidance about housing and medical options

Fundi – educational funding access

Funeral benefits

Parenting leave – identical to maternity leave policy but indifferent to biological basis

Entrepreneurship training: assessment, guidance, support, funding, ongoing business skill development

Degreed and building your own self-learning centre

Legal assistance

Flexible work hours and days – work would effectively be similar to contracting, where what gets produced is the key

Retirement savings

Fellowship programmes that Leadership training fund reskilling or reapplication of existing skills

Employee assistance programme

Better wages: getting money for your skills

Will and estate planning services

Tuition assistance for new employees

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Company-sponsored skills and Disability insurance personal development Life insurance

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Assessing what you have These customised solutions will only gain attractiveness to the employee if, as we’ve said, we can continually show them the value of what they have, both today and into the future. Consider this sort of reporting as a hybrid of a total rewards report and a projection statement. Employees should receive this statement each time they receive their payslip to keep reinforcing the message and to provide nudges, when appropriate, for them to rethink these benefits when lifechange markers are met. Such trigger points would be: ■■ transitioning from previous employer (onboarding with reference to the past) ■■ salary increase and bonus time ■■ extraordinary bonus or commission events ■■ change in family arrangements

For every decision that incorporates an automatic savings device or an additional contribution, projections should be provided and updated to reflect the present value of that future savings potential on an inflationadjusted basis, up to a predetermined point. The power of compounding is best illustrated in a projection picture. For every decision that represents the purchase of a form of protection or insurance, investors must be able to see the likely monetary value of that decision should the crisis occur. Presenting all of this information in a meaningful way so people can see where they are in terms of their financial journey, where they are going, and why, would show that it’s worth their while to stick with their journey. This is the real value of reporting.

■■ change in legal status ■■ change in long-term health consideration ■■ change in asset purchase or asset divestment ■■ change in credit or debt standing

Customised solutions will be attractive to employees only if we can continually show them the value of what they have – now and in the future.

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Changing the focus from social protection to employee well-being We believe it’s time to rethink this dynamic. Despite a rapidly changing workforce that may have less allegiance to a single employer for any prolonged period, there is still significant value in offering employees a customisable, and potentially even portable, array of benefits that serve first and foremost as a means to keep employees engaged, focused, stable and productive. The issue is less about using employee benefits as a point of corporate differentiation (although this will probably be true until this model of portable employee benefits becomes more mainstream) and more about using employee benefits to ensure the overall well-being of the individual worker. Achieving this requires us to: ■■ Consider and test what really would add value to our employees’ lives. ■■ Think creatively about how to structure benefit offerings so employees see the value in deriving them from their employer (or employee benefit service provider) instead of on the open market. ■■ Rethink how we present an employer’s total package of remuneration, benefits and services to employees so they can appreciate the full value of what their employers are offering them and their families.

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■■ Take back responsibility and oversight for employee benefits from the narrowly mandated boards and management committees of our retirement funds and return these discussions to employers, HR departments, and their employee representatives. We believe not only that this could be done but that if companies are going to meet the competitive challenge of the rapidly changing work world, then the traditional model of compensation and benefits must change. Consider what we have reflected on in this study up to this point: 1. As the world of work becomes more diversified and inclusive, determining which benefits will resonate with employers becomes that much more challenging. 2. Greater demand for productivity, delivery and global competitiveness means employers need to ensure their workforce remains stable and resistant in the face of continuous change, while at the same time being flexible and adaptive to change. 3. South Africa has a high level of unemployment, but competition for the limited pool of talent available is becoming intense. Attracting and cultivating that talent will be a top priority for employers, particularly in the face of limited skilling support from the SETA model.

4. As the next generation begins to filter into the workforce there will be an increasing demand for full transparency about salaries and benefits as well as the additional challenge of a rising demand for choice. 5. This demand for choice will not just be at the outset of the contract. Rather, the best benefits packages will need to accommodate the constantly shifting requirements and wants of employees – and their families – at different phases of their lives. In this rapidly changing world of work, it’s not about whether employers have a responsibility to provide these benefits to employees. Rather, it’s about why this is becoming an non-negotiable for employers who want to be competitive and attract the best talent.

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BENEFIT OFFERINGS WITH REAL VALUE Having looked at the global factors shaping our world, how these are impacting on the South African context, the issues that will determine how successfully we respond to change, and how we can find creative solutions to providing benefits that matter, we now turn our attention to what it is that employers can do. What offerings can they provide to ensure that both employer and employee derive significant value from benefits that will make a real difference?

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BENEFITS BAROMETER 2017

Increasingly, employees are looking to employers to provide support in balancing their roles as employees, citizens and family members. While financial rewards are still important, there’s a greater expectation for employers to be more directly involved in the overall well-being of their employees. In this section, we consider some areas where employers may offer innovative benefit solutions that start to address this concept of overall well-being – financial and otherwise. More importantly, we see these five innovative concepts as providing win-win solutions for both the employer and the employee.

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Africa, largely owing to the country’s history and the apartheid legacy of forced geographical segregation, it’s usually people in low-wage, lowproductivity jobs who are faced with long – and costly – commutes. We see how employees’ costs of travel, modes of travel and time spent commuting have major implications for workplace productivity and overall financial wellbeing. We then present an agenda for action that suggests how policymakers, government and employers can start to address these challenges.

If we see housing as a building block for wealth creation, with home ownership playing an important role in both social mobility and social protection, it stands to reason that funding to acquire this important asset should take priority. Looking at the housing and funding options in South Africa, it’s clear that while renting, buying and building all have a role to play in solving our housing problem, the current financial advisory framework does not cover these holistically. We propose that an alternative advisory solution is required if the problem is to be resolved adequately.

The best benefits packages will need to accommodate the constantly shifting requirements and wants of employees – and their families – at different phases of their lives. In rethinking the concept of employee benefits within the employee well-being framework, we start with perhaps the most important investment of all: early childhood learning. We see how an early investment in child development yields the highest return and, with this in mind, present some options and benefits for employers to invest in workplacebased early learning centres. Such programmes go beyond the ‘traditional’ benefits framework to encompass the individual’s family in the overall benefit offering – with significant results.

In our discussion on the cost of commuting, we consider the impact of transport costs on employees. In South

Staying with learning, we then address a critical need identified in a changing world of work: the need for new learning

tools that will put skills development ‘on steroids’ and help us leapfrog a massive skills gap to equip employees and organisations for the future. Modern organisations will implement the technologies and infrastructure that enable people to learn, from the ‘Netflix of learning’ – learning from every source – to creating career-specific learning paths for different role types. The way we learn, and accredit learning, will change, and we will be better for it. We end this section by looking at the benefits that will matter to us when we’re ready to start planning for a better ending, and propose that employers can still add value at this stage of our lives by presenting us with a new framework for making financial decisions at retirement. We put forward a three-phase retirement roadmap that can help navigate the complexity of retirement, from being an active retiree with options for a second career, to slowing down and, finally, requiring frail care. The pay-off for providing advice on funding for this next phase of life is so significant that employers should consider adding this service to their array of employee benefits as a last, and considerably valuable, life-planning tool.

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HOME OWNERSHIP, SOCIAL PROTECTION AND SOCIAL MOBILITY In Benefits Barometer 2016 we spoke about the challenge of meeting the objectives of social protection while still achieving those of social mobility. These objectives are often viewed as competing because of the limited funds available to meet them. This year we consider whether this view is always true.

The impact of home ownership on retirement and saving Treasury’s December 2004 paper on retirement reform stated that “The Mouton Report suggested the incorporation of housing finance into retirement funds because the single most important influence on income adequacy in retirement is ownership of a home1.” According to research by Statistics South Africa, South Africans spend approximately one-third of their income on housing. While this figure includes water, electricity, gas and other fuels, the bulk of this amount goes towards bond repayments or rentals. It therefore stands to reason that a retiree who owns their own home and no longer has any bond repayments will require considerably less income after retirement than one who continues to rent. As importantly, paying off a home is in effect a contribution to personal savings. It is well researched that South Africans are poor savers. Gross savings as a percentage of gross domestic product (GDP) in South Africa

was reported at 15.4% in 2015, according to the World Bank collection of development indicators2. Compare this to the Chinese, who save over 50% of their GDP, Indians 30% and Australians about 25%3. Home ownership encourages people to save. Because they have to pay off a home loan, they save more than they otherwise would. Research finds that people save more if they do so automatically rather than having to choose to set something aside every month. The ideal position is therefore one in which a person is able to acquire a home prior to retirement while still saving sufficiently to meet the cost of living and the increased costs of healthcare after retirement. Home ownership, it can be argued, plays an important role in both social mobility and social protection as it allows for the acquisition of an important asset while still providing for an important social benefit. Why, then, does this not enjoy priority over the funding of other objectives?

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1 National Treasury, Republic of South Africa. 2004. Retirement fund reform: a discussion paper. 2 World Bank Data. Gross domestic savings (%) of GDP. World Bank national accounts data, and OECD National Accounts data files. 3 Erasmus, S. 2015. South Africans among the world’s worst savers. Agility, July 2015.

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The South African housing landscape The General Household Survey 2016, conducted by Statistics South Africa, provides insight into the housing challenge. According to this survey, the majority of South Africans live in formal dwellings, as seen in Figure 1.

FORMAL 79.3%

Figure 1: Percentage of households living in formal, informal and traditional dwellings

INFORMAL 13.9%

TRADITIONAL 5.9%

Further reading of the General Household Survey reveals the breakdown of the tenure (occupancy) of households in formal dwellings. Approximately 63% of households living in formal dwellings fully or partially own the homes they occupy, as shown in Figure 2.

Figure 2: Tenure of households in formal dwellings 63% FULLY OWNED 23.4% 13.5%

OTHER

RENTING

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Making the right housing decision While owning one’s home eases the requirement for retirement savings (and, we will show later, could be an asset for supplementing one’s retirement income), this is not always achievable – or easily achievable – for many South Africans. For most young people, the question is whether to rent, buy or build. Each comes with its own challenges and pitfalls, which we don’t cover here. That said, acquiring a home is one of the biggest financial decisions a person can make and therefore deserves our attention. In addition to these considerations are decisions about when to move from renting to buying, or when to upscale or downscale, which further complicates matters.

Keeping up with loan repayments For many, the process of becoming a home owner happens over a number of years and requires commitment and discipline. Households often need to address their creditworthiness issues or save for a deposit for a loan. For many, the only feasible route to home ownership is buying a stand and building a house over time using savings and small loans, or buying a small house and upgrading it over time. There is very little information on these processes and the options currently available. Further, while there are a number of private entities that offer support to address indebtedness and creditworthiness issues, they do not offer this within a context of enabling home ownership.

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Becoming a home owner is only half of the problem. Staying a home owner is equally difficult. Many home owners find it difficult to make their monthly repayments and manage the costs of maintaining a home, especially in challenging economic times. Home owners need to be informed on how to responsibly manage home ownership, and what their options are should they be retrenched or run into economic difficulties. While renting, buying and building all have a role to play in solving the South African housing problem, the current financial advisory framework does not cover any of these holistically. An alternative advisory solution is required if the problem is to be resolved adequately.

Funding options It would be easy to argue that the solution to the problem of home ownership would be for households to adjust their budgets to make more funds available for purchasing a house. While this may be so, affordability is but one of the criteria that affect the ability of a person to acquire financing for housing.

Pension-backed lending In line with the proposals of the Mouton Report4, retirement funds can provide a source of funding for housing. Very few funds still provide loans directly to members, with most having opted to provide a facility that allows members to use a portion of their

4 Mouton Committee. 1992. Report of the Committee of Investigation into a retirement provision system for South Africa.

fund credits as backing for loans granted by commercial banks. The advantages of these loans include: ■■ lower interest rates and lower transactional fees ■■ the absence of a bond with its associated costs and complications ■■ greater flexibility in the range of housing transactions to which these loans can be applied These advantages make pension-backed lending an attractive source of funding for housing. That said, it’s also important to note the limitations of pension-backed housing loans: ■■ The single biggest drawback of pension-backed lending is that it draws on an existing fund credit to determine the loan amount. This means that for members who are young or do not have substantial savings, the loan amount will be small and most likely insufficient to purchase a home. ■■ Pension-backed loans are subject to the lending criteria set out under the National Credit Act. This means they do not help individuals who cannot qualify for ordinary housing loans as a result of issues such as affordability and creditworthiness. ■■ Whenever a member leaves the fund, the bank that granted the loan has the right to call up the loan against the surety provided by the fund credit.

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In practice, this is almost always done, resulting in retirement savings being depleted as people change jobs. Treasury has bemoaned leakage on withdrawal in various discussion papers and it is evident that the practice of calling up pension-backed housing loans by banks whenever someone changes jobs does not help the situation.

Increasing access to appropriate financial products

Home loans (mortgage loans)

1. Home loans

The ordinary method for securing funding for housing is through a home loan – a loan backed by a mortgage bond. Commercial banks providing this lending have developed their own rules and guidelines for assessing potential borrowers to ensure the risk they take on is secure.

The inability to obtain financing may be for various reasons. In many instances, the assistance of a debt counsellor is required to address indebtedness and creditworthiness issues. (A debt solution will not be discussed here.) However, for many people obtaining financing may be a shorter-term solution than debt counselling. These people may require guidance in reorganising their budgets, addressing outstanding debts or understanding their housing needs.

Unlike pension-backed loans, bank loans are secured against the properties that are purchased with these loans. Banks are selective about the areas in which they lend and set relatively high standards for the housing to be funded by home loans. This is because their ability to resell the property in the event of default is the real security for the loan.

Addressing the problem of accessing home ownership Changing mindsets – access to critical information There is a need for improved information and support to potential home owners on the importance of home ownership as part of a long-term retirement plan. Financial advisers and institutions should be encouraged to offer this as part of the service they provide their clients.

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Further, there is a need for advice to potential home owners as they move through the process of deciding to acquire a house, become financially enabled to do so and then make the decision of where and how they will become home owners.

The financial planning industry is remunerated predominantly through the purchase of financial products with very few individuals being able to afford the services of a wealth planner. There is little doubt that people who find themselves unable to obtain loan financing will not have a wealth planner to assist them with this. An alternative in the financial planning industry is therefore required to assist in this process. 2. Pension-backed lending The loans available under this funding model depend on the accumulated fund credit of the member at the time of applying for the loan. The amount of funds that can be accessed is limited by the amount of savings

accumulated, which makes this type of funding more appropriate for home owners who want to build their homes incrementally over time or use it as a deposit towards a home loan. This form of finance is also appropriate if the home is being purchased on traditional authority land where registered title is not available. Young members are not able to use this facility effectively. For example, a member earning R10 000 a month and contributing at 15% towards retirement funding will have saved approximately R96 000, in today’s terms, after five years and R212 000 after 10 years. Saving more in one’s retirement fund to bolster one’s fund credit with the aim of obtaining a larger loan is not a likely solution, as people wanting to buy a home still need to fund a housing solution in the interim. This is usually in the form of rental, so further retirement savings may not be a solution. For people with insufficient pension savings to secure a pension-backed loan large enough to finance the home of their choice, the option of mortgage-backed lending remains. This does not mean pension-backed loans are not an option for these members. In fact, irrespective of whether pension-backed lending provides a loan sufficient to cover the full cost of securing one’s home, it does have a role to play in every retirement fund member’s home purchase. Working with the right consultant and provider can ensure the optimal financing solution that does not compromise one’s retirement savings.

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Using your home to fund your retirement As highlighted earlier, owning one’s own home not only significantly reduces one’s income requirement after retirement but may also provide a source of income after retirement.

Reverse mortgages Reverse mortgages have been used in the US, Australia and the UK for many years and are also available in South Africa. A reverse mortgage allows you to borrow money against the value of your home. The loan required must be paid back on death or if the property is sold by the owner before death. Reverse mortgages allow retired home owners to access the accumulated value in their property without moving. Depending on the nature of the product, this could enable them to supplement their retirement income throughout their retirement or for a defined period of time. However, as the loan against the value of property attracts interest, the amount to be paid by the estate of the borrower may exceed the value of the property if the property loses value over the period of the loan.

Research in the US has revealed that reverse mortgage take-up is also affected by the bequest motive of consumers, which is one of the reasons limiting the take-up in that market. Home owners who would like to leave their homes to their children feel reluctant to borrow against their homes as this means the banks could ultimately own the homes if these loans aren’t paid back before they pass away. In South Africa, the bequest motive has been suggested as one of the reasons for the high take-up of living annuities as opposed to life annuities. This may mitigate against the takeup of reverse mortgages in the South African market, a situation that might be overcome if the purchase of a home were made easier.

Renting out a portion of the house Retirees could rent out a portion of the house and thereby earn rental income from their homes. There are different types of accommodation that can be provided, including renting out a separate flatlet on the property, separating a part of the house for rent or renting out a room in the house. Each of these has different advantages and disadvantages in terms of a retiree’s personal life and privacy.

Owning one’s own home not only significantly reduces one’s income requirement after retirement but may also provide a source of income after retirement.

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Addressing the housing advice gap Unfortunately, the current housing environment operates on the basis that advisers or agents are remunerated for securing a successful transaction. If someone seeking to acquire a house does not want the specific option being offered or does not financially qualify for that option, the agent or adviser ceases to engage with them. The reality is that people who can’t afford to purchase homes can’t turn to estate agents or banks for guidance on a housing solution. In fact, most financial advisers are likely to be inadequately equipped to provide advice on housing solutions at all. With remuneration for financial advisers still based largely on product placement, which excludes rentals or housing purchases, housing is not likely to enjoy the same attention as other financial products.

Where do South Africans turn to for assistance if financial advisers are inadequately equipped? Currently, there are only a few organisations providing such advice. They usually work with employers who wish to provide housing support to their employees. Often people will seek the opinions of friends and family, or do research on the Internet. Yet, to make this important decision, a number of factors have to be considered: ■■ Housing needs: the number of people in the family, where the family members work, access to schools, cost of transport, quality of the neighbourhood ■■ Affordability: the amount of residual income (after normal living expenses and current debt servicing) available to repay a housing loan ■■ Creditworthiness: the financial health of the household, generally measured by how well they manage their monthly finances (they have sufficient income to cover their expenses and debt) and whether they have credit records in good standing in the credit bureau (no negative credit records such as arrears or judgments) All of these elements need to be addressed for individuals to secure home ownership. Having access to an advice framework that helps people weigh up all these factors when coming to a decision would greatly assist in making the right choices at different stages of our lives.

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PART 5 Chapter 2

THE COST OF COMMUTING

THE IMPACT OF TRANSPORT COSTS ON EMPLOYEES

Central to the challenge of ensuring employee and financial well-being is a need to understand the key activities and related financial decisions that are an intimate part of people’s daily lives: what and how we spend, and what influences that spending. One of those activities is getting to and from the places we work. To better understand these dynamics, we take a look at employees’ costs of travel, modes of travel and time spent commuting, all of which have major implications for workplace productivity and overall financial well-being. We conclude our discussion with an outline of the role key stakeholders, especially employers, can play in creating holistic and complementary transport solutions that improve workplace productivity, employee morale and financial well-being.

Travel costs in context Unless employees are able to work from home, or live a stone’s throw from where they work, they have to commute some form of transport. In South Africa, largely owing to the country’s history of forced geographical segregation, this commute confronts us with a cruel irony: in most cases, the people faced with long commutes are those in lowwage, low-productivity jobs. We’ve arrived at this state of affairs not by coincidence or providence, but by historical design. Under colonial and apartheid rule, the majority of citizens were restricted to living in townships, compounds and ghettos on the fringes of large metropoles, or in secondary cities and small towns. This necessitated long commutes, often using multiple, yet fragmented, travel modes. Coupled with restrictive ‘pass laws’ and other measures, this situation shaped the context many workers needed to navigate daily – and it continues to do so. The National Development Plan boldly commits to addressing the cost drivers of poor households as a means to achieve the growth rates required to eradicate poverty, unemployment and inequality.

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“In the earlier years, as the country expands access to employment on a mass scale, a large proportion of working people will receive low pay. It is essential to reduce the cost of living in relation to food, transport, education, health and other basic services1.” What is meant by ‘low pay’, and what is the current pay structure in South Africa from which these transport costs are drawn?

Low-income earners support more people on less pay Arden Finn found the median wage of South Africans who work an average of 40 hours a week stood at R3 640 (adjusted for zero-wage earners as a result of high unemployment). Half the people at the bottom of the income distribution in South Africa earn less than R3 6402. If we then overlay the household dependency ratio for poor households in the lowest income decile, many of which earn much less than R3 640, an interesting story emerges. Workers living in poor households had average dependency ratios of 1:2.65 (meaning one worker supported 2.65 others from their income).

1 Chapter 3, National Development Plan (NDP). 2012. National Planning Commission, Presidency. 2 Finn, A. 2015. A national minimum wage in the context of the South African labour market. Southern Africa Labour and Development Research Unit. University of Cape Town.

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Finn explores these numbers further: “Almost 10% of poor wage earners support themselves and four other people; 6% support five others; 4% support six others, and some poor wage earners support up to ten dependants3.” These figures are far from surprising, given that many workers in metropolitan and urban areas have non-nuclear spheres of responsibility. In many instances, they are expected to support families in rural areas and former homelands in addition to their families in urban areas. The National Household Travel Survey (NHTS) of 20134 calculated the percentage of workers paying, on average, more than R200 a month on transport. This amount might be the lower bound, but for households below the median of R3 640 (especially those in the lowest 10% of the income distribution) with higher dependency ratios, R200 is the difference between surviving at the end of the month or being plunged into regular financial distress. These figures are presented in Table 1.

Table 1: Mean monthly cost of travel Mode of transport

People paying more than R200 a month for transport (%)

Bus

92.9

Train

56.4

Minibus taxi

95.9

Private car

Chapter 2

Transport costs a challenge for work seekers The costs of transport are a challenge not only to those who are employed but also those in search of work. South Africa has a 27.7% unemployment rate, with 2.4 million discouraged work seekers in the first quarter of 2017. The influence of transport costs on the search for work may partially account for this figure. In addition to productivity and other challenges, the other economy-wide cost of geographical inequality and poor public transport is that of new labour-market entrants seeking work. A study by the Abdul Latif Jameel Poverty Action Lab (J-PAL) and the African Microeconomic Research Unit (AMERU)5, looking at a sample of 1 200 job seekers in Johannesburg between 2013 and 2014, found they spent an average of R105.75 a week travelling to search for work – 25% of the weekly salary of a full-time employee earning minimum wage at that time. In addition to ‘eating into’ household disposable incomes, high transport costs may also discourage or prevent people from searching for jobs – with disastrous consequences for the fight against unemployment, poverty and inequality.

Source: National Household Travel Survey (2013)

3 Statistics South Africa. Quarter 1, 2017 4 Statistics South Africa. 2013 (revised July 2014). National household travel survey of 2013: statistical release P0320. 5 Banerjee, A and Sequeira, S. 2014. Transport subsidies and job matchmaking in South Africa. J-PAL.

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Figure 3: How people get to work and back â&#x20AC;&#x201C; public transport options

PUBLIC PASSENGER TRANSPORT

BUSES

MINIBUS

METERED

Source: Competition Commission (2017)

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RAIL

TAXIS

APP-BASED

LOCALISED

GAUTRAIN

METRORAIL

REGULATED

ROAD

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Figure 3 shows the different forms of public transport used by commuters in the South African economy. While all modes of passenger transport are regulated, there are marked differences in the operating structure and extent of regulation of each. For example, both the Gautrain and Metrorail are subsidised, but fare or price controls are applied only to Metrorail. With regard to road transport, legislation makes provision for price controls in both bus and taxi services, yet only buses levy the regulated fares. In the taxi industry, app-based, localised and minibus taxis set their own fares. This has given rise to contentious (and often violent) confrontations between metered taxi drivers and app-based drivers. A market inquiry by the Competition Commission, launched on 7 June 2017, aims to grapple with these issues and probe fare-setting for all travel modes. This is a welcome development, as it would affect the 70% to 80% of South African commuters who rely on public transport. Having looked at the overall cost of commuting as well as the different public transport modes and associated costs, we now take a look at the proportion of commuters using different types of transport, the time they spend commuting and the reasons behind their choice of transport.

Public transport choices Looking at public transport options, The National Household Travel Survey in South Africa (NHTS) of 2013 found that workers living in metropolitan areas were more likely to use minibus taxis (29.6%) than trains (9.2%) or buses (6.3%). In rural areas, the use of minibus taxis was lower (21.9%) and people used buses more (13.8%). What’s surprising here is that the lion’s share of subsidies is directed towards train and bus modes, with the only financial support to the minibus taxi industry coming in the form of taxi recapitalisation programmes. These have been relatively unsuccessful, mainly as a result of the nature and origins of the minibus taxi industry, and the limits it presents to developing an integrated transport system. Former Deputy Minister of Transport and South African Communist Party leader, Jeremy Cronin, noted that the accumulation path of the minibus taxi industry rested largely on servicing the gaps left by the two publicly subsidised modes of transport, rail and bus: “The taxi industry’s accumulation niche is, precisely, to provide mobility to the working class and the poor within under-serviced and inaccessible townships and especially between these displaced (peri-urban and rural) dormitory townships (the ‘second’ economy) and the centres of power (places of work, study and of public administrative and social welfare).”

Chapter 2

A major contradiction emerges here: most commuters either use multiple modes of transport (train users in particular are more likely to transfer to another mode of transport) or minibus taxis, despite the fact that taxis are not subsidised.

Time spent commuting A significant number of South African employees spend a large part of their working day commuting. The NHTS found that more than one in five workers (22.1%) left home before 6:00 to travel to work, while 29.7% left between 7:00 and 8:00. In metropolitan areas, 58% of workers left before 7:00, compared with 65% in rural areas. Travel time includes the time spent walking to transport hubs, waiting for transport, time in transit, and the time taken to walk from the last drop-off point to the place of work. In 2003, 11% of workers walked for more than 15 minutes to their first public transport mode. This figure rose to 14.7% in 2013. Geographically, the highest percentage of workers who had to wait for more than 15 minutes for their first mode of public transport to arrive were in Gauteng (13%), followed by KwaZulu-Natal (11.8%). After being dropped off, most workers walked to reach their places of work. Figure 4 on page 236 shows a breakdown of this ‘last-mile’ commute, by province.

6 Cronin, J. 2006. The people shall govern: class struggles and the post-1994 state in South Africa. South African Labour Bulletin, 30 (1): 46.

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Figure 4: Percentage of workers walking – more than 15 minutes on the ‘last mile’ to get to work, by province (2013)

Factors influencing transport choices Time, then cost, the most important factor

15.7%

16.4%

12.0%

18.1% 11.8% 6.0%

It is helpful to understand the factors that influence the choice of travel mode. The NHTS showed that travel time was the biggest determinant of choice for 32.6% of households, while 26.1% said it was the cost of travel. This isn’t surprising, as Kerr7 found that bus and train users spend a much longer time commuting, on average, than users of other types of transport, holding a number of other factors constant (these happen to be the two modes of transport that are heavily subsidised, and relatively cheaper than minibus taxis). Just under 10% of households highlighted flexibility as the reason for their choices, and 8.7% said it was to ensure their safety. Insights from this section:

6.5%

16.4%

■■ Low-paid workers tend to have high dependency ratios, yet pay the same transport costs as those in higher-paid employment, leading to disproportionate financial stress on poor households. ■■ The costs of commuting are also an issue for unemployed people in search of work, a factor that contributes to the 2.4 million discouraged work seekers in South Africa and the challenge of under-employment. ■■ Most commuters use minibus taxis.

Source: National Household Travel Survey South Africa 2013, Stats SA (2014)

■■ Workers who use public transport leave their homes early, with many having to walk to, and wait for, transport to and from work. In the next section, we make the case for employers providing transport solutions.

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7 Kerr, A. 2015. Tax(i)ng the poor? Commuting costs in South Africa. Southern Africa Labour and Development Research Unit. Working Paper Series Number 156.

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Chapter 2

THE CASE FOR EMPLOYERS PROVIDING TRANSPORT SOLUTIONS Here, we make the case for involving employers in providing transport solutions for their employees. This would contribute to employee well-being as well as to the overall productivity of the employer’s labour force, and that of the economy as a whole. We consider the tax implications of providing such solutions as a fringe benefit, in light of recent announcements by the South African Revenue Service (SARS) clarifying the tax treatment of such arrangements.

From the perspective of the employee A range of employers currently provide transport to their employees as a result of sectoral dynamics and collective arrangements that result in working hours falling outside regular public transport hours (for example, in the retail, farming and security sectors). The NHTS found that the proportion of workers who received a travel allowance from their employer dropped from 3.4% in 2003 to 2.3% in 2013. The only exception is in Limpopo, where the percentage who received travel allowances increased from 2.7% to 3.0%. The work of Harvard economist Ricardo Hausmann8 shows us that the transport challenges outlined in the first section of this chapter are, for all intents and purposes, an ‘effective tax’ on employees. In South Africa, it is a regressive one at that, with a disproportionately greater impact on poor households. Hausmann presents the following example: Low-income formal-sector workers commute for three hours a day and spend the equivalent of two hours of work on transport costs, transforming an eight-hour work day into an 11-hour day. Their pay, after transport costs, is the equivalent of six hours of work.

8 Kerr (2015).

This implies a 45% effective tax, and is one reason these workers may be inclined to take a lower-paying job in the informal sector nearer to where they live. This regressive tax (in time and money spent) may also account for the discouraged workers referred to in the previous section. Kerr calculates this using the example of a worker earning R3 000 a month, which is not too far from the median wage: Consider a full-time worker with a monthly income of R3 000, which amounts to an hourly wage of around R17.00. If they spend R300 a month on transport (not uncommon for someone taking a bus), their net monthly income would be 10% lower (at R2 700) and their hourly wage after transport costs would be R15.70. If we add two hours spent commuting (a little more than the average in 2013) to an eight-hour work day, then the effective hourly wage would come down to R12.50 – 28% less than the wages of an individual who has no transport costs and spends no time commuting (for example, those who work from home or who work very near to home).

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From the perspective of the employer Tax implications of transport services as a fringe benefit We have considered the significant costs and time spent commuting. Yet only 2.3% of employees provide transport allowances for their employees. This low figure is an indication of how much of the regressive tax associated with commuting is shouldered by employees. Employers who wish to contribute to transport costs or provide transport for their employees must consider the tax implications of providing such a service. Any allowances for transport are fringe benefits that are included in an employee’s total cost to company, and are therefore taxable – a situation which may serve to undermine the ‘solution’ in the first instance. There are, however, exceptions. South African tax law makes provision for employers to provide transport solutions without adverse tax consequences for employees. In a recent binding general ruling, in line with section 89 of the Tax Administration Act of 2011, the South African Revenue Services (SARS) makes provision for no value to be placed on transport services: Paragraph (10)(2)(b) The taxable benefit will attract no value where any transport service is rendered by any employer to his employees in general for the conveyance of such employees from their homes to the place of their employment and vice versa.

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What does the law say? The binding general ruling goes further to limit the kind of arrangements that would be exempt from tax: An employer may arrange for employees living within a certain radius to be collected from or dropped off at a common area or central point between the employees’ homes and place of employment. An employer may also provide transport services for only part of the trip between the employees’ homes and place of employment. Before these general and private rulings clarifying the interpretation of transport as a taxable fringe benefit, many employees in sectors where such arrangements are common experienced declines in their disposable incomes as a result of the value attached to these arrangements in the cost to company calculation. In light of the above rulings, what impact will this clarity have for collective agreements in sectors where such transport arrangements are prevalent? In numerous collective agreements, the definition of ‘remuneration’ excludes transport allowances, as this definition from the National Bargaining Council of the Electrical Industry shows: “Any cash payment or payment in kind provided to enable the employee to work (for example, an equipment, tool or similar allowance or the provision of a transport

9 National Bargaining Council for the Electrical Industry of South Africa. 2015. Main collective agreement. 10 Ibid.

allowance to enable the employee to travel to and from work)9.” In some instances, transport allowances are explicitly referred to in collective agreements and form the basis of the total cost to company. Collective agreements in the auto sector, for instance, make provision for transport allowances in the form of an annual cash transport allowance, defined as follows: “All hourly paid employees shall be paid a once-off annual cash transport allowance [...] all these payments will not be applicable to employers whose transport allowance/motor vehicle benefit is in excess of the respective transport allowance/benefit10.” In the auto sector collective agreement, this annual figure (set to be adjusted for the wage increase in 2016) was R1 200 in 2016 – an allowance from the employer of R100 a month. As welcome as this may be, if one looks at the figures in perspective (as presented in Table 1 on page 233), an overwhelming number of commuters spend more than R200 a month on transport. Most of the costs of commuting (and thus productivity costs) are carried by employers, even in sectors characterised by relatively highly paid and skilled workers, such as the auto sector. If one factors in challenges of affordability on the part of employers, it’s clear that this isn’t a simple matter.

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Chapter 2

An agenda for action Employee well-being, productivity and morale are a product of conditions in the workplace as well as the external spaces and experiences that are connected to work. One such experience is the long commute many employees in South Africa undertake to get to their places of work. The challenges related to this commute include cost, waiting times and the trade-offs associated with different modes of transport. These challenges are a legacy of segregationist policy and therefore need to be addressed by responses from multiple stakeholders. All stakeholders – employees, policymakers and employers – have a role to play in finding a solution.

Policymakers should: ■■ Review the existing allocation of subsidies in line with current usage patterns, not the current focus on bus and train, given that such a large number of employees use taxis.

Government should: ■■ Collaborate with the private sector to undo the challenges of effective taxation of the poor. ■■ Enable greater productivity by helping employees cut down on the rigmarole of commuting.

Employers should: ■■ View providing transport services to employees as a major differentiator in attempting to attract the best human capital, instead of a benefit to be paid for by employees. ■■ Offer them more ﬂexibility in the location of workplaces and the allocation of travel allowances.

Employee well-being, productivity and morale are a product of conditions in the workplace as well as the external spaces and experiences that are connected to work.

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ADVANCES TOWARDS A DIGITAL TRANSPORT SOLUTION In line with the technological and digital changes outlined in Benefits Barometer 2017, and the innovations impacting on the transport industry from the likes of Uber, Taxify and Lyft, it’s worth stealing a look at what this future is beginning to look like. In light of our discussion on the impact of cost, time spent travelling and choice of travel mode, would it not be useful to compare what certain travel modes and routes would cost, and which would have the shortest distances and travel time between our homes and places of work? Technology and innovations in the transport sector give us a picture of what an optimal transport solution might encompass, and what role different stakeholders (employers, employees and policymakers) can play in this.

Here are some of the features this solution might provide: ■■ Route management: The ability to plot out one’s route to work is empowering. There are numerous variables that go into deciding on one’s route of choice: the shortest time, shortest distance, lowest costs, or some combination of the three. The solution needs to be aware of congestion and, as many existing GPS applications allow for, it must be aware of traffic flows and alternative routes in order to make the best recommendation. ■■ Insights and analytics: Once we know the route to be undertaken, it is important to be able to see our exact location along that route at any given point in time. Platforms such as Uber already provide such a service; however, this may require a different permutation of the same concept when it comes to the minibus taxi industry, for instance. Here, the movement of one vehicle doesn’t follow a planned schedule, but one dictated by demand (how many people have chosen the particular route and whether the taxi is full). In addition, the employee, their family and employer should have information about the particulars of the vehicle (owner name, association, registration plate). Having such a system allows for feedback loops between the travel mode operator

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and the consumer or customer, such as reporting on the quality of driving, the service of each component of the transport solution, and any problems that need to be addressed by the vehicle owner, driver or transport system. ■■ Mobile payment: A mobile payment system, or similar kind of capability, would enable users to avoid the unnecessary risk of carrying cash, and allow them to budget for and track spending at an individual and enterprise level (Uber, for instance, has both a personal and enterprise payment capability). Either the government or employer, or both, could subsidise costs by contributing to the mobile payments account, within certain parameters. This system would allow for two coincidental benefits: ■■ It would provide real-time data and analytics to policymakers, employers and the transport industry on market conduct, travel mode use, service levels and the general commuting experience of employees. ■■ Subject to some of the tax regulations discussed in this section, it would provide additional value to employers by contributing to both holistic employee wellness and firm-level productivity while enabling employees to understand the budgetary impacts of their transport and commuting choices.

EARLY CHILDHOOD LEARNING â&#x20AC;&#x201C; A HEAD START IN LIFE

PART 5 Chapter 3

EARLY CHILDHOOD LEARNING – A HEAD START IN LIFE

EARLY INVESTMENT IN CHILD DEVELOPMENT HAS HIGHEST RETURN An underperforming asset class in many working South Africans’ portfolio is their children. An affordable, effective way for people across the socio-economic spectrum to improve their return on investment (ROI) in their children is to recognise that early relationships matter most. Consistent nurturing and thoughtful stimulation from parents and caregivers, coupled with balanced nutrition, during the first 1 000 days of life (pregnancy to age three) can yield

dramatic financial dividends over time and ensure an essential foundation for children to reach their cognitive, social and emotional development potential, which in turn will have a benefit to the broader society and economy.

year. This finding underscores the benefits to companies, communities and countries of providing asset-class protection to employees’ preschool children. The Heckman Equation demonstrates the dramatic decline in ROI in learning as people age.

Nobel Prize-winning research conducted by the University of Chicago’s Professor James Heckman demonstrated that early learning among disadvantaged preschool children (under age five) yielded a 13% (ROI) per

Figure 5: Rate of economic return on investment in human capital is highest in early years

Preschool programmes Rate of return to investment in human capital

Schooling Opportunity cost of funds

Job training

Preschool Source: Heckman and Carneiro (2003).

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School

After school Age

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Chapter 3

The first two years of life play a critical role in brain development Brains are made, not born. The combination of nature and nurture determines how the brain is built. A biological embedding process known as epigenetics essentially ‘wires’ a person to instinctively behave in a way that will improve their chances of surviving and thriving in a given environment. The molecular, cellular, anatomical and functional fabric of the brain become well established during the first two years of life. Thereafter, it is very difficult to reverse the brain architecture of this ingrained behaviour. The Center on the Developing Child at Harvard University has worked with crossfunctional teams of experts in South Africa and other countries to expand popular understanding about brain architecture. Between birth and Grade R (age five), the architecture of a child’s brain evolves into two basic models: top-down or bottom-up.

Top-down brains, slow-life history strategy: think now, act later Individuals with top-down brains are programmed to think now and act later. The neocortex, the thinking part of the brain, is in control of top-down brains. These individuals adopt a ‘slow-life’ strategy that allows them to make judicious risk–reward calculations over a long period. This is known as self-regulation.

Bottom-up brains, fast-life strategy: act now, think later People with bottom-up brains are programmed to act now and think later (and differently). The subcortex is in control of bottom-up brains. The subcortex asserts bottom-up self-regulation, immediate

Figure 6: Comparison of fast-life and slow-life history strategies which members of the same species adopt under adverse and favourable conditions.

FAST SLOW Strategy Strategy

Physiology

Faster____________ Rate of Development ____________ Slower Earlier______________ Onset of Puberty_______________ Later Faster______________Biological Ageing______________ Slower

Mating

Ealier________________ Sexual Debut________________ Later

Slow life-history strategy: Think first, act later.

More_______________ Sexual Partners______________ Fewer

Fast life-history strategy: Act first, think later (and quite differently)

Earlier____________ Age of Reproduction_____________ Later

Casual_______________ Relationships____________ Pair-Bond

Parenting

Higher____________ Number of Offspring____________ Lower Lower____________ Investment in Offspring___________Higher

Reward Orientation

Short________________ Time Horizon_________________ Long High__________________ Impulsivity___________________ Low Take________________ Risk for Reward______________ Avoid

threat-avoiding and reward-taking behaviours that ensure short-term survival.

Low parental investment a characteristic of fast-life strategy

Under harsh, dangerous, unpredictable conditions where there are insufficient resources to go around, temporal discounting and risk discounting make strategic sense. Taking what you can get now instead of investing in what you may well not get later, and pursuing high-risk, high-reward opportunities, makes strategic sense, because without taking risks one will likely end up with nothing anyhow. For these people, too many things can and may go wrong before one reaps the benefits of a long-term, low-risk strategy1.

A hallmark of a fast-life strategy is low parental investment. Asset class performance trends in this case are clear. Children with poor top-down self-regulation capacities at ages 3, 5, 7, 9 and 11 years have, at 32 years of age, significantly higher rates of substance dependence, criminality, financial problems and significantly lower income, financial planning skills, socio-economic status and physical health2.

1 Morgan, B. 2013. Biological embedding of early adversity: toxic stress and the cycle of poverty in South Africa. Ilifa Labantwana Resarch & Policy Brief. 2 Moffitt, TE et al. 2011. A gradient of childhood self-control predicts health, wealth, and public safety. Proceedings: National Academy Sciences, 108(7), pp. 2693–2698.

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How can parents with a fast-life strategy improve the likelihood of their children realising their full development potential? By investing more in their children. This includes investing more in nurturing their children with physical demonstrations of affection such as hugs, playing, reading, and singing that reduce the stress of adverse environments and separation during the workday. How can employers and entrepreneurs facilitate working parents’ investment in the next generation? Employers can mitigate the harshness, unsafety and unpredictability of their employees’ lives. Employers’ increased investment in working parents will improve parental investment in their children. This will also serve to create an enabling environment to help more young South Africans grow up with the kind of slow-life strategy that’s suited to thriving in the formal economy. Most critically, improving working parents’ sense of job security, physical safety in the workplace, and safer commuting will lead to more predictable investment in their children. Employer initiatives include: ■■ paid maternity and paternity leave ■■ breastfeeding policies for the workplace ■■ positive parenting programmes ■■ workplace-based early learning centres (ELC) ■■ support for community-based early childhood development (ECD) programmes

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The future of workplace-based early learning centres For those looking to give children access to development opportunities from an early age to improve their ROI in the children asset class, we believe safe, workplace-based ELCs offer tremendous potential. This past year, Innovation Edge, an emergingmarkets ECD network, assessed workplacebased ELCs with a view to testing ways to make ELCs accessible to more employees, at more locations. New, scalable business models are evolving to create more affordable access to workplace-based ELCs. This could help raise children of the working poor out of poverty, improve social cohesion among employees, and develop a business’s ability to operate in a more inclusive economy.

Factors determining the success of early learning centres Developing both social and emotional skills is essential to enabling a child’s success in academic learning. The global shift towards focusing on emotional intelligence (EQ) alongside reasoning ability (IQ) in early childhood development is reflected in South African workplace-based ELCs. Taking a more child-centred approach requires teaching staff to be alert to the individual needs of each learner. Low child– teacher ratios raise the effectiveness of early childhood interventions. High-quality ELCs have ratios of about four children to one

teacher or carer for children aged between four and 12 months, and a ratio of between 1:10 and 1:15 for older children. Centralised curriculum development, and teacher and assistant training, contain the cost of delivery. Workplace-based ELCs are uniquely positioned to use existing employee and family wellness benefits, such as on-site preventative health screenings, physical and mental health education, and medical attention to enable employees and their preschool children to realise their development potential. The convenience of, and positive peer pressure to participate in, health and well-being programmes that will measurably improve the lives of vulnerable children are compelling. More focused work on systems integration between ELCs and employee wellness providers is required to unlock the value of this convergence.

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Chapter 3

CASE

STUDY The following two case studies illustrate how employers have developed workplace-based ELCs to commercial advantage. ■■ An automotive manufacturer in South Africa ■■ A software company in India An automotive manufacturer that helped to pioneer workplace-based ELC in South Africa more than 20 years ago has created a welcoming environment for the children of skilled, semi-skilled, and unskilled workers. This inclusive ELC promotes consistent social, emotional and cognitive progress. Several graduates of this workplace-based ELC have gone on to win company bursaries for vocational training and university, and have secured employment with the firm. Socio-economic mobility at this workplacebased ELC has not been limited to employees’ children. The regular interaction

of working parents from different divisions in the company has facilitated unlikely collaboration, better business decisions, and surprising opportunities for training and professional development. For example, a former manual labourer with a natural talent for childcare was given the opportunity to earn National Qualifications Framework (NQF) credentials in early learning, and received coaching support to grow into an effective member of the ELC teaching staff. Other measurable business benefits to the company include: ■■ reduction in industrial actions ■■ improved employee productivity ■■ greater social cohesion SAP Labs, a software company in Bangalore, India, partnered with WeCare to develop one of Bangalore’s first office-park nursery schools in 2009. Six years ago, SAP Labs opened a new ELC in its research facility. This initiative underscored the company’s determination to become the market leader in gender diversity. The workplace-based ELC became an integral part of SAP Lab’s campaign to #BRING WOMEN BACK TO WORK.

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Headline results:

■■ Space constraints.

■■ The company has reduced the attrition rate of women of childbearing age from 66% to 4% during the past six years.

■■ Misunderstanding about just how early brain architecture or self-regulation and its attendant social, emotional, cognitive and behavioural correlates start.

■■ It has improved its ROI in professional training and development by retaining skilled employees. ■■ More working mothers were able to breastfeed for longer. ■■ Employees could make better-informed decisions about nutrition and parenting, especially valued by professionals who are first-generation knowledge-economy workers.

What’s common across workplace-based early learning centres? ■■ Companies provide real estate, maintenance and housekeeping. In South Africa, this could be part of a company’s Black Economic Empowerment investment strategy. ■■ Employees – and their children – benefit from having a greater quality, convenience and value of childcare than is generally available in the marketplace. ■■ Education savings schemes could help parents meet monthly ELC fee payments.

Barriers to workplace-based early learning centres ■■ Concerns about corporate and personal liability. Companies can mitigate this risk by outsourcing the service to a certified ECD contractor.

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■■ Lack of knowledge about the growing professionalism in ECD. ■■ Regulatory requirements in South Africa ■■ Department of Social Development approval is required for setting up an ELC. ■■ Department of Health certification for handling breast milk is required.

The relationship between childcare, housing and wellness benefits “Companies are encouraged to think more about how employee housing, transport, and childcare benefits can be designed to maximally mitigate the influence of harshness, lack of safety, and unpredictability/insecurity on parental investment in their workforce’s most important asset – their children. Employers’ return on investment in childcare benefits needs to be made with an understanding of the realities of employees’ home/ neighbourhood environments, employees’ often hazardous commute to work, and how these adverse factors drive life-history strategies,” South African neurobiologist Dr Barak Morgan observes.

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PUT SKILLS DEVELOPMENT ON STEROIDS TO MEET THE DEMANDS OF A CHANGING WORLD OF WORK

Nelson Mandela said, “Education is the most powerful weapon with which you can change the world.” It’s also the most powerful weapon you can use to change employees and, ultimately, your entire organisation. With few exceptions, the way learning is currently managed in organisations on the African continent is more akin to a water pistol than a powerful weapon. Let’s get into how to change this.

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The world has changed Employees have more information at their fingertips Before Google and the World Wide Web, the only way most people could gain knowledge was from learning institutions, local libraries ... and Chappies wrappers. The affluent owned large sets of encyclopaedias and companies needed learning and development (L&D) teams to provide training for and information to their employees. As the world has changed, so has the learning landscape. We now learn from a diverse set of sources throughout our lives. Just about everyone in the world can now find out anything they want, from anywhere they are. There has been an explosion of educational platforms, massive open online courses (MOOCs), podcasts, webinars, videos and articles that provide access to information on any subject imaginable.

Employees are overwhelmed, impatient and have shorter attention spans Attention spans are shorter than ever. So many people claim to have Attention Deficit Disorder (ADD) or the high-definition version, Attention Deficit Hyperactivity Disorder (ADHD). Some millennials have even been diagnosed with ADLTAC – Attention Deficit, Look There’s A Cat. In fact, many people may not read this text but instead choose to browse through the graphics and headings while playing with their fidget spinners.

that goldfish are estimated to have a nine-second concentration span1.

Workers are also overwhelmed and impatient Long lectures and training courses do not cater to the way our brain works or to our busy schedules. The Meet the Modern Learner2 report by Bersin recently revealed that learners have 1% of their week available for training and development. They are looking for greater flexibility with regard to where and how they get their information. They’re also taking more control of their own development and are looking to gain expertise from peers as much as from traditional subject experts. In fact, here is something to think about: various polls have shown that most people use their smartphone while sitting on the

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toilet. Many do so primarily to avoid boredom. So it may well be that people today learn more sitting on the toilet than in any training room each year. Employees and organisations have a greater chance of becoming obsolete. Daily learning should be a continuous discovery of your own ignorance. Albert Einstein said, “Once you stop learning, you start dying.” If he were alive today, he would take one look at the statistics and tell you that when your company stops learning, it will start dying and soon become extinct. In fact, 52% of Fortune 500 companies have disappeared in the last 15 years. In 1995, the average life expectancy of a Fortune 500 company was 75 years. It’s now just 15 years.

2017

YEARS

A Microsoft study recently found that the attention span of the average person is now eight seconds. This is incredible, considering

YEARS

Average life expectancy of a Fortune 500 company 1 McSpadden, K. 2015. You now have a shorter attention span than a goldfish. TIME Health, 14 May 2015. 2 Tauber, T and Johnson, D. 2014. Meet the modern learner. Bersin.

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This is a US statistic but Africa is by no means immune to this. In a recent study3, 94% of African respondents said they believe technology has changed competition in their industry in the past five years. As Microsoft CEO Satya Nadella recently said, “Don’t be a know-it-all, be a learn-it-all4”. Companies with know-it-alls get disrupted and go extinct; companies with learn-it-alls survive, disrupt and flourish. Technological advances have intensified skills and knowledge shortages. We live in a world where the Internet of things, artificial intelligence, 3D printing, drones, robotics, augmented reality and cryptocurrencies are foundational elements of competitive landscapes. Some of this sounds like science fiction, but in a few years these, too, will be outmoded and boring, and new disruptions will follow suit. In this world, staying relevant isn’t a macro challenge for organisations only. Employees face this on an individual level, too. Randall Stephenson, CEO of AT&T, said, “There is a need to retool yourself and you should not expect to stop. People who do not spend five to 10 hours a week online learning will [be] obsolete5.”

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Career development has become an important loyalty factor Consider Deloitte’s 2016 Millennial Survey6 of some 7 700 millennials from 29 countries. All respondents had college or university degrees and were employed full time, most of them in large, private sector organisations. The study found that over half (57%) of those surveyed expected to leave their current employer within four years. Participants cited lack of development, training, and leadership opportunities as primary reasons for their dissatisfaction. When asked what they looked for when weighing a new job opportunity, they ranked professional development programmes and opportunities to progress among the five most important factors they consider. The world has changed rapidly, information is more accessible and there has never been a greater need to keep up to date with learning to avoid irrelevance. At the same time, employees are overwhelmed and have very little time or patience for the kind of inflexible learning offered by most traditional learning practices. If skills and career development are not provided, they will leave to find an employer that will empower them. This is the world we live in.

3 PwC. 2017. The Africa business agenda: changing gear. 4 Majdan, K and Wasowski, M. 2017. We sat down with Microsoft’s CEO to discuss the past, present and future of the company. Business Insider. 5 Hardy, Q. 2016. Gearing up for the cloud, AT&T tells its workers: adapt, or else. New York Times. 13 Feb 2016. 6 Deloitte. 2017. The Deloitte Millennial Survey 2017.

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Employee needs have evolved, but learning tools haven’t Taking into account the characteristics of this new world, the challenge is no longer trying to find information but trying to provide personalised information to employees when they need it, and that can be consumed in bite-sized chunks.

Consider the figure below. Above the line are the traditional L&D-led initiatives: instructorled classes, e-learning courses, coaching and mentoring, and conferences. This is where companies are spending millions each year. However, this caters for only a small portion of their people’s actual learning. The average person does over five times more learning through the self-directed items below the line7.

Figure 7: How the workforce really learns

DAY

WEEK

QUARTER

E-LEARNING COURSES

L&D-LED SELF-DIRECTED

MONTH

INSTRUCTOR-LED CLASSES

WEB SEARCH

PEER OR TEAM INTERACTION ARTICLES AND BLOGS VIDEOS

COACHING & MENTORING

CONFERENCES AND TRADESHOWS

BOOKS

PODCASTS AND AUDIOBOOKS

APPS ONLINE NETWORKS WEBINARS

LIVE CLASSES (EXTERNAL)

LIVE NETWORKING ONLINE COURSES

Source: Degreed (2016)

7 Degreed. 2016. How the workforce learns in 2016.

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Formal training still popular; self-serve training fills the gaps

Over 60% would put in even more learning time if they received some kind of credit or recognition for doing so. People want more than what they can find in the typical L&D course catalogue, though. Three in four told Degreed they invested their own money ($339 (R4 340) on average) in career-related development over the last 12 months.

Formal, L&D-led training is still a valuable part of how workers learn, however. Degreed, a global edtech company that is looking to revolutionise the world of learning, conducted a survey on how people learn. In that survey, around 70% of people told Degreed that they take live, virtual or e-learning courses from their employers at least once a year – once every three or four months, on average.

Existing learning management tools not producing results

Informal, self-serve learning connects the dots in between. Almost 85% said they learn things for work by searching online at least once a week. Nearly 70% learn from peers or by reading articles and blogs every week, and 53% learn from videos in any given week.

Figure 8: Net promoter score for traditional learning and development

PROMOTERS

18%

PASSIVES

33%

Learning management tools are not producing the results that organisations crave. This is because they are trying to develop faster horses rather than realising it’s time to switch over to a sports car. This has resulted in a large number of detractors, as shown in Figure 88.

DETRACTORS

49%

18% Promoters −

49% Detractors

31% Net promoter score

Rather than focus on the negative, let’s look at how we can meet the learning requirements of this new world of work.

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8 Degreed (2016).

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Meeting the learning requirements of the new world of work We need the ‘Netflix for learning’ – learning from every source

They should not only rely on internal expertise to do so.

Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, owns no content. Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world’s largest accommodation provider, owns no real estate. It would make sense, then, that the world’s most powerful education provider would own no content. Curation and crowdsourcing are integral to new ways of learning.

Michael Miller, manager of Global Dealer Learning for Caterpillar, said, “To think that all the experts reside within the walls of Caterpillar alone is a dangerous belief10.” Companies need to source non-companyspecific information from all the best sources in the world. This would help them free up time to dedicate their expertise to proprietary training.

Jane Hart, founder of the Centre for Learning & Performance Technologies, advised learning professionals that they “will never again be able to keep up with the pace of business and everything everyone needs to know9.”

Individuals should own their learning profile Each individual should be able to take their own learning record from one employer to the next. This will provide the incentive for employees to invest themselves fully into a powerful learning system that enables a lifelong career platform, rather than a shortterm facilitator of training.

Set pathways for any skill and every job Just as you can set up music playlists on iTunes for different members of a family, organisations and their employees should create career-specific paths of learning for every role type.

In fact, creating new content takes up huge amounts of learning professionals’ time and wastes buckets of company money. Figure 9 shows how many hours on average it takes one person to create instructor-led training. Compare this to the time it would take to curate a library of relevant, existing resources11.

Instructor-led training includes front-end analysis; design; lesson plans; handouts; workbooks; PowerPoint; and subject matter expert (SME) reviews of content to be used during live, face-to-face learning events. Hours taken to create a single hour of training 22 – simple learning content, possible repurposing of learning source material, with minimal learning support materials 43 – average project for creating corporate instructor-led training class with well-documented deliverables (lesson plan, handouts, workbooks, PowerPoint visuals) 82 – complex subject matter, very customised, extended time spent on formatting classroom deliverables

Figure 9: Number of hours taken to create a single hour of training

Simple learning content

Average project

Complex subject matter

9 Hart, J. 2015. What it is to be a “learning worker” (an interview). Learning in the modern workplace (blog). 10 Danzl, S. 2017. How Caterpillar has democratized L&D. Degreed. 11 Chapman, B. 2010. How long does it take to create learning? A Chapman Alliance Research Study.

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Give credit for everything I learn When someone asks you about your education, what do you tell them? Usually, you tell them which school you went to and perhaps the university degree that you hold. However, for most people this paints a very small picture of their actual education. Think about how much of the knowledge you use on a daily basis came from traditional education and how much came from learning and accumulating knowledge from various different sources over time. As we’ve seen from the Degreed study, people are prepared to put in even more time to learn on their own if they get some kind of professional credit for doing so.

Learn with and from others “As you start driving conversations between learners, experts and mentors, there’s an increased level of engagement because people are now contributing, not just taking,” says Michael Miller. People want their input to influence the system, and feel empowered when they are allowed to do so. With this model of learning, people need to be able to:

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■■ Influence what other people see, so that if they don’t find a piece of learning beneficial, their colleagues will not waste time on the same content. At Google, 55% of training courses are delivered by an ecosystem of over 2 000 peer learners. Josh Bersin claims that “Learning owns probably 30% or 40% of the employment brand in your company. The issue of how we learn and how we share information in companies is very essential to the employee experience at organisations.”

The good news is that L&D is not obsolete, it’s just incomplete As Janice Burns, Chief Learning Officer of MasterCard, puts it: “We play the role of facilitators and motivators more than anything else12.” Karen May, Vice President of People Development from Google, said: “Put the support structures in place to make [learning] happen and then get out of the way13.” The role of the employer is to put the right technologies and infrastructure in place to learn, and ensure there is a culture and ethos that supports and inspires learning.

■■ Follow managers, experts and mentors to see what they are learning in order to build their own expertise.

Learning and development is far more than a regulatory function

■■ Share crucial take-aways from their learning with their co-workers.

Deloitte’s 2017 Human Capital Trends Report for South Africa14 found that 21%

12 Kuehner-Hebert, K. 2014. Teaching collaboration at MasterCard: priceless. 13 Kessler, S. 2013. Here’s a Google perk any company can imitate: employee-to-employee learning. FastCompany (blog). 14 Deloitte. 2017. 2017 Deloitte Global Human Capital Trends.

of South African organisations believe the learning department exists to comply with regulations. Only 16% believe learning departments help employees grow and navigate their careers within the company – there clearly needs to be some reassessment. South African companies have something else to realise: learning and development is far more than just a regulatory function. There is the Skills Development Levy to consider, as a hefty chunk of cash is paid for each company for this. Skills development is also an efficient place to earn BEE points. However, these regulations cannot be the driving force behind a company’s learning strategy. The Skills Development Levy (SDL) has a significant impact on the L&D practices of many organisations. It provides a financial incentive for implementing specific learning programmes. The South African Board for People Practices (SABPP) recently commented in a factsheet that “At 1% of payroll per month, or R13 billion per annum in collected revenue, the SDL represents a sufficiently high financial incentive to shape L&D practices, especially in medium and large organisations with the administrative capability to claim back 20% - 49% or more of the Levy available to employers. Unfortunately, the design and delivery of many of the new programmes under the National Qualifications Framework suffered from an overemphasis on formal, quantitative and supply-driven types of learning, resulting in the neglect of informal, just-in-time,

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demand-driven learning. While the former programmes may be suitable for foundational education contexts, the latter programmes are an essential component of workplace learning for modern employers15.” The levy needs to be looked at in context and the payback should not be looked at in isolation. If an employee needs to learn about Excel, it makes more financial sense for a company to direct them to a $20 (R256) Udemy course that is not accredited, or even use free online resources, rather than spending R4 000 for a one-day accredited course where you can receive almost R2 000 in return.

If a company looks at overall spend, a quality, online on-demand resource from Udemy makes sense. In fact, it would be at least eight times cheaper. If you’re focusing only on maximising a skills levy payback, you could be costing your company a lot of money. An employee survey was done by Purch, a digital commerce company servicing more than 100 million customers worldwide16. Purch found that 73% of employees said that self-directed learning is more effective in helping them be successful in their professions than learning directed by their employer. In fact, employer-provided

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resources are one of the last places people go to when searching for knowledge and skills development, as seen from the study below17. When they need to learn something new, though, they are most likely to ask their boss or mentor (69%) or their colleagues (55%) for recommendations. Many people also take matters into their own hands – literally. Around 47% search the Internet and 43% browse specific resources. But just 28% search their employers’ learning systems and only 21% rely on their L&D or HR departments18.

Figure 10: The pathway to learning typically does not start with L&D-provided resources Boss or mentor

Peers inside the company

Search the Internet

Browse specific online resources Employer's learning management system

69%

55%

Managing L&D directly

47%

43%

28%

External professional network

L&D or HR department

23%

21%

Search employer’s Internet

17%

Empowering learning indirectly

Source: Degreed (2016)

15 SA Board for People Practices. 2016. The Learning & Development Landscape in SA. 16 Degreed. 2016b. How Purch created a learning culture that went beyond training. 17 Degreed (2016). 18 Rohn, J. Jim Rohn self-education will make you a fortune. YouTube video; published 19 Sept 2015.

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Empowering people to learn empowers their financial freedom The employee has wrestled away power from employers. If you can’t beat them, join them ... and go one step further. Empower them. And empowering learning also empowers financial well-being. Jim Rohn, an American entrepreneur, said, “Formal education will make you a living, self-education will make you a fortune.” Well, that sounds good, but is this a reality? Self-made millionaire Steve Siebold, who has interviewed 1 200 of the world's wealthiest people, agrees, and writes in his book How Rich People Think: "Many world-class performers have little formal education, and have amassed their wealth through the acquisition and subsequent sale of

specific knowledge. Meanwhile, the masses are convinced that master's degrees and doctorates are the way to wealth, mostly because they are trapped in the linear line of thought that holds them back from higher levels of consciousness ... The wealthy aren't interested in the means, only the end19." While the rich don't put much stock in furthering wealth through formal education, they appreciate the power of learning long after college is over, Siebold explains. Rich people would rather be educated than entertained. "Walk into a wealthy person's home and one of the first things you'll see is an extensive library of books they've used to educate themselves on how

to become more successful," he writes. "The middle class reads novels, tabloids, and entertainment magazines." So, it would seem that education does bring financial success, and not formal education but continuous, lifelong learning. It’s not for nothing that Benjamin Franklin said, “An investment in knowledge pays the best interest20.” The learning curve hugely influences the earning curve. “Over 300 years of economic history, the principal and most enduring mechanism for distribution of wealth and reduction of inequality is the diffusion of skills and knowledge,” says Thomas Piketty21.

A new learning movement “How’s that LMS working out for you? My guess, not so good. It’s because the world has changed, your needs have evolved but the tools haven’t. Because they were built to meet the needs of HR, not the learner. They just weren’t built to empower people to learn.” These are the words of Degreed founder and CEO David Blake to the HR profession and companies at large. Josh Bersin, arguably the world’s top learning and skills development expert, talks about Degreed as being a globally disruptive learning ‘movement’: “They’ll really change your thinking about what the learning environment looks like.” Degreed is actually a company in the education technology sector. Alexander Forbes has been in collaboration with Degreed and will be looking to bring solutions to market to assist employers in addressing the learning gap. Barry Murphy, Airbnb’s Global Learning Lead, felt that calling them an organisation wouldn’t do them justice. Degreed is driven by a world-changing philosophy; it is indeed a ‘movement’. The Degreed manifesto is to ‘jailbreak’ the degree, to help people gain knowledge where and when they need it, and to get credit for their expertise no matter where and how they got there. This outlook aligns perfectly with the new way that people want to learn, and has already transformed the learning of the biggest, most innovative companies in North America and beyond. Africa is next. Will your organisation lead this change?

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19 Siebold, S. 2010. How rich people think. London House Publishing: Ohio. 20 Franklin, B. 1757. The way to wealth. Compiled and edited by Richard A. Catalina Jr, Esq (2010). The Princeton Licensing Group. 21 Piketty, T. 2014. Capital in the 21st Century. Harvard University Press: MA.

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WHY WE NEED TO RADICALLY CHANGE OUR RETIREMENT ADVICE FRAMEWORK When Woody Allen was asked if he hoped to live on forever on the silver screen, his answer was simple: “I’d rather live in my apartment.” Then he added, “I don’t want to achieve immortality through my work. I want to achieve it by not dying.” We started Part 2 with the pronouncement that longevity would be a source of disruption in the workplace. Indeed, the concept of the multistage life has already taken root with many employees – this is in their control. But what is not in employees’ control is an employer’s declared retirement age.

This is probably not going to change overnight. But it will happen at some point in the future. The question is, how could employers help their employees to better navigate this transitional phase? The problem is, old conventions are hard to change. Most pension funds provide exiting employees with financial advisers who tend to guide the discussion to which annuity product you wish to purchase as you exit the fund. This is expected to address all your funding requirements during retirement. The exercise makes sense – after all, the money needs to go somewhere. But making this decision correctly means we need to carefully consider what it is that’s being funded.

A new framework for making financial decisions at retirement The problem with this current model is that it doesn’t thoroughly allow for the true economics of what you might need to address during this second long phase of your adult life. Nor does the advice framework begin

to address the extraordinarily complex set of decisions that lie ahead for those wading into waters of uncertainty. There is so much more that we now understand about this transitional period of one’s life that there is no question we need to reconsider both the savings model that funds this period as well as the advice framework that accompanies it. Time for a serious revamp. What we would like to set out in this section is a whole new framework for making financial decisions at retirement. This framework demands considerably more skills from a financial adviser than the traditional advice framework. But we believe that the pay-off for getting this type of assistance is so significant that either employers should seriously consider adding this to their array of employee benefits or financial services companies should consider how to offer this affordably as an advice service that’s not connected to a product sale. Understanding what is entailed could raise serious questions about the adequacy of the advice members receive when they exit their retirement funds.

There is no question we need to reconsider both the savings model that funds retirement as well as the advice framework that accompanies it.

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A three-phase retirement model Where do we start? Coping with increasing longevity demands one thing above all else: good planning. We will argue here that it may be more helpful to think of this exercise as funding for the next phase of life, a phase that is likely to span three very different sub-phases. Given what we now understand about longevity, if you

have made it this far and are in reasonably good health, the chances are very good that you may have to fund for a period that spans approximately two-thirds of the time you spent working. Think of this as a second time around – only this time, because of the increase in unknowns in your life, the decision-making can be significantly more complex.

Figure 11: The three phases of retirement Active retiree (65–75)

– Still physically active – Want to travel, undertake some work or care for younger generations

Passive retiree (75–85)

– Less physically active but generally healthy – More likely to stay at home

Frail retiree (85+)

– Less physically active, increased health issues – Need long-term care

High (as possible) income needs

Incomes needs reduced

Increased income needs

‘Go-Go’

‘Slow-Go’

‘No-Go’

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Assess your assets Typically, this part of the exercise starts with an assessment of your assets and liabilities. In the three-phase model, we need to think about both of these concepts differently. For example, your liabilities (financing your lifestyle needs) will be different for each of the three phases: housing, care, medical care and transportation costs are all likely to place different financial demands on you at each phase. So, too, should your definition of assets change. Here we are asking you to think more holistically about what will be required to get the very best out of this period of your life. This isn’t just about your finances, though. A helpful way to think about these assets is to break them down as follows: ■■ Productive assets: what could you continue producing for both yourself and your family during each phase? ■■ Vitality assets: what would you need to do to keep yourself healthy and happy? ■■ Tangible assets: this is the money, car and home part.

■■ Transformational assets: how do you ensure that you continue to grow in terms of knowledge, relationships and overall stimulation? Now we can consider how to solve for your first active period, your second, more passive period and, finally, the frail-care period.

What makes financial planning here so difficult? What is missing from this financial planning exercise is the greatest unknown of all: your health and its future prospects. As Figure 12 illustrates, the variability in outcomes for one’s physical well-being over this period are enormous – from having the physical strength of a 25-year-old to being on the verge of complete immobility. This will be the most significant financial factor of all. The only way to mitigate it is to be clear about exactly what is covered by your medical aid and what is not, and to be knowledgeable about the potential costs of long-term care.

Address the possibility of dependence What makes decision-making for these three periods particularly complex is the fact that at some point in this three-phase end-run you will become dependent on the help of others. At what point this will be true will be a function of your health and mental state. Typically, the transition to the help of others occurs somewhere between the second and third phases. But it will come, unless the proverbial bus gets to you first. This means that, by necessity, decisionmaking here is best done with those ‘others’ in mind: family, the community, friends, caregivers or medical professionals or, better yet, with them being part of the discussion. This dependence on others may be from the perspective of physical need: mobility, sight, hearing or just general getting-outand-about issues. It may relate to financial issues, household or personal care, or to the emotional demands of solitude or dementia. The care of others will somewhere be needed. The more you know about what might be available to you when that time comes, the more effective your planning will be.

Think of this as a second time around – only this time, because of the increase in unknowns in your life, the decision-making can be significantly more complex.

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Ask the right questions To a greater or lesser degree, the questions that need to be addressed in each phase focus on the same issues: ■■ Will I want to work, will I need to work, will I be able to work and, if so, doing what? Will I need to be reskilled? ■■ What would the critical financial questions and considerations for each phase look like and would I be able to meet them?

■■ Where will I live, with whom, and how will I pay for it?

Acknowledge that ageing is not a sickness

■■ What basic protections will I need to continue to ensure I have a safety net (income, savings, medical aid, insurance, housing, transportation)?

Perhaps the best insight we can take on in regard to this part of our lives is that ageing is not a sickness – but getting it right is all about maintaining quality of health! Let’s try to understand the relevant points here.

■■ Who can I count on for help? ■■ How do I ensure that my voice will be heard when it’s needed?

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The World Health Organization provides a particularly effective way of illustrating why formulating a comprehensive plan around ageing is so complex. Using data from the large Australian Longitudinal Study on Women’s Health, they are able to capture how dramatically differently individuals may experience the ageing process.

Figure 12: Range of physical functioning over time

Source: Peeters, G, Beard, J, Deeg, D, Tooth, L, Brown, WJ and Dobson, A. Unpublished analysis from the Australian Longitudinal Study on Women’s Health.

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Figure 12 illustrates that for any given population, the range of functioning increases within the population as we get older. The fact is, some 80-year-olds will have the same physical and mental capacities as many 20-year-olds2. So, what the graph illustrates is that when we are younger, it’s easier to determine what sort of medical costs we are, on average, likely to incur. The older we are, the less precise that funding expectation becomes. While the best predictor of how you are likely to fare during this period is the quality of health you’ve maintained over the course of your life, the fact is that even the smallest improvements to health habits at this point pay exponential dividends. Scientists have a much better understanding of what keeps our brain going. No, it’s not blueberries or wine or brain games or sex. It’s actually exercise. Value for money, nothing will add more to your life after 64 than exercise – not hectic, thrill-seeking exercise necessarily. In fact, the best exercise, to engage in is free: walking. That said, modern medicine has irrevocably changed the game around death and ageing. Estimates for developed economies such as the UK are that only about 20% of the

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population will simply ‘die in their sleep’. Another 20% will experience a relatively fast demise from stroke, heart attack or cancer. For the remaining 60%, the elderly could spend eight to ten years being seriously ill and debilitated until they die3. Gerontologists (specialists in the various aspects of ageing) call this an epidemic of frailty4. For South Africa, the picture is slightly lagged but the trend is the same. Lifestyle diseases appear to be gaining traction fast and have become a significant factor in the spiralling costs of care as we age here. It is estimated that the accumulated losses to South Africa’s GDP between 2006 and 2015 from diabetes, stroke and coronary disease alone cost the country $1.88 billion5 (R24.4 billion).

Assess the costs beyond medical expenses The problem with most of our assessments of the cost of ageing, though, is that the bulk of the analysis is focused on medical costs. We have a fairly clear idea of what medical aid cover is likely to cost individuals from age 65 through to their likely life expectancy. Equally, we know what that typically translates into in terms of the claims that need to be paid out by medical schemes over that period. We also have a clear idea as to what happens to those medical costs during the four years preceding an individual’s death6.

2 World Health Organization. 2015. World report on ageing and health, p. 7. 3 The Economist. 29 April 2017. End-of-life care: A better way to care for the dying. 4 Harper, S. 2016. How population change will transform our world. Oxford: Oxford University Press, p. 82. 5 Benefits Barometer 2016, p. 153. 6 Ranchod, S, Abraham, M, and Bloch J. 2015. An actuarial perspective on healthcare expenditure in the last year of life. South African Actuarial Journal 15 (2015), pp. 31 - 40.

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MALE

FEMALE Expected future lifetime

20.05 years

R436 961.20

Cost of medical cover

R543 62.58

R706 678.23

Cost of medical care

R891 462.01

15.95 years

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Figure 13: Understanding medical costs after retirement

Expected medical costs for ages 65+

YEARS

YEAR Average R206 453

Figure 14: Understanding medical costs after retirement - year prior to death Source: Ranchod et al. (2015)

Average R62 567

Average R48 775

Average R41 346 Ratio 1.18

Ratio 1.28

Ratio 3.30

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Note, though, that these costs are based on private healthcare, which is probably beyond the reach of 80% of South Africans. Indeed, the cost differential between private and public healthcare is around 13 times. Given that 40% of the elderly in South Africa are classified as poor, private healthcare will service only a limited segment of the elderly population7. As we shall soon see, understanding these costs in both the private and public sector is relevant, but this is perhaps not the most important health issue ahead. Here, we need to be cognisant of a different set of costs: the costs of this â&#x20AC;&#x2DC;epidemic of frailtyâ&#x20AC;&#x2122;. The cost of the potentially eight to ten years of caring for the elderly when they are not sick as such, but are too frail to be on their own and care

for all their basic needs. On top of these costs is the potential cost of administering an estate when someone is no longer capable of making their own decisions. These are the costs that are often ignored by financial advisers in the long-term planning for oneâ&#x20AC;&#x2122;s so-called retirement. These are the costs that policymakers also have yet to really contemplate or plan for. When understood from this perspective, the cost of ageing goes significantly beyond medical costs. While Table 2 provides a breakdown of the costs (and the pros and cons) of different types of retirement and frail-care housing and servicing arrangements, here is a back-of-the-envelope calculation just to spark some thought:

Figure 15: The cost of care

Cost of medical aid

Cost of frail care

+ R28 000 a year

R190 000 a year

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7 Dr Sabastiana Kalula, Albertina and Walter Sisulu Institute for the Ageing.

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We can easily gauge that medical cover in South Africa may cost an individual around R28 000 a year during these later-life years. These are known costs. An individual’s need for long-term care, frail care or even intermediate remedial care is far less clear. What is known is what it’s likely to cost if you require it: the basic costs of frail care or in-home care are likely to add another R190 000 a year to expenses. These, of course, are private arrangement costs. The assumption is that if these kinds of costs are not affordable – and they won’t be to the vast majority of South Africans – our families will step in and take over the burden of care. Indeed, 47% of South Africans have indicated that they will depend on their children when they reach middle age8. But this arrangement is far from free. For example, HR professionals frequently identify ‘resignation or unpaid leave to care for a

family member’ as a significant factor behind the resignation of black females. One way or another, caregiving costs. It costs families, employers and the economy – even if the caregiving takes place outside the healthcare system. And this cost of care is about to radically increase. What can mitigate these costs, though, is a better understanding of what we should concern ourselves with here. We strongly urge you to review the findings that we set out in Part 2: Chapter 4. Ageing is not a medical problem, it’s a quality of life problem. Understand that the healthcare that’s required here is far different from the medical attention required when the average adult is sick. At the risk of repeating ourselves, the table below demands your attention ... again.

Chapter 5

The travesty is that unless you intentionally seek out person-centred, integrated care developed especially for seniors, you may well miss the opportunity to manage this critical aspect of your life effectively in terms of both cost and quality of life. At this point, South Africa has only six gerontologists (doctors who specialise in caring for the elderly). But the view of these professionals is fairly consistent when it comes to what you should be caring about most during all three phases of this transitional period: exercise, social connections, mental activity and your purpose in life. Armed with these insights, let’s get back to the matter at hand. How do we help you navigate your way through the complexity of these next three phases of your life?

Table 2: Conventional care versus older-person-centred and integrated care Conventional care

Older-person-centred and integrated care

Focuses on a health condition (or conditions)

Focuses on people and their goals

Goal is disease management or cure

Goal is maximising intrinsic capacity

Older person is regarded as a passive recipient of care

Older person is an active participant in care planning and self-management

Care is fragmeneted across conditions, health workers, settings and life course

Care is integrated across conditions, health workers, settings and life course

Links with healthcare and long-term care are limited or non-existent

Links with healthcare and long-term care exist and are strong

Ageing is considered to be a pathological state

Ageing is considered to be a normal and valued part of the life course

8 Old Mutual. 2015. Old Mutual Savings Survey 2015.

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Getting started The start of retirement is the fun phase. Assuming good health, the world is still wide open to you. Here are some important points to consider, though: ■■ Whatever benefits your employer provided, such as life cover, disability cover and medical aid, find out which ones you could continue with after you have left employment. ■■ If you need to continue earning an income, there are options besides taking a life’s worth of savings on the gamble that you might suddenly become a successful entrepreneur.

■■ The medical profession is beginning to recognise that stopping abruptly may actually be bad for your health. Negative health shocks (and mortality) are higher following retirement. Maybe, don’t retire completely – consider working part-time or at least stay active. ■■ Psychologically, our sense of self is often tied up with our profession or jobs. What happens when there’s no work? What’s your purpose? This sense of your self is inextricably linked to health and happiness. Don’t retire from something but rather to something (and for more than a few months). If you don’t have your ‘to’ then don’t retire. Don’t just exist, live with purpose.

• To find out if you have what it takes, talk to a group like the Awethu Project. They’ll give you a sense of what’s required and provide some measure of guidance. Or find a mentor you can partner with.

■■ Studies suggest that as we get older, we get happier. That should be good news. That dividend pays out best, though, when we recognise that friendships, relationships and community are integral to our health and happiness.

• If you would rather just find a way to turn your skills or other assets into cash, go to www.betterwages.co.za and explore the myriad ways you could earn an additional income.

■■ Withdrawing from work may be akin to withdrawing from a community. Frequently, people decide not to retire because they can’t imagine how to fill that gap. Your significant other may not be ready to shoulder the full responsibility there.

• Find out if your employer (or other employers) will pay for you to provide continued training and mentoring.

Ageing is not a medical problem, it’s a quality of life problem.

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Chapter 5

Three-phase retirement roadmap Phase 1: Active retiree Work

Question

Issues

Would you like to keep working?

Consider jobs where you can apply valuable skills: ■■ mentoring ■■ training ■■ consulting Consider looking at short-term gigs and part-time work: ■■ BetterWages website Consider reskilling through company-paid fellowships and other such grants.

Housing

Do you need to keep working?

See above

Are you thinking of embarking on your own business? How could you take the skills you have acquired throughout your life and convert them into an additional source of income?

Determine if you have what it takes to be an entrepreneur (emotional and business skills).

Are you looking forward to a well-deserved break and enjoying life?

Consider whether you have the financial wherewithal.

Have you found this all too difficult to contemplate?

Consider working one-on-one with a financial coach to get this conversation rolling.

Link in to an entrepreneurship mentoring programme: see The Awethu Project for their entrepreneurship app.

Want to still live alone? ■■ Stay put, or stay put and consider renting out extra space.

Is your bond paid off? If not, are the repayments manageable? Can you Airbnb rooms or portions of the house?

■■ Downsize or consider moving into a rental property where maintenance and security are provided for.

Start with the endgame in mind – make sure you don’t have to move more than once during this period. Consider what you will need to get all the way to the end.

Are you contemplating retirement living eventually?

Start examining the options (see our list at the end of this section). Now is the time to get on the waiting list. These are very long.

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Question

Issues

Life cover (including funeral), disability and severe illness cover

Can you continue with the insurance cover you have with your employer?

If yes, consider the level of cover you will need. If no, speak to your financial adviser.

How many dependants do you have? What is their level of dependency?

Consider any maximum cover ages on these policies as this will affect the protection of your dependants. This, too, could be costly, so discuss your options with your financial adviser. Financial planning should consider total costs for the relevant period for life.

Medical aid (including gap cover)

Use the opportunity to reassess your medical aid plan – is it sufficient? Will you need gap cover?

As we get older, medical costs increase dramatically and a good medical aid will assist with this. You will need to apply for a medical aid plan in your personal capacity. Once you leave your employer, you will be responsible for continuing with your medical aid contributions. Delaying this may leave you without cover at a critical time.

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Will you need frail care cover?

This may well be far too expensive or too limiting – but it’s worth checking out.

Health – other

Can you afford to join or continue your membership with a gym or other exercise programme?

The more you walk, the better for your brain. Make sure you know what your medical aid does and does not cover, and plan accordingly. This will be the last opportunity to get frail care cover, if necessary.

Short-term insurance

Are you downscaling or upscaling in respect of your assets?

Reassess your short-term insurance needs, such as motor vehicle and household insurance. Many insurers offer favourable premiums for older people, as generally your risk profile decreases as you get older.

Lifestyle financial planning

Do you want to leave your retirement The longer you can defer paying yourself from these savings, the better. savings in the fund or purchase an annuity? The cost of using an in-fund solution is significantly lower, so consider this first. Will you take the cash component?

This may be subject to your fund’s rules. What will you do with the cash portion? Make sure you don’t spend it until you have done a full financial plan for your future. The worst that could happen just might.

Do you have a budget?

Start by setting out a full budget that accounts for all three periods of retirement. List essential costs (including transport) and nice-to-haves. To understand these costs, track your actual spending in all areas over three months. Working backwards, create the budget you will need to potentially pare down to. Learn to ‘pay’ yourself each month and stay within that limit.

Are you likely to have enough to live off? If not, then what?

Look at the trade-offs you may need to make in order to fund your priorities. Start identifying discounted costs for seniors. Make sure all contracts are renegotiated to reflect senior citizen rates. Plan with your partner and let them know exactly what to expect financially when it comes to your retirement and on your death.

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Chapter 5

Phase 2: Passive retiree Things may start to slow down here. This is where the planning needs to begin in earnest with whomever will look after you and wherever you think you will likely live in the last phase. Consider reading Atul Gawande’s book, Being Mortal. This book provides invaluable insights into how to master the story of your life. Relationships are what will matter most in this period. What the Harvard 80-year study on ageing has highlighted is that the role of genetics and ancestors with long lives proved less important to longevity than the level of satisfaction with our relationships. Now, it’s about securing that quality of life to the end. Make sure you are ready for this now and in Phase 3.

Work – or perhaps now it’s life without work

Question

Issues

Are there ways to still generate small amounts of income?

■■ BetterWages website

What will now occupy your life Housing

■■ Mentoring, teaching Find ways to stay connected with people – this is a longevity booster.

Want to still live alone?

Make sure to plan how people can keep touch with you.

Downsize – renovate with age-friendly adaptations while you still can?

Start with the endgame in mind – make sure you don’t have to move more than once during this period. Consider what you will need to get all the way until the end.

Retirement housing? Make sure plans here are in order

Consider options such as nursing homes, retirement rental, life right schemes, sectional or full title, long lease, retirement villages, frail care and dementia centres. Ensure you are on a waiting list for when these become available. Consider moving now while you are still physically able.

Moving in with family?

Now may well be the time, as you can still add value as a family member before they would need to reciprocate.

Medical aid (including gap cover)

What does your medical aid cover and what are the gaps?

Plan accordingly. Your healthcare needs will be different now. Make sure to focus on healthy winding down by meeting with a gerontologist (specialist in ageing). If you have issues such as dementia it may be good to start talking to your loved ones about administration or executorship. Many people get too far without having planned for this.

Health-related issues

Are you keeping active?

Focus on balance, bones and brain.

Do your medical specialists know everything?

Keep walking. Make sure every doctor is aware of any prescriptions other doctors may have made.

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Question

Issues

Short-term insurance

Are you downscaling or upscaling in respect of your assets?

Keep revisiting these. Cancel whatâ&#x20AC;&#x2122;s not needed.

Other considerations

Do you need a companion or caregiver? Will Make sure you know the range of options here and how these may they live in or out? Will you need affect your budget. full-time or periodic care?

Lifestyle financial planning

Are you reassessing your budget and income generation each year?

Fine-tune budgets where required, bearing in mind the costs of the last five years of life.

Are you likely to have enough to live off? If not, then what?

Look at the trade-offs you may need to make in order to fund your priorities. Start identifying discounted costs for seniors. Make sure all contracts are renegotiated to reflect senior citizen rates.

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Chapter 5

Phase 3: Frail retiree At this stage, companionship, exposure to people of all ages, and being around living things are crucial to seeing out your days. Make sure you are familiar with community services that provide the kind of interaction you seek. Question

Issues

Housing

Who will be your caretakers and how does that inform where you live?

Look at where can you afford to live and how your life will become restricted.

Medical aid (including gap cover)

What does your medical aid cover and what Your healthcare needs will be different now. Make sure to focus on healthy are the gaps? winding down by meeting with a gerontologist (specialist in ageing).

Short-term insurance

Do you need all this cover?

Cancel any policies you no longer need. Make sure you know where to find the ones you do need.

Lifestyle financial planning

Is your budget still adequate?

By working backwards, create the budget you will need to potentially pare down to. Track your spending over three months to get an accurate picture. Learn to ‘pay’ yourself each month and stay within that limit.

Determine whether you are likely to have enough to live off of. If not, then what?

Play with scenarios that allow you to look at different trade-offs you may need to consider to satisfy your new priorities.

Keep on top of paperwork Throughout each phase, it’s important that you and the people who help to manage your affairs have easy access to important information and documents throughout your retirement: Question

Issues

Will and beneficiaries

Are your will and the beneficiaries on your investments up to date? Make sure you have someone you trust who will be able to make decisions on your behalf. Have a living will in place.

The trustees of your retirement investments have to consider your legal and financial dependants when distributing your death benefits.

Important records

Does your family know where to find important documents?

Store important documents and information somewhere that’s easy for them to access. Include: ■■ certified copies of your identity document, legal certificates, title deeds, etc. ■■ insurance policies ■■ bank accounts and policies ■■ passwords ■■ income tax number and records ■■ consumer accounts ■■ details of your will and executor ■■ details of your investments

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Weigh up your options for long-term care Table 3 gives examples of housing and care arrangements you can consider at or during retirement, and suggests some pros and cons for each.

Table 3: Weighing up the options for long-term care Type of housing

Old age or nursing Home-based homes (subsidised care or free care)

Retirement villages Retirement villages Retirement villages Retirement villages Life right schemes Rental schemes Sectional, full title Specialised care: or long lease Alzheimer’s or dementia

Examples

■■ TAFTA (Durban NPO)

■■ Elphin Lodge (Lyndhurst, Johannesburg)

■■ La Gratitude (Newcastle and Cape Town)

■■ Avondrust (Cape Town)

■■ Thembalami Care Centre (Lombardy East, Johannesburg)

■■ La Gratitude (Newcastle and Cape Town)

■■ TAFTA (Durban NPO)

■■ Retire@ Midstream (Centurion, Pretoria) ■■ Waterfall Mature Lifestyle Estate (Midrand, Johannesburg)

■■ La Gratitude (Newcastle and Cape Town) ■■ Livewell (Bryanston, Johannesburg and Cape Town) ■■ JURA Care Village (George) ■■ The Camphors (Hillcrest, Pietermaritzburg) ■■ Ron Smith Care Centre (Lyndhurst, Johannesburg)

Funding examples

Government: Full subsidy for retiree receiving full South African Social Security Agency (SASSA) pension: R2 857 a month Part subsidy based on income Donations: Trusts Foundations Corporates Religious groups Individual donors (estates)

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Donations or contributions Retiree’s own cost

Retiree’s own cost: From R1.3 million+

Retiree’s own cost (per month) Flat: R3 560+ Cottage: R2 800+ Frail care (single): R7 160+

Retiree’s own cost Property price market value Sectional title: R2.3 million +

Full title: Frail care (sharing): R3.2 million + R6 340+ Long lease (99 years): R2.8 million +

Retiree’s own cost (per month): Base rate: R15 000 + Extras (toiletries, medical care) for own account – no medical aid or government subsidy

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Type of housing Range of services

Old age or nursing Home-based homes (subsidised care or free care) ■■ Daily ■■ Three meals housekeeping daily

Retirement villages Retirement villages Retirement villages Life right schemes Rental schemes Sectional, full title or long lease ■■ Daily ■■ Daily ■■ Recreational housekeeping housekeeping activities

■■ Three meals daily

■■ Telephonic check-in

■■ Three meals daily

■■ Transportation for medical appointments

■■ Emergency response

■■ Transportation for medical appointments

■■ Recreational activities

■■ Occupational therapy

■■ Personal grooming

■■ Pet therapy

■■ Frail care

■■ Sensory stimulation

■■ Recreational activities ■■ Personal grooming ■■ Frail care

■■ Rental equipment ■■ Care companion

■■ Personal grooming ■■ Repair person ■ ■ Frail care ■■ Housekeeping

Free or subsidised

Retirement villages Specialised care: Alzheimer’s or dementia ■■ Couples’ residence ■■ Day care

■■ ■■ Nurse home visit ■■ ■■ Access to private ■■ hospital ■■

Frail care Support groups Companionship Recreational activities

■■ Palliative care ■■ Personal grooming ■■ Assistance with daily living

■■ Personal grooming

Pros

■■ Frail care

Chapter 5

■■ End-of-life care ■■ Transportation for medical appointments Freedom of living ■■ Lower monthly ■■ Maintenance ■■ Prices on market ■■ Specialised care in one’s own forces facility levies costs borne by home managing agents ■■ Ability to sell ■■ Less capital or transfer required to invest ■■ Access to care ownership (no transfer duty facility or bond costs) ■■ Maintenance costs borne by ■■ Maintenance managing agents costs borne by or developer developer or managing agents ■■ Access to care facility

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Type of housing Cons

Old age or nursing homes (subsidised or free care) Perceived lower standard of living

Home-based care Medical response times may be slower

Retirement villages Retirement villages Retirement villages Life right schemes Rental schemes Sectional, full title or long lease ■■ Life rights ■■ Rental inflation ■■ Inherent risks9 faced by terminate on may render investing in a the death of the retiree unable retirement village holder (cannot to keep up with off-plan, taking be bequeathed) payments occupation ■■ No ownership ■■ Downsizing of unit in ■■ Downsizing ■■ May be lack of incomplete privacy ■■ May be lack of development privacy ■■ Some have a ■■ Levies may be no-pets policy ■■ Some have a high no-pets policy ■■ Downsizing

Retirement villages Specialised care: Alzheimer’s or dementia ■■ Entirely for the retiree’s own cost ■■ May be lack of privacy

■■ May be lack of privacy Make a point of investigating facilities that subscribe to The Eden Alternative model.

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9 Kilbourn, L. 2008. Retirement villages: an introduction to their legal nature, applicable legislation and the risks faced by investors in such schemes (2). Smith Tabata Buchanan Boyes.

PREVIOUS PART I HOME I NEXT PART

PART 6 THE ISSUES, THE BAROMETER AND THE DATA Chapter 1: The issues

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Chapter 2: The sector case studies

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PART 6 Introduction

BENEFITS BAROMETER 2017

THE ISSUES This chapter provides a cursory summary of the 14 most important issues we have identified as potential impediments to employee well-being and the successful implementation of a meaningful employee benefits programme in South Africa. While we commented in detail on these issues in the 2013 edition, we felt it would be useful to understand whether circumstances relating to these issues might have changed in any way since that first analysis. This year simply provides a high-level description of each issue, so we urge you to look at the full discussion in previous editions for the full context.

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Here, though, is an important observation: over the last five years, Alexander Forbes has been developing solutions for employers to address each of these issues. For example, employee wellness programmes that deal with financial, emotional and physical well-being will go a long way to addressing issues in unhealthy finances, absenteeism and presenteeism, incapacity, young workers, low-income workers, choice, and books bricks and beyond. A customised benefits platform will attract young workers and minimise employee turnover, address some of the needs of low-income families, and further address

the books bricks and beyond issues. A skills programme designed for how people learn will help to deal with books, bricks and beyond, longevilty, mass exits, young workers, and high turnover issues. By next year, we believe we can introduce a very different discussion in this segment of the book.

THE ISSUES, THE BAROMETER AND THE DATA

PART 6 Chapter 1

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Unhealthy finances Unhealthy personal finances can lead to unhealthy employer finances. This is essentially all about employee financial well-being. Problems highlighted were: ■■ high employee turnover ■■ increased levels of absenteeism and presenteeism ■■ low employee morale ■■ employee healthcare problems ■■ increased levels of fraud, theft and on-the-job accidents In Benefits Barometer 2015 we catalogued the programmes that are emerging in the workplace to deal with debt, financial well-being and financial capability. We further detailed what appeared to be working and what didn’t. Most importantly, we identifed what the financial services industry needs to do to better address these needs. This year, after a number of financial well-being programmes have emerged, we provided an analysis of how we felt such a programme could be optimally structured.

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Low-income earners and incentives

Absenteeism and presenteeism

In examining benefits for low-income earners in the South African system we found that:

Absenteeism in the workplace is a direct cause of lost productivity for an employer. When absenteeism is not managed correctly, employees tend to view their sick leave as an entitlement, using their full benefit.

■■ because of the means test for the Grant for Older Persons, saving for retirement simply doesn’t make sense for many low-income earners ■■ low-cost risk benefits through a group arrangement are important for workers who support a large number of dependants ■■ joining a medical scheme doesn’t make sense for workers earning under R72 000 a year because they lose access to free hospital treatment at government facilities Beyond government-provided benefits, retail products available to individuals are not cost-effective for low-income earners. Employers may need to include lower-income earners on occupational funds if they’re not catered for by the government. In examining the incentive structure for savings, we propose that in an optimal benefit structure for low-income earners, the government should match contributions. Not only is this easier for workers to understand, but it also fosters partnership with the government.

Monitoring and managing sick leave effectively is critical to detect disability claims before they occur, since temporary absence may be a sign of a disability claim that could become protracted. Presenteeism is the practice of employees coming to work despite illness, injury or anxiety over personal issues. Presenteeism can also have a direct impact on productivity since, despite physically being at work, the employee produces sub-standard work, if any work at all. Recent research shows a strong link between unhealthy finances and presenteeism. This year, in Part 3: Chapter 3, we describe in detail how an employee wellness programme could be structured to minimise both absenteeism and presenteeism, to the benefit of employers and employees.

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Incapacity

Temporary workers

Choice

The strain experienced from incapacity in some industries may warrant early retirement. Key indicators include physical strain, emotional strain and use of physical strength and flexibility. Companies that manage incapacity in the workplace correctly can better mitigate cross-over into disability benefits and manage benefit premiums.

Temporary or contract workers include fixed-term contractors, project contractors and casual workers who work no more than 24 hours in a month.

Individuals face a multitude of choices but don’t have a clear grasp of the interconnectedness and implications of their decisions, particularly when it comes to their finances.

In Benefits Barometer 2016 we described how employers can create more effective incapacity management programmes designed to get workers back on the job as quickly as possible.

■■ varying employment periods

Their shared characteristics include: ■■ volatile and non-continuous pay ■■ high turnover ■■ temporary relationship with a given employer These characteristics make providing access to retirement funds and risk benefits extremely tricky. With the rise of the ‘gig’ economy and the prospect of increasing longevity, we believe that policymakers and employers may have to give the concept of temporary workers a complete rethink. This means, however, that the need for some sort of savings and risk benefits protection for these types of workers is more necessary than ever.

Chapter 1

The challenge is to identify which decisions individuals need to make and how many are best managed by defaults, which preserve an individual’s sovereignty but guide outcomes more carefully. The impetus from National Treasury for pension funds to include defaults for investments, preservation and annuitisation as a means to better address the choice dynamic is building. While defaults provide one answer to the problem, this option becomes more compelling if the solutions can be tailored to an individual’s specific circumstances. These types of products will be appearing in the coming year.

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Bricks and books and beyond South Africans greatly value in-kind benefits from employers in two areas: housing (bricks) and education (books), and both act as partial substitutes for retirement savings (beyond). Given their importance, there may be reason to allow both pension-backed lending and pension fund withdrawal for these two purposes. Other ways employers could help employees with these two areas include subsidies and education trusts. The challenge here is to consider the tax implications of fringe benefits. Thie 2016 edition of Benefits Barometer described a new way we could more effectively integrate housing and education into a long-term savings framework. This year we show additional ways in which employers can integrate housing, education and skills development assistance programmes into a benefits package.

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Strikes

Young workers

Strikes are a primary issue because of the unintended consequences for employee benefits. When members canâ&#x20AC;&#x2122;t pay contributions towards group risk benefits or medical aid, these safety nets can vanish when workers need them the most. Another issue is that if employees are dismissed during the heat of negotiations, they may withdraw retirement savings to cover their lost income.

We see an increasing need to change the conversation between employers and new members from debating contract terms to establishing an agreement. Instead of focusing on what the take-home pay will be, the new entrant needs to understand and appreciate that the employer will make available to them the means to maintain a certain level of mental, physical and financial well-being through their employee benefits offering. In turn, the employee needs to commit to maintaining those levels. In this yearâ&#x20AC;&#x2122;s Benefits Barometer we demonstrate ways to structure benefits packages that go much further in engaging with young workers and providing more effective ways to address their specific needs.

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Pensionable pay

Variability in salary inflation

Mass exits

Pensionable pay is embedded in many individuals’ contracts, but often goes completely unnoticed, or is misunderstood. The key problem with this is the gaps it creates in employee protection – both for retirement and risk. For instance, if an employee’s pensionable pay is 70% and their fund’s replacement ratio target is 75%, this means the fund is aiming to provide a post-retirement income that is 52.5% of the employee’s pre-retirement income.

In previous years, real salary increases were above 9% for younger members. Salary increases raise an employee’s standard of living but often translate into increased borrowing and consumption rather than savings. The result is that retirement savings don’t keep pace with lifestyles.

When a significant number of employees leave the company either through retrenchments or corporate activity, there’s typically enough lead time for contingency planning. This is not the case with strike action.

From a tax perspective, the concept of pensionable pay has fallen away. But employers may still decide to retain the concept as it allows them to provide employees with higher take-home pay. If this is the case, companies will need to find more effective ways to communicate the concept, as employees continue to find it particularly confusing.

Another problem with high salary inflation is that it may well exceed the assumed rate used to calculate projections of replacement ratios. Unless members adjust their contribution rates or benefit expectations, there’s likely to be a shortfall at retirement.

Chapter 1

Being retrenched when the prospect of a new job is poor can lead to individuals using their retirement savings to fund their lifestyles. In the case of transfers, members sometimes have the option of accessing their funds even though they will likely join the new employer’s fund. This would not be a bad thing if members acted responsibly, but low preservation rates indicate the opposite.

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Longevity

Informal workers

High employee turnover

Men and women retiring at 65 can expect to live another 16 and 20 years respectively, of which seven to nine of those years will be spent in relatively good health. On average, defined contribution fund members could expect to retire on 39% of their final pensionable income.

This group includes informally employed domestic workers and gardeners, some types of construction workers, and hawkers and traders. In providing benefits for informal workers, the fund sponsor would have to deal with the following challenges:

This is a structural issue in a sector where large proportions of employees exit regularly as a result of either cyclical requirements in an industry with boom-bust dynamics or high levels of competition for skills.

We are slowly moving towards a world where the concept of retirement may be dramatically altered. Not only will people find themselves too financially strapped to retire, but improvements in our health mean we will be able to contribute meaningfully for significantly longer. This year, several chapters in Benefits Barometer 2017 deal with the notion of the hundred-year life and how employers could rethink their engagements with workers who have passed retirement but are still capable of adding significant value to the organisation.

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■■ cost, which must be rock bottom ■■ administration, which must address the demands of a transient population of no particular fixed address or employment ■■ intermittent employment of indeterminate length

Long-term investment strategies or dynamic benefit structures that shift members’ benefit exposures according to their lifecycle requirements are interrupted when members transfer to new funds or strategies. Similarly, high employee turnover undermines such compelling strategies as auto-escalation, where employees’ contribution rates are gradually increased when their salaries are adjusted. If an employee is constantly switching companies, they would also always be on the lowest contribution band. With advances in HR data analytics, we now have models that can help employers identify which employees are likely to leave in the near term, thereby significantly reducing the cost impact of turnover.

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Chapter 1

DATA SET Member Watch™ 2016 data set The Member Watch™ data set is a database containing information of individual members of retirement funds administered by Alexander Forbes Financial Services. The analysis prepared for Beneﬁts Barometer 2017 used data as at 31 December 2016. The number of funds in each sector was large enough to give credible results.

Number of funds per sector

Note that public sector funds in our analysis include a small number of municipalities that sit outside the Government Employees Pension Fund. Comments made about funds in the public sector are not necessarily applicable to members in the Government Employees Pension Fund.

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Number of funds per sector

The large number of members in each sector suggests the data on member behaviour is likely to be relatively credible. The retirement fund consists of 1 161 496 members and 1 522 funds. We combined this data with fund data where we could not find an appropriate sector classification or where the client’s operations were diversified in holding companies, for example.

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Chapter 1

THE BAROMETER

The concept behind the benefits barometer is to provide a constant ‘barometric reading’ of the state of employee benefits in South Africa. To some extent this can be achieved by simply looking at the data. The Alexander Forbes Member WatchTM database gives a comprehensive view of the employee benefit offerings for all our 1 522 employer clients, covering 1 161 496 members.

But the data can only take us so far. We also need to keep abreast of both the external and internal challenges that limit the opportunities for employers to do more and for employees to extract the full value of what’s on offer. These external dynamics incorporate the state of the nation – from an economic, political and social perspective. They relate to policy changes in labour law, pension reform, and reporting on environmental, social and governance issues. While these dynamics may be out of an employer’s control, they certainly demand that employers stay up to date. Our discussions in the Issues segment of this chapter refer to some of those developments.

Then there are the internal dynamics – the aspects of corporate policy that reflect how employers are responding to their marketplace, the competition for talent, and the need for employee engagement. These choices also produce knock-on issues that may have far-reaching consequences for a company’s sustainability. What the benefits barometer provides is a comprehensive collection of all these elements – the data, the insights, and the measurement of impact – so that employers can make better-informed decisions.

The data can only take us so far. We also need to keep abreast of external and internal challenges that limit the opportunities for employers to do more and for employees to extract the full value of what’s on offer.

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The Alexander Forbes benefits barometer provides a measurement of which issues are likely to create the greatest impediments to implementing an employee benefits programme. Typically, we indicate whether a specific issue would be categorised as high priority, medium priority or low priority. We also present an aggregate picture of the high-priority issues for different South African sectors.

CONSTRUCTION Bricks and books and beyond High employee turnover Incapacity Low-income earners and incentives Unhealthy finances

EDUCATION Absenteeism and presenteeism Bricks and books and beyond Longevity Strikes Unhealthy finances

ENERGY Absenteeism and presenteeism Choice Variability in salary inflation Incapacity

FISHING, FORESTRY AND AGRICULTURE Absenteeism and presenteeism Bricks and books and beyond Incapacity Low-income earners and incentives Pensionable pay Strikes Temporary workers Informal workers Unhealthy finances

High employee turnover Longevity Young workers Unhealthy finances

HOSPITALITY SECURITY High employee turnover Low-income earners and incentives Temporary workers Informal workers Unhealthy finances

PROFESSIONAL AND BUSINESS SERVICES MANUFACTURING Low-income earners and incentives Mass exits Pensionable pay Absenteeism and presenteeism Strikes Unhealthy finances

Choice Variability in salary inflation Inflation Longevity Pensionable pay Young workers

PUBLIC SECTOR MINING Absenteeism and presenteeism Bricks and books and beyond Variability in salary inflation Incapacity Mass exits Strikes Temporary workers Informal workers Unhealthy finances

HEALTH Absenteeism and presenteeism Incapacity Longevity Strikes Unhealthy finances

286

BAROMETER PRIORITIES

MEDIA AND MARKETING

Absenteeism and presenteeism Bricks and books and beyond Longevity Strikes Unhealthy finances

RETAIL AND WHOLESALE High employee turnover Low-income earners and incentives Pensionable pay Temporary workers Young workers Informal workers Unhealthy finances

Low-income earners and incentives Temporary workers Young workers Absenteeism and presenteeism Informal workers Unhealthy finances

TRANSPORT Incapacity Absenteeism and presenteeism

TELECOMMUNICATIONS Choice Temporary workers Informal workers Young workers Unhealthy finances Pensionable pay

THE SECTOR CASE STUDIES

PART 6 Chapter 2

THE SECTOR CASE STUDIES

THE DATA

This section provides summary infographics and data for our entire Alexander Forbes Member WatchTM database and for each of the 10 basic industry sectors. In each sector we summarise the employee benefits offered, the percentage of employers offering each benefit and details of the projected replacement ratio benefits for each sector. We also include the Integrated Reporting & Assurance Services (IRAS) data. Each year, IRAS produces an annual review of the sustainability reporting of all the companies listed on the Johannesburg Stock Exchange. Using elements of the King Code of Governance and the Global Reporting Initiative Guidelines for Sustainability Reporting as the basis for assessing accountability, IRAS tests levels of transparency by data-mining the public record for evidence of critical disclosures. This year, we have specifically selected data that captures employer policies directed at employee well-being and human capital development.

288

1 See www.alexanderforbes.co.za. 2 Benefits Barometer, 2014, Part 1: Chapter 1.

Over the last four years of Benefits Barometer, weâ&#x20AC;&#x2122;ve found that our audience has slowly become more focused on the commentary at the front of the book and less on the aggregate data recorded at the back. The data is still critical, but making it available through our online research portal is perhaps a more effective way to engage with it (and keep our forests intact1). This year we provide the data as an aggregate infographic based on the full Member WatchTM 2017 data set. We then provide summary infographics for each of the sectors and several of the underlying subsectors. We include a demographic profile of each sector (number of employees, gender split, average age, average actual retirement age, average exit rate, average preservation rate and projected replacement ratio for a member aged 25) to contextualise the main focus of the data presented for

each sector: a representation of the current risk and retirement benefit structures and how well they meet the needs of employees in these sectors. We also include statistics on the average replacement ratio retirees achieved and the annuitisation rate in each sector to highlight exactly how well members are faring. Our final addition to each chapter is a graph summarising how prevalent each type of risk benefit is in the sector. Common benefits include lump-sum death benefits, income disability policies and funeral cover. An employer interested in at least matching the offering of their competitors should find this graph useful. An employer looking to become an employer of choice should consider what they can offer beyond the commonly offered benefits. We also included a broader discussion on this topic in Benefits Barometer 20142.

PART 6

THE SECTOR CASE STUDIES

Aggregate data from Member WatchTM 2017

54.33 %

45.67 %

R253 401

R304 751

Average pensionable salary

Average fund credit of active members

Average member contribution towards retirement funding

Average employer contribution towards retirement funding

0.69 % Average expense allocation rate

42.90 % Average projected replacement ratios of active members

18.66 % Preservation rate (excludes Section 14 transfers)

29.22 % Average replacement ratio achieved by retirees

63.60 years Average normal retirement age

Chapter 2

14.38 % Total average contribution rate towards retirement funding

14.11 % Exit rate

62.48 years Average actual retirement age

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PART 6

CONSTRUCTION

CONSTRUCTION SECTOR Companies involved in the construction of residential and commercial buildings as well as infrastructure projects.

Chapter 2

DEMOGRAPHIC PROFILE

21 044

Number of employees

Average pensionable salary

R224 476 Average age Male

45.2 years

77.2%

Female

22.8%

Average normal retirement age

64.5 years

Average actual retirement age

63.1 years

Average exit rate Average preservation rate

19.3% 3.32%

Projected replacement ratio for a member aged 25 Examples: Tiber Group and WBHO Construction

53.9%

Source: Member Watchâ&#x201E;˘ 2017 data set

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CONSTRUCTION

Benefits overview – a high-level summary of benefits Total contribution towards retirement funding as a percentage of pensionable pay

13.32%

Member contribution towards retirement savings as a percentage of pensionable pay

3.83%

Employer contribution towards retirement savings as a percentage of pensionable pay

10.2%

Contribution to retirement funding costs as a percentage of pensionable pay

0.8%

Contribution to death benefits as a percentage of pensionable pay

2.4%

Contribution to disability benefits as a percentage of pensionable pay

0.8%

Average replacement ratio achieved by retirees

37.5%

Average fund credit of active members

R220 377

Source: Member Watch™ 2017 data set

Breakdown of benefits offered

Retirement benefit analysis

Percentage of employers offering each type of benefit

Percentage split of members’ projected replacement ratio benefits

92.45% 100% 90% 80% 71.70%

Proportion of members

67.92%

5.66%

3.77%

70% 60% 50% 40% 30% 20%

3.77%

4.89% 10% 0%

FNC

GLA

DD: Dread disease cover FNC: Funeral cover GLA: Approved lump-sum death cover PHI: Disability income benefits

292

PHI

PTD

TTD

UGL

PTD: Permanent disability benefits TTD: Total disability benefits UGL: Unapproved lump-sum death benefit

Age band 75% +

60% to 75%

Source: Member Watch™ 2017 data set

30% to 60%

0% to 30%

PART 6

CONSTRUCTION

Compensation

Labour

Occupational Health and Safety

Corporate Social Investment (CSI) and Socio-economic Development (SED)

Average compensation per employee and contractors (rands)

294 283.86

Ratio of average compensation paid to executive directors relative to average compensation paid to employees – excluding LTIP*

19.69

Average rand value of funds invested in research and development

10 326 000.00

Percentage of employees who are 'permanent'

78.0%

Percentage of employees who belong to a trade union

42.6%

Employee turnover (i.e., number of persons who departed relative to the total number of employees at year end)

11.6%

Total number of person hours worked (HW) – calculated (i.e., 1 824 HW multiplied by total workforce at year end)

178 270 464.00

Percentage of employees trained in South Africa (NEW)

82.2%

Percentage of training spend in South Africa (NEW)

94.8%

Percentage of total person days lost due to absenteeism – calculated or reported

5.1%

Percentage of total person days lost due to industrial action – calculated or reported

0.1%

Number of lost time injuries (LTIs, i.e., injuries on duty leading to at least one lost day)

102.00

Fatal injury frequency rate (FIFR, i.e., number of fatalities per 200 000 person hours worked) – calculated

2.9%

Lost time injury frequency rate (LTIFR, i.e., number of LTIs per 200 000 person hours worked) – reported

78.2%

Percentage rand value of CSI/SED expenditures – reported

5 553 818.07

Percentage rand value of CSI/SED spend on education

4 044 511.25

Percentage rand value of CSI/SED spend on infrastructure development

527 600.00

Percentage rand value of CSI/SED spend on skills development, including adult basic education and training (ABET)

850 000.00

Percentage rand value of CSI/SED spend on small business development projects (NEW)

43 000.00

Percentage CSI spend as a percentage of net profit after tax (NPAT)

-0.4%

Rand value of enterprise development spend (i.e., support for small business)

16 490 622.33

Chapter 2

* LTIP – long-term incentive plan Source: IRAS 2017 data

293

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ENERGY

ENERGY SECTOR Companies involved in the extraction, refinement and supply of oil and gas products throughout the country. Water services and energy utility companies have also been included.

Chapter 2

DEMOGRAPHIC PROFILE

11 325

Number of employees

Average pensionable salary

R444 611 Average age

Male

44.79 years

65.5%

Female

63 years

Average normal retirement age Average actual retirement age

35.5%

62.6 years

Average exit rate Average preservation rate

8.8% 15.36%

Projected replacement ratio for a member aged 25

Examples: Engen Petroleum and Eskom Holdings

52.5%

Source: Member Watchâ&#x201E;˘ 2017 data set

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ENERGY

Benefits overview – a high-level summary of benefits Total contribution towards retirement funding as a percentage of pensionable pay

14.0%

Member contribution towards retirement savings as a percentage of pensionable pay

2.2%

Employer contribution towards retirement savings as a percentage of pensionable pay

12.6%

Contribution to retirement funding costs as a percentage of pensionable pay

0.89%

Contribution to death benefits as a percentage of pensionable pay

1.44%

Contribution to disability benefits as a percentage of pensionable pay

0.9%

Average replacement ratio achieved by retirees

38.1%

Average fund credit of active members

R752 961

Source: Member Watch™ 2017 data set

Breakdown of benefits offered

Retirement benefit analysis

Percentage of employers offering each type of benefit

Percentage split of members’ projected replacement ratio benefits

97.06% 100% 90% 80%

Proportion of members

70.59% 61.76%

8.00%

2.94%

1.0%

70% 60% 50% 40% 30% 20%

5.88% 10% 0%

FNC

GLA

DD: Dread disease cover FNC: Funeral cover GLA: Approved lump-sum death cover PHI: Disability income benefits

296

PHI

PTD

TTD

UGL

PTD: Permanent disability benefits TTD: Total disability benefits UGL: Unapproved lump-sum death benefit

Age band 75% +

60% to 75%

Source: Member Watch™ 2017 data set

30% to 60%

0% to 30%

PART 6

ENERGY

Chapter 2

IRAS – Data for Benefits Barometer 2017 Compensation

Labour

Occupational Health and Safety

Corporate Social Investment (CSI) and Socio-economic Development (SED)

Average compensation per employee and contractors (rands)

457 933.06

Ratio of average compensation paid to executive directors relative to average compensation paid to employees – excluding LTIP*

45.86

Average rand value of funds invested in research and development

502 567 066.67

Percentage of employees who are 'permanent'

84.8%

Percentage of employees who belong to a trade union

77.8%

Employee turnover (i.e., number of persons who departed relative to the total number of employees at year end)

7.6%

Total number of person hours worked (HW) – calculated (i.e., 1 824 HW multiplied by total workforce at year end)

190 434 720.00

Percentage of employees trained in South Africa (NEW)

100.0%

Percentage of training spend in South Africa (NEW)

68.2%

Percentage of total person days lost due to absenteeism – calculated or reported

0.0%

Percentage of total person days lost due to industrial action – calculated or reported

0.0%

Number of lost time injuries (LTIs, i.e., injuries on duty leading to at least one lost day)

202.00

Fatal injury frequency rate (FIFR, i.e., number of fatalities per 200 000 person hours worked) – calculated

2.8%

Lost time injury frequency rate (LTIFR, i.e., number of LTIs per 200 000 person hours worked) – reported

135.0%

Percentage rand value of CSI/SED expenditures – reported

49 574 782.53

Percentage rand value of CSI/SED spend on education

14 650 583.33

Percentage rand value of CSI/SED spend on infrastructure development

23 224 236.67

Percentage rand value of CSI/SED spend on skills development, including adult basic education and training (ABET)

5 333 333.33

Percentage rand value of CSI/SED spend on small business development projects (NEW)

–

Percentage CSI spend as a percentage of net profit after tax (NPAT)

2.2%

Rand value of enterprise development spend (i.e., support for small business)

17 550 000.00

* LTIP – long-term incentive plan Source: IRAS 2017 data

297

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FISHING, FORESTRY AND AGRICULTURE

FISHING, FORESTRY AND AGRICULTURE SECTOR Companies involved in farming of crops, fishing and various stages of production and supply of paper products. Food producers in this sector are farmers involved in the earliest stage of food production.

Chapter 2

DEMOGRAPHIC PROFILE

15 543

Number of employees

Average pensionable salary

R139 035 46 years

Average age Male

69.3%

Female

30.70%

Average normal retirement age

63.8 years

Average actual retirement age

61.1 years

Average exit rate Average preservation rate

11.7% 6.2%

Projected replacement ratio for a member aged 25 Examples: Pride Milling Company and Oceana Group

57.6%

Source: Member Watchâ&#x201E;¢ 2017 data set

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FISHING, FORESTRY AND AGRICULTURE

Benefits overview – a high-level summary of benefits Total contribution towards retirement funding as a percentage of pensionable pay

15.5%

Member contribution towards retirement savings as a percentage of pensionable pay

6.0%

Employer contribution towards retirement savings as a percentage of pensionable pay

10.5%

Contribution to retirement funding costs as a percentage of pensionable pay

1.1%

Contribution to death benefits as a percentage of pensionable pay

1.9%

Contribution to disability benefits as a percentage of pensionable pay

1.4%

Average replacement ratio achieved by retirees

42.9%

Average fund credit of active members

R215 243

Source: Member Watch™ 2017 data set

Breakdown of benefits offered

Retirement benefit analysis

Percentage of employers offering each type of benefit

Percentage split of members’ projected replacement ratio benefits 100%

80.00%

90% 70.00%

80%

Proportion of members

56.67%

70% 60% 50% 40% 30% 20%

3.33%

1.10%

4.33%

1.67%

10% 0%

FNC

GLA

DD: Dread disease cover FNC: Funeral cover GLA: Approved lump-sum death cover PHI: Disability income benefits

300

PHI

PTD

TTD

UGL

PTD: Permanent disability benefits TTD: Total disability benefits UGL: Unapproved lump-sum death benefit

Age band 75% +

60% to 75%

Source: Member Watch™ 2017 data set

30% to 60%

0% to 30%

PART 6

FISHING, FORESTRY AND AGRICULTURE

Chapter 2

IRAS – Data for Benefits Barometer 2017 Compensation

Average compensation per employee and contractors (rands) Ratio of average compensation paid to executive directors relative to average compensation paid to employees – excluding LTIP* Average rand value of funds invested in research and development Percentage of employees who are 'permanent' Percentage of employees who belong to a trade union Employee turnover (i.e., number of persons who departed relative to the total number of employees at year end)

Labour

Total number of person hours worked (HW) – calculated (i.e., 1 824 HW multiplied by total workforce at year end) Percentage of employees trained in South Africa (NEW) Percentage of training spend in South Africa (NEW) Percentage of total person days lost due to absenteeism – calculated or reported Percentage of total person days lost due to industrial action – calculated or reported

Data not available

Number of lost time injuries (LTIs, i.e., injuries on duty leading to at least one lost day) Occupational Health and Safety

Fatal injury frequency rate (FIFR, i.e., number of fatalities per 200 000 person hours worked) – calculated Lost time injury frequency rate (LTIFR, i.e., number of LTIs per 200 000 person hours worked) – reported Percentage rand value of CSI/SED expenditures – reported Percentage rand value of CSI/SED spend on education

Corporate Social Investment (CSI) and Socio-economic Development (SED)

Percentage rand value of CSI/SED spend on infrastructure development Percentage rand value of CSI/SED spend on skills development, including adult basic education and training (ABET) Percentage rand value of CSI/SED spend on small business development projects (NEW) Percentage CSI spend as a percentage of net profit after tax (NPAT) Rand value of enterprise development spend (i.e., support for small business)

* LTIP – long-term incentive plan Source: IRAS 2017 data

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PART 6

MANUFACTURING

MANUFACTURING SECTOR This includes various industries: chemical and plastics, electrical and components, technological products, food and beverages, metals, motor vehicles, pharmaceuticals and textiles. Companies that produce consumer durables and non-durables from raw materials and chemicals, and food and beverage producers involved in the intermediate stages of food production and distribution, are also included.

Chapter 2

DEMOGRAPHIC PROFILE

123 083

Number of employees

Average pensionable salary

R264 283 42 years

Average age Male

64.06%

Female

35.94%

Average normal retirement age

64.3 years

Average actual retirement age

61.7 years

Average exit rate Average preservation rate

13.6% 7.45%

Projected replacement ratio for a member aged 25

Examples: NestlĂŠ, Tiger Brands, Macsteel and BMW

56.4%

Source: Member Watchâ&#x201E;˘ 2017 data set

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Benefits overview – a high-level summary of benefits Total contribution towards retirement funding as a percentage of pensionable pay

14.2%

Member contribution towards retirement savings as a percentage of pensionable pay

4.7%

Employer contribution towards retirement savings as a percentage of pensionable pay

10.2%

Contribution to retirement funding costs as a percentage of pensionable pay

0.7%

Contribution to death benefits as a percentage of pensionable pay

1.8%

Contribution to disability benefits as a percentage of pensionable pay

1.2%

Average replacement ratio achieved by retirees

42.3%

Average fund credit of active members

R404 141

Source: Member Watch™ 2017 data set

Breakdown of benefits offered

Retirement benefit analysis

Percentage of employers offering each type of benefit

Percentage split of members’ projected replacement ratio benefits

89.24%

100%

83.29%

90%

Proportion of members

80%

60.06%

70% 60% 50% 40% 30% 20%

3.68%

0.85%

3.12%

10% 0%

FNC

GLA

DD: Dread disease cover FNC: Funeral cover GLA: Approved lump-sum death cover PHI: Disability income benefits

304

PHI

PTD

TTD

UGL

PTD: Permanent disability benefits TTD: Total disability benefits UGL: Unapproved lump-sum death benefit

Age band 75% +

60% to 75%

Source: Member Watch™ 2017 data set

30% to 60%

0% to 30%

PART 6

MANUFACTURING

Chapter 2

IRAS – Data for Benefits Barometer 2017 Compensation

Labour

Occupational Health and Safety

Corporate Social Investment (CSI) and Socio-economic Development (SED)

Average compensation per employee and contractors (rands)

270 545.41

Ratio of average compensation paid to executive directors relative to average compensation paid to employees – excluding LTIP*

855.89

Average rand value of funds invested in research and development

277 214 000.00

Percentage of employees who are 'permanent'

90.3%

Percentage of employees who belong to a trade union

35.7%

Employee turnover (i.e., number of persons who departed relative to the total number of employees at year end)

14.4%

Total number of person hours worked (HW) – calculated (i.e., 1 824 HW multiplied by total workforce at year end)

313 259 232.00

Percentage of employees trained in South Africa (NEW)

96.0%

Percentage of training spend in South Africa (NEW)

82.4%

Percentage of total person days lost due to absenteeism – calculated or reported

11.1%

Percentage of total person days lost due to industrial action – calculated or reported

0.0%

Number of lost time injuries (LTIs, i.e., injuries on duty leading to at least one lost day)

159.00

Fatal injury frequency rate (FIFR, i.e., number of fatalities per 200 000 person hours worked) – calculated

0.9%

Lost time injury frequency rate (LTIFR, i.e., number of LTIs per 200 000 person hours worked) – reported

182.9%

Percentage rand value of CSI/SED expenditures – reported

19 189 760.40

Percentage rand value of CSI/SED spend on education

5 100 187.50

Percentage rand value of CSI/SED spend on infrastructure development

322 387.50

Percentage rand value of CSI/SED spend on skills development, including adult basic education and training (ABET)

675 000.00

Percentage rand value of CSI/SED spend on small business development projects (NEW)

–

Percentage CSI spend as a percentage of net profit after tax (NPAT)

1.2%

Rand value of enterprise development spend (i.e., support for small business)

122 150 000.00

* LTIP – long-term incentive plan Source: IRAS 2017 data

305

PART 6

MINING

MINING SECTOR Companies involved in the extraction and supply of basic raw materials throughout the economy, including coal, steel and precious metals. Companies providing maintenance and technological services solely to mines have also been included.

Chapter 2

DEMOGRAPHIC PROFILE

25 241

Number of employees

Average pensionable salary

R302 225 40 years

Average age

Male

82.00%

Average normal retirement age Average actual retirement age

Female

18.00%

63.4 years 61 years

Average exit rate Average preservation rate

5.7% 3.00%

Projected replacement ratio for a member aged 25

Examples: BHP Billiton and Xstrata

61.6%

Source: Member Watchâ&#x201E;˘ 2017 data set

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MINING

Benefits overview – a high-level summary of benefits Total contribution towards retirement funding as a percentage of pensionable pay

16.1%

Member contribution towards retirement savings as a percentage of pensionable pay

4.2%

Employer contribution towards retirement savings as a percentage of pensionable pay

12.4%

Contribution to retirement funding costs as a percentage of pensionable pay

0.5%

Contribution to death benefits as a percentage of pensionable pay

1.9%

Contribution to disability benefits as a percentage of pensionable pay

1.8%

Average replacement ratio achieved by retirees

43.1%

Average fund credit of active members

R335 427

Source: Member Watch™ 2017 data set

Breakdown of benefits offered

Retirement benefit analysis

Percentage of employers offering each type of benefit

Percentage split of members’ projected replacement ratio benefits

90.00%

100%

77.50%

90% 80%

Proportion of members

65.00%

4.0%

2.50%

5.00%

70% 60% 50% 40% 30% 20% 10% 0%

FNC

GLA

DD: Dread disease cover FNC: Funeral cover GLA: Approved lump-sum death cover PHI: Disability income benefits

308

PHI

PTD

TTD

UGL

PTD: Permanent disability benefits TTD: Total disability benefits UGL: Unapproved lump-sum death benefit

Age band 75% +

60% to 75%

Source: Member Watch™ 2017 data set

30% to 60%

0% to 30%

PART 6

MINING

Chapter 2

IRAS – Data for Benefits Barometer 2017 Compensation

Labour

Occupational Health and Safety

Corporate Social Investment (CSI) and Socio-economic Development (SED)

Average compensation per employee and contractors (rands)

289 198.33

Ratio of average compensation paid to executive directors relative to average compensation paid to employees – excluding LTIP*

59.87

Average rand value of funds invested in research and development

136 542 773.66

Percentage of employees who are 'permanent'

78.1%

Percentage of employees who belong to a trade union

76.6%

Employee turnover (i.e., number of persons who departed relative to the total number of employees at year end)

9.6%

Total number of person hours worked (HW) – calculated (i.e., 1 824 HW multiplied by total workforce at year end)

1 253 041 798.08

Percentage of employees trained in South Africa (NEW)

99.9%

Percentage of training spend in South Africa (NEW)

100.0%

Percentage of total person days lost due to absenteeism – calculated or reported

43.5%

Percentage of total person days lost due to industrial action – calculated or reported

0.0%

Number of lost time injuries (LTIs, i.e., injuries on duty leading to at least one lost day)

2 763.00

Fatal injury frequency rate (FIFR, i.e., number of fatalities per 200 000 person hours worked) – calculated

1.9%

Lost time injury frequency rate (LTIFR, i.e., number of LTIs per 200 000 person hours worked) – reported

167.3%

Percentage rand value of CSI/SED expenditures – reported

256 399 422.18

Percentage rand value of CSI/SED spend on education

38 286 623.06

Percentage rand value of CSI/SED spend on infrastructure development

37 566 183.23

Percentage rand value of CSI/SED spend on skills development, including adult basic education and training (ABET)

29 335 553.36

Percentage rand value of CSI/SED spend on small business development projects (NEW)

3 843 398.40

Percentage CSI spend as a percentage of net profit after tax (NPAT)

Not available

Rand value of enterprise development spend (i.e., support for small business)

39 616 288.45

* LTIP – long-term incentive plan Source: IRAS 2017 data

309

PART 6

PERSONAL SERVICES SECTOR

PERSONAL SERVICES SECTOR This sector includes four industries: health, education, media and marketing, and security. This is a labour-intensive sector that involves supplying services to consumers. Producers of equipment and suppliers of services intended solely for use by the industries mentioned have also been included.

Chapter 2

DEMOGRAPHIC PROFILE

120 979

Number of employees

Average pensionable salary

R247 459 Average age Male

45.65 years

39.95%

Average normal retirement age

Female

60.05%

63.5 years

Average actual retirement age Average exit rate Average preservation rate

62 years

11.4% 16.86%

Projected replacement ratio for a member aged 25 Examples: Life Healthcare, University of Johannesburg, Primedia and Chubb

47.4%

Source: Member Watchâ&#x201E;˘ 2017 data set

311

PART 6 Chapter 2

PERSONAL SERVICES SECTOR | HEALTH

HEALTH INDUSTRY Benefits overview – a high-level summary of benefits Total contribution towards retirement funding as a percentage of pensionable pay

13.1%

Member contribution towards retirement savings as a percentage of pensionable pay

4.8%

Employer contribution towards retirement savings as a percentage of pensionable pay

9.4%

Contribution to retirement funding costs as a percentage of pensionable pay

1.1%

Contribution to death benefits as a percentage of pensionable pay

1.4%

Contribution to disability benefits as a percentage of pensionable pay

1.1%

Average replacement ratio achieved by retirees

36.4%

Average fund credit of active members

R381 172

Source: Member Watch™ 2017 data set

Breakdown of benefits offered

Retirement benefit analysis

Percentage of employers offering each type of benefit

Percentage split of members’ projected replacement ratio benefits

100%

86.49%

90% 80%

62.16%

Proportion of members

56.76%

70% 60% 50% 40% 30% 20%

6.34%

0.00%

2.70%

PTD

TTD

UGL

10% 0%

FNC

GLA

DD: Dread disease cover FNC: Funeral cover GLA: Approved lump-sum death cover PHI: Disability income benefits

312

PHI

PTD: Permanent disability benefits TTD: Total disability benefits UGL: Unapproved lump-sum death benefit

Age band 75% +

60% to 75%

Source: Member Watch™ 2017 data set

30% to 60%

0% to 30%

PART 6

PERSONAL SERVICES SECTOR | HEALTH

Chapter 2

IRAS – Data for Benefits Barometer 2017 Compensation

Labour

Occupational Health and Safety

Corporate Social Investment (CSI) and Socio-economic Development (SED)

Average compensation per employee and contractors (rands)

456 899.42

Ratio of average compensation paid to executive directors relative to average compensation paid to employees – excluding LTIP*

22.58

Average rand value of funds invested in research and development

16 789 403.00

Percentage of employees who are 'permanent'

96.6%

Percentage of employees who belong to a trade union

21.0%

Employee turnover (i.e., number of persons who departed relative to the total number of employees at year end)

9.6%

Total number of person hours worked (HW) – calculated (i.e., 1 824 HW multiplied by total workforce at year end)

97 786 464.00

Percentage of employees trained in South Africa (NEW)

100.0%

Percentage of training spend in South Africa (NEW)

100.0%

Percentage of total person days lost due to absenteeism – calculated or reported

3.9%

Percentage of total person days lost due to industrial action – calculated or reported

0.0%

Number of lost time injuries (LTIs, i.e., injuries on duty leading to at least one lost day)

33.00

Fatal injury frequency rate (FIFR, i.e., number of fatalities per 200 000 person hours worked) – calculated

1.4%

Lost time injury frequency rate (LTIFR, i.e., number of LTIs per 200 000 person hours worked) – reported

108.3%

Percentage rand value of CSI/SED expenditures – reported

123 789 748.50

Percentage rand value of CSI/SED spend on education

82 166 666.67

Percentage rand value of CSI/SED spend on infrastructure development

Percentage rand value of CSI/SED spend on skills development, including adult basic education and training (ABET)

56 420 317.67

Percentage rand value of CSI/SED spend on small business development projects (NEW)

Percentage CSI spend as a percentage of net profit after tax (NPAT)

0.9%

Rand value of enterprise development spend (i.e., support for small business)

374 333 333.33

* LTIP – long-term incentive plan Source: IRAS 2017 data

313

PART 6 Chapter 2

PERSONAL SERVICES SECTOR | EDUCATION

EDUCATION INDUSTRY Benefits overview – a high-level summary of benefits Total contribution towards retirement funding as a percentage of pensionable pay

16.5%

Member contribution towards retirement savings as a percentage of pensionable pay

5.2%

Employer contribution towards retirement savings as a percentage of pensionable pay

11.7%

Contribution to retirement funding costs as a percentage of pensionable pay

0.5%

Contribution to death benefits as a percentage of pensionable pay

2.2%

Contribution to disability benefits as a percentage of pensionable pay

1.2%

Average replacement ratio achieved by retirees

45.8%

Average fund credit of active members

R872 261

Source: Member Watch™ 2017 data set

Breakdown of benefits offered

Retirement benefit analysis

Percentage of employers offering each type of benefit

Percentage split of members’ projected replacement ratio benefits

100% 90%

74.29%

80% 62.86%

Proportion of members

54.29%

8.57%

8.23%

5.71% 0.00%

70% 60% 50% 40% 30% 20% 10% 0%

FNC

GLA

DD: Dread disease cover FNC: Funeral cover GLA: Approved lump-sum death cover PHI: Disability income benefits

314

PHI

PTD

TTD

UGL

PTD: Permanent disability benefits TTD: Total disability benefits UGL: Unapproved lump-sum death benefit

Age band 75% +

60% to 75%

Source: Member Watch™ 2017 data set

30% to 60%

0% to 30%

PART 6 Chapter 2

PERSONAL SERVICES SECTOR | MEDIA AND MARKETING

MEDIA AND MARKETING INDUSTRY Benefits overview – a high-level summary of benefits Total contribution towards retirement funding as a percentage of pensionable pay

14.7%

Member contribution towards retirement savings as a percentage of pensionable pay

5.8%

Employer contribution towards retirement savings as a percentage of pensionable pay

9.2%

Contribution to retirement funding costs as a percentage of pensionable pay

0.3%

Contribution to death benefits as a percentage of pensionable pay

1.3%

Contribution to disability benefits as a percentage of pensionable pay

0.8%

Average replacement ratio achieved by retirees

42.0%

Average fund credit of active members

R307 714

Source: Member Watch™ 2017 data set

Breakdown of benefits offered

Retirement benefit analysis

Percentage of employers offering each type of benefit

Percentage split of members’ projected replacement ratio benefits

84.62%

100%

84.62%

90%

Proportion of members

80%

46.15%

4.56%

3.54%

5.23% 0.00%

70% 60% 50% 40% 30% 20% 10% 0%

FNC

GLA

DD: Dread disease cover FNC: Funeral cover GLA: Approved lump-sum death cover PHI: Disability income benefits

PHI

PTD

TTD

UGL

PTD: Permanent disability benefits TTD: Total disability benefits UGL: Unapproved lump-sum death benefit

Age band 75% +

60% to 75%

30% to 60%

0% to 30%

Source: Member Watch™ 2017 data set

315

PART 6 Chapter 2

PERSONAL SERVICES SECTOR | MEDIA AND MARKETING

IRAS – Data for Benefits Barometer 2017 Compensation

Labour

Occupational Health and Safety

Corporate Social Investment (CSI) and Socio-economic Development (SED)

Average compensation per employee and contractors (rands)

317 493.36

Ratio of average compensation paid to executive directors relative to average compensation paid to employees – excluding LTIP*

34.07

Average rand value of funds invested in research and development

Not available

Percentage of employees who are 'permanent'

Not available

Percentage of employees who belong to a trade union

Not available

Employee turnover (i.e., number of persons who departed relative to the total number of employees at year end)

Not available

Total number of person hours worked (HW) – calculated (i.e., 1 824 HW multiplied by total workforce at year end)

60 757 440.00

Percentage of employees trained in South Africa (NEW)

Not available

Percentage of training spend in South Africa (NEW)

Not available

Percentage of total person days lost due to absenteeism – calculated or reported

0.0%

Percentage of total person days lost due to industrial action – calculated or reported

0.0%

Number of lost time injuries (LTIs, i.e., injuries on duty leading to at least one lost day)

Fatal injury frequency rate (FIFR, i.e., number of fatalities per 200 000 person hours worked) – calculated

0.0%

Lost time injury frequency rate (LTIFR, i.e., number of LTIs per 200 000 person hours worked) – reported

Not available

Percentage rand value of CSI/SED expenditures – reported

34 600 000.00

Percentage rand value of CSI/SED spend on education

Not available

Percentage rand value of CSI/SED spend on infrastructure development

Not available

Percentage rand value of CSI/SED spend on skills development, including adult basic education and training (ABET)

Not available

Percentage rand value of CSI/SED spend on small business development projects (NEW)

Not available

Percentage CSI spend as a percentage of net profit after tax (NPAT)

0.8%

Rand value of enterprise development spend (i.e., support for small business)

14 195 610.00

* LTIP – long-term incentive plan Source: IRAS 2017 data

316

PART 6 Chapter 2

PERSONAL SERVICES SECTOR | SECURITY

SECURITY INDUSTRY Benefits overview – a high-level summary of benefits Total contribution towards retirement funding as a percentage of pensionable pay

14.5%

Member contribution towards retirement savings as a percentage of pensionable pay

4.0%

Employer contribution towards retirement savings as a percentage of pensionable pay

10.5%

Contribution to retirement funding costs as a percentage of pensionable pay

5.3%

Contribution to death benefits as a percentage of pensionable pay

1.3%

Contribution to disability benefits as a percentage of pensionable pay

0.9%

Average replacement ratio achieved by retirees

25.7%

Average fund credit of active members

R77 689

Source: Member Watch™ 2017 data set

Breakdown of benefits offered

Retirement benefit analysis

Percentage of employers offering each type of benefit

Percentage split of members’ projected replacement ratio benefits

98.88% 89.66%

100%

83.33%

90%

Proportion of members

80% 70% 60% 50% 40% 30% 20% 0.00%

0.00%

PTD

TTD

UGL

10% 0%

FNC

GLA

DD: Dread disease cover FNC: Funeral cover GLA: Approved lump-sum death cover PHI: Disability income benefits

PHI

PTD: Permanent disability benefits TTD: Total disability benefits UGL: Unapproved lump-sum death benefit

Age band 75% +

60% to 75%

30% to 60%

0% to 30%

Source: Member Watch™ 2017 data set

317

PART 6

PROFESSIONAL AND BUSINESS SERVICE

PROFESSIONAL AND BUSINESS SERVICE SECTOR This sector includes financial services providers (like banks and insurance companies), legal and accounting firms, engineering and recruitment consultancies and the real estate industry.

Chapter 2

DEMOGRAPHIC PROFILE

175 237

Number of employees

Average pensionable salary

R301 096 51 years

Average age Male

50.06%

Female

49.94%

Average normal retirement age

63.2 years

Average actual retirement age

61.6 years

Average exit rate Average preservation rate

9.4% 12.9%

Projected replacement ratio for a member aged 25 Examples: Bowman Gilfillan, Alexander Forbes, Investec and Pam Golding

43.9%

Source: Member Watchâ&#x201E;˘ 2017 data set

319

PART 6 Chapter 2

PROFESSIONAL AND BUSINESS SERVICE

Benefits overview – a high-level summary of benefits Total contribution towards retirement funding as a percentage of pensionable pay

11.5%

Member contribution towards retirement savings as a percentage of pensionable pay

4.4%

Employer contribution towards retirement savings as a percentage of pensionable pay

7.4%

Contribution to retirement funding costs as a percentage of pensionable pay

0.3%

Contribution to death benefits as a percentage of pensionable pay

1.8%

Contribution to disability benefits as a percentage of pensionable pay

1.3%

Average replacement ratio achieved by retirees

35.5%

Average fund credit of active members

R338 040

Source: Member Watch™ 2017 data set

Breakdown of benefits offered

Retirement benefit analysis

Percentage of employers offering each type of benefit

Percentage split of members’ projected replacement ratio benefits

92.74% 100%

81.56%

90%

Proportion of members

80%

42.46%

70% 60% 50% 40% 30% 20%

7.82%

5.03%

1.68%

2.10%

10% 0%

FNC

GLA

DD: Dread disease cover FNC: Funeral cover GLA: Approved lump-sum death cover PHI: Disability income benefits

320

PHI

PTD

TTD

UGL

PTD: Permanent disability benefits TTD: Total disability benefits UGL: Unapproved lump-sum death benefit

Age band 75% +

60% to 75%

Source: Member Watch™ 2017 data set

30% to 60%

0% to 30%

PART 6

PROFESSIONAL AND BUSINESS SERVICE

Chapter 2

IRAS – Data for Benefits Barometer 2017 Compensation

Labour

Occupational Health and Safety

Corporate Social Investment (CSI) and Socio-economic Development (SED)

Average compensation per employee and contractors (rands)

407 967.00

Ratio of average compensation paid to executive directors relative to average compensation paid to employees – excluding LTIP*

41.16

Average rand value of funds invested in research and development

1 228 000 000.00

Percentage of employees who are 'permanent'

94.9%

Percentage of employees who belong to a trade union

34.2%

Employee turnover (i.e., number of persons who departed relative to the total number of employees at year end)

15.7%

Total number of person hours worked (HW) – calculated (i.e., 1 824 HW multiplied by total workforce at year end)

433 654 176.00

Percentage of employees trained in South Africa (NEW)

100.0%

Percentage of training spend in South Africa (NEW)

83.2%

Percentage of total person days lost due to absenteeism – calculated or reported

2.5%

Percentage of total person days lost due to industrial action – calculated or reported

0.0%

Number of lost time injuries (LTIs, i.e., injuries on duty leading to at least one lost day)

Fatal injury frequency rate (FIFR, i.e., number of fatalities per 200 000 person hours worked) – calculated

0.0%

Lost time injury frequency rate (LTIFR, i.e., number of LTIs per 200 000 person hours worked) – reported

8.0%

Percentage rand value of CSI/SED expenditures – reported

119 942 175.63

Percentage rand value of CSI/SED spend on education

65 755 343.23

Percentage rand value of CSI/SED spend on infrastructure development

167 500.00

Percentage rand value of CSI/SED spend on skills development, including adult basic education and training (ABET)

7 174 400.00

Percentage rand value of CSI/SED spend on small business development projects (NEW)

6 250 000.00

Percentage CSI spend as a percentage of net profit after tax (NPAT)

2.9%

Rand value of enterprise development spend (i.e., support for small business)

29 363 571.65

* LTIP – long-term incentive plan Source: IRAS 2017 data

321

PART 6

PUBLIC SERVICE

PUBLIC SERVICE SECTOR This sector includes various government municipalities, departments and government-funded industries, but not parastatals.

Chapter 2

DEMOGRAPHIC PROFILE

36 685

Number of employees

Average pensionable salary

R230 340 46 years

Average age Male

60.65%

Female

39.34%

Average normal retirement age

63.2 years

Average actual retirement age

62.1 years

Average exit rate Average preservation rate

3.4% 8.2%

Projected replacement ratio for a member aged 25

83.7%

Source: Member Watchâ&#x201E;˘ 2017 data set

323

PART 6 Chapter 2

PUBLIC SERVICE

Benefits overview – a high-level summary of benefits Total contribution towards retirement funding as a percentage of pensionable pay

22.4%

Member contribution towards retirement savings as a percentage of pensionable pay

7.1%

Employer contribution towards retirement savings as a percentage of pensionable pay

15.9%

Contribution to retirement funding costs as a percentage of pensionable pay

0.5%

Contribution to death benefits as a percentage of pensionable pay

1.9%

Contribution to disability benefits as a percentage of pensionable pay

1.8%

Average replacement ratio achieved by retirees

62.3%

Average fund credit of active members

R636 208

Source: Member Watch™ 2017 data set

Breakdown of benefits offered

Retirement benefit analysis

Percentage of employers offering each type of benefit

Percentage split of members’ projected replacement ratio benefits

100%

83.75%

90%

51.35%

Proportion of members

80%

48.65%

5.41%

2.70%

70% 60% 50% 40% 30% 20%

2.70%

0.00%

10% 0%

FNC

GLA

DD: Dread disease cover FNC: Funeral cover GLA: Approved lump-sum death cover PHI: Disability income benefits

324

PHI

PTD

TTD

UGL

PTD: Permanent disability benefits TTD: Total disability benefits UGL: Unapproved lump-sum death benefit

Age band 75% +

60% to 75%

Source: Member Watch™ 2017 data set

30% to 60%

0% to 30%

PART 6

PUBLIC SERVICE

Chapter 2

IRAS – Data for Benefits Barometer 2017 Compensation

Labour

Data not available

Number of lost time injuries (LTIs, i.e., injuries on duty leading to at least one lost day) Occupational Health and Safety

Corporate Social Investment (CSI) and Socio-economic Development (SED)

* LTIP – long-term incentive plan Source: IRAS 2017 data

325

PART 6

RETAIL, WHOLESALE AND HOSPITALITY

RETAIL, WHOLESALE AND HOSPITALITY SECTOR Companies include food, drug and clothing retailers and companies in the travel and leisure industries. This group also includes hotels and restaurants.

Chapter 2

DEMOGRAPHIC PROFILE

170 452

Number of employees

Average pensionable salary

R130 425 48 years

Average age Male

45.16%

Female

54.84%

Average normal retirement age

63.7 years

Average actual retirement age

20.7 years

Average exit rate Average preservation rate

20.7% 3.47%

Projected replacement ratio for a member aged 25

Examples: Clicks Group, Truworths and Tsogo Sun Holdings

53.5%

Source: Member Watchâ&#x201E;˘ 2017 data set

327

PART 6 Chapter 2

RETAIL, WHOLESALE AND HOSPITALITY | RETAIL AND WHOLESALE

RETAIL AND WHOLESALE INDUSTRY Benefits overview – a high-level summary of benefits Total contribution towards retirement funding as a percentage of pensionable pay

14.2%

Member contribution towards retirement savings as a percentage of pensionable pay

6.3%

Employer contribution towards retirement savings as a percentage of pensionable pay

8.4%

Contribution to retirement funding costs as a percentage of pensionable pay

0.5%

Contribution to death benefits as a percentage of pensionable pay

1.4%

Contribution to disability benefits as a percentage of pensionable pay

1.2%

Average replacement ratio achieved by retirees

45.4%

Average fund credit of active members

R163 871

Source: Member Watch™ 2017 data set

Breakdown of benefits offered

Retirement benefit analysis

Percentage of employers offering each type of benefit

Percentage split of members’ projected replacement ratio benefits 100%

82.81%

90%

70.31%

80%

Proportion of members

60.94%

70% 60% 50% 40% 30% 20%

6.25% 1.00%

1.56%

4.69%

PTD

TTD

UGL

10% 0%

FNC

GLA

DD: Dread disease cover FNC: Funeral cover GLA: Approved lump-sum death cover PHI: Disability income benefits

328

PHI

PTD: Permanent disability benefits TTD: Total disability benefits UGL: Unapproved lump-sum death benefit

Age band 75% +

60% to 75%

Source: Member Watch™ 2017 data set

30% to 60%

0% to 30%

PART 6

RETAIL, WHOLESALE AND HOSPITALITY | RETAIL AND WHOLESALE

Chapter 2

IRAS – Data for Benefits Barometer 2017 Compensation

Labour

Occupational Health and Safety

Corporate Social Investment (CSI) and Socio-economic Development (SED)

Average compensation per employee and contractors (rands)

176 171.70

Ratio of average compensation paid to executive directors relative to average compensation paid to employees – excluding LTIP*

85.63

Average rand value of funds invested in research and development

291 000.00

Percentage of employees who are 'permanent'

79.9%

Percentage of employees who belong to a trade union

17.3%

Employee turnover (i.e., number of persons who departed relative to the total number of employees at year end)

18.9%

Total number of person hours worked (HW) – calculated (i.e., 1 824 HW multiplied by total workforce at year end)

701 393 664.00

Percentage of employees trained in South Africa (NEW)

78.8%

Percentage of training spend in South Africa (NEW)

75.0%

Percentage of total person days lost due to absenteeism – calculated or reported

1.7%

Percentage of total person days lost due to industrial action – calculated or reported

0.0%

Number of lost time injuries (LTIs, i.e., injuries on duty leading to at least one lost day)

926.00

Fatal injury frequency rate (FIFR, i.e., number of fatalities per 200 000 person hours worked) – calculated

1.0%

Lost time injury frequency rate (LTIFR, i.e., number of LTIs per 200 000 person hours worked) – reported

0.0%

Percentage rand value of CSI/SED expenditures – reported

82 927 330.77

Percentage rand value of CSI/SED spend on education

16 429 508.22

Percentage rand value of CSI/SED spend on infrastructure development

1 172 000.00

Percentage rand value of CSI/SED spend on skills development, including adult basic education and training (ABET)

Percentage rand value of CSI/SED spend on small business development projects (NEW)

5 480 000.00

Percentage CSI spend as a percentage of net profit after tax (NPAT)

-8.5%

Rand value of enterprise development spend (i.e., support for small business)

261 965 142.86

* LTIP – long-term incentive plan Source: IRAS 2017 data

329

PART 6 Chapter 2

RETAIL, WHOLESALE AND HOSPITALITY | HOSPITALITY

HOSPITALITY INDUSTRY Benefits overview – a high-level summary of benefits Total contribution towards retirement funding as a percentage of pensionable pay

12.9%

Member contribution towards retirement savings as a percentage of pensionable pay

5.8%

Employer contribution towards retirement savings as a percentage of pensionable pay

7.5%

Contribution to retirement funding costs as a percentage of pensionable pay

0.4%

Contribution to death benefits as a percentage of pensionable pay

1.1%

Contribution to disability benefits as a percentage of pensionable pay

0.6%

Average replacement ratio achieved by retirees

38.8%

Average fund credit of active members

R199 686

Source: Member Watch™ 2017 data set

Breakdown of benefits offered

Retirement benefit analysis

Percentage of employers offering each type of benefit

Percentage split of members’ projected replacement ratio benefits

100% 88.57%

100% 90% 80%

Proportion of members

62.86%

15.15% 2.86%

2.86%

PTD

TTD

6.86%

70% 60% 50% 40% 30% 20% 10% 0%

FNC

GLA

DD: Dread disease cover FNC: Funeral cover GLA: Approved lump-sum death cover PHI: Disability income benefits

330

PHI

UGL

PTD: Permanent disability benefits TTD: Total disability benefits UGL: Unapproved lump-sum death benefit

Age band 75% +

60% to 75%

Source: Member Watch™ 2017 data set

30% to 60%

0% to 30%

PART 6

RETAIL, WHOLESALE AND HOSPITALITY | HOSPITALITY

Chapter 2

IRAS – Data for Benefits Barometer 2017 Compensation

Labour

Occupational Health and Safety

Corporate Social Investment (CSI) and Socio-economic Development (SED)

Average compensation per employee and contractors (rands)

220 746.78

Ratio of average compensation paid to executive directors relative to average compensation paid to employees – excluding LTIP*

29.88

Average rand value of funds invested in research and development

Not available

Percentage of employees who are 'permanent'

86.4%

Percentage of employees who belong to a trade union

40.4%

Employee turnover (i.e., number of persons who departed relative to the total number of employees at year end)

11.6%

Total number of person hours worked (HW) – calculated (i.e., 1 824 HW multiplied by total workforce at year end)

81 888 480.00

Percentage of employees trained in South Africa (NEW)

Not available

Percentage of training spend in South Africa (NEW)

97.3%

Percentage of total person days lost due to absenteeism – calculated or reported

4.3%

Percentage of total person days lost due to industrial action – calculated or reported

0.0%

Number of lost time injuries (LTIs, i.e., injuries on duty leading to at least one lost day)

1.02

Fatal injury frequency rate (FIFR, i.e., number of fatalities per 200 000 person hours worked) – calculated

0.0%

Lost time injury frequency rate (LTIFR, i.e., number of LTIs per 200 000 person hours worked) – reported

157.7%

Percentage rand value of CSI/SED expenditures – reported

23 714 919.00

Percentage rand value of CSI/SED spend on education

3 282 422.50

Percentage rand value of CSI/SED spend on infrastructure development

Percentage rand value of CSI/SED spend on skills development, including adult basic education and training (ABET)

Percentage rand value of CSI/SED spend on small business development projects (NEW)

1 718 238.50

Percentage CSI spend as a percentage of net profit after tax (NPAT)

10.8%

Rand value of enterprise development spend (i.e., support for small business)

43 606 440.00

* LTIP – long-term incentive plan Source: IRAS 2017 data

331

PART 6 Chapter 2

332

PART 6

TRANSPORT AND TELECOMMUNICATIONS

TRANSPORT AND TELECOMMUNICATIONS SECTOR Telecommunications companies are providers of fixed-line and mobile phone services, while transport companies are involved in both commercial logistics and distribution of consumer goods and passenger transport.

Chapter 2

DEMOGRAPHIC PROFILE

12 324

Number of employees

Average pensionable salary

R371 738 43 years

Average age Male

54.66%

Average normal retirement age Average actual retirement age

Female

45.33%

63.3 years 63 years

Average exit rate Average preservation rate

14.1% 42.57%

Projected replacement ratio for a member aged 25 Examples: Cell C, Grindrod and ACSA

35%

Source: Member Watchâ&#x201E;˘ 2017 data set

333

PART 6 Chapter 2

TRANSPORT AND TELECOMMUNICATIONS | TRANSPORT

TRANSPORT INDUSTRY Benefits overview – a high-level summary of benefits Total contribution towards retirement funding as a percentage of pensionable pay

10.4%

Member contribution towards retirement savings as a percentage of pensionable pay

6.0%

Employer contribution towards retirement savings as a percentage of pensionable pay

2.5%

Contribution to retirement funding costs as a percentage of pensionable pay

8.1%

Contribution to death benefits as a percentage of pensionable pay

0.3%

Contribution to disability benefits as a percentage of pensionable pay

1.3%

Average replacement ratio achieved by retirees

29.6%

Average fund credit of active members

R408 840

Source: Member Watch™ 2017 data set

Breakdown of benefits offered

Retirement benefit analysis

Percentage of employers offering each type of benefit

Percentage split of members’ projected replacement ratio benefits

100%

85.48%

90%

74.19% 67.74%

Proportion of members

80% 70% 60% 50% 40% 30% 20%

6.45% 1.61%

1.71%

1.91%

PTD

TTD

UGL

10% 0%

FNC

GLA

DD: Dread disease cover FNC: Funeral cover GLA: Approved lump-sum death cover PHI: Disability income benefits

334

PHI

PTD: Permanent disability benefits TTD: Total disability benefits UGL: Unapproved lump-sum death benefit

Age band 75% +

60% to 75%

Source: Member Watch™ 2017 data set

30% to 60%

0% to 30%

PART 6

TRANSPORT AND TELECOMMUNICATIONS | TRANSPORT

Chapter 2

IRAS – Data for Benefits Barometer 2017 Compensation

Labour

Occupational Health and Safety

Corporate Social Investment (CSI) and Socioeconomic Development (SED)

Average compensation per employee and contractors (rands)

541 375.85

Ratio of average compensation paid to executive directors relative to average compensation paid to employees – excluding LTIP*

28.06

Average rand value of funds invested in research and development

207 000 000.00

Percentage of employees who are 'permanent'

91.2%

Percentage of employees who belong to a trade union

22.8%

Employee turnover (i.e., number of persons who departed relative to the total number of employees at year end)

19.0%

Total number of person hours worked (HW) – calculated (i.e., 1 824 HW multiplied by total workforce at year end)

252 583 872.00

Percentage of employees trained in South Africa (NEW)

100.0%

Percentage of training spend in South Africa (NEW)

100.0%

Percentage of total person days lost due to absenteeism – calculated or reported

4.8%

Percentage of total person days lost due to industrial action – calculated or reported

0.0%

Number of lost time injuries (LTIs, i.e., injuries on duty leading to at least one lost day)

632.00

Fatal injury frequency rate (FIFR, i.e., number of fatalities per 200 000 person hours worked) – calculated

0.8%

Lost time injury frequency rate (LTIFR, i.e., number of LTIs per 200 000 person hours worked) – reported

78.7%

Percentage rand value of CSI/SED expenditures – reported

49 427 210.67

Percentage rand value of CSI/SED spend on education

18 900 800.00

Percentage rand value of CSI/SED spend on infrastructure development

1 574 333.33

Percentage rand value of CSI/SED spend on skills development, including adult basic education and training (ABET)

Percentage rand value of CSI/SED spend on small business development projects (NEW)

Percentage CSI spend as a percentage of net profit after tax (NPAT)

11.4%

Rand value of enterprise development spend (i.e., support for small business)

17 392 546.13

* LTIP – long-term incentive plan Source: IRAS 2017 data

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PART 6 Chapter 2

TRANSPORT AND TELECOMMUNICATIONS | TELECOMMUNICATIONS

TELECOMMUNICATIONS INDUSTRY Benefits overview – a high-level summary of benefits Total contribution towards retirement funding as a percentage of pensionable pay

11.4%

Member contribution towards retirement savings as a percentage of pensionable pay

2.5%

Employer contribution towards retirement savings as a percentage of pensionable pay

8.1%

Contribution to retirement funding costs as a percentage of pensionable pay

0.3%

Contribution to death benefits as a percentage of pensionable pay

0.8%

Contribution to disability benefits as a percentage of pensionable pay

0.7%

Average replacement ratio achieved by retirees

29.6%

Average fund credit of active members

R408 840

Source: Member Watch™ 2017 data set

Breakdown of benefits offered

Retirement benefit analysis

Percentage of employers offering each type of benefit

Percentage split of members’ projected replacement ratio benefits

90.00%

100%

83.33%

90% 80%

Proportion of members

56.67%

10.0%

70% 60% 50% 40% 30% 20%

PTD

TTD

3.33%

10% 0%

FNC

GLA

DD: Dread disease cover FNC: Funeral cover GLA: Approved lump-sum death cover PHI: Disability income benefits

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PHI

UGL

PTD: Permanent disability benefits TTD: Total disability benefits UGL: Unapproved lump-sum death benefit

Age band 75% +

60% to 75%

Source: Member Watch™ 2017 data set

30% to 60%

0% to 30%

PART 6

TRANSPORT AND TELECOMMUNICATIONS | TELECOMMUNICATIONS

Chapter 2

IRAS – Data for Benefits Barometer 2017 Compensation

Labour

Occupational Health and Safety

Corporate Social Investment (CSI) and Socio-economic Development (SED)

Average compensation per employee and contractors (rands)

456 899.42

Ratio of average compensation paid to executive directors relative to average compensation paid to employees – excluding LTIP*

22.58

Average rand value of funds invested in research and development

16 789 403.00

Percentage of employees who are 'permanent'

96.6%

Percentage of employees who belong to a trade union

21.0%

Employee turnover (i.e., number of persons who departed relative to the total number of employees at year end)

9.6%

Total number of person hours worked (HW) – calculated (i.e., 1 824 HW multiplied by total workforce at year end)

97 786 464.00

Percentage of employees trained in South Africa (NEW)

100.0%

Percentage of training spend in South Africa (NEW)

100.0%

Percentage of total person days lost due to absenteeism – calculated or reported

3.9%

Percentage of total person days lost due to industrial action – calculated or reported

0.0%

Number of lost time injuries (LTIs, i.e., injuries on duty leading to at least one lost day)

33.00

Fatal injury frequency rate (FIFR, i.e., number of fatalities per 200 000 person hours worked) – calculated

1.4%

Lost time injury frequency rate (LTIFR, i.e., number of LTIs per 200 000 person hours worked) – reported

108.3%

Percentage rand value of CSI/SED expenditures – reported

123 789 748.50

Percentage rand value of CSI/SED spend on education

82 166 666.67

Percentage rand value of CSI/SED spend on infrastructure development

Percentage rand value of CSI/SED spend on skills development, including adult basic education and training (ABET)

56 420 317.67

Percentage rand value of CSI/SED spend on small business development projects (NEW)

Percentage CSI spend as a percentage of net profit after tax (NPAT)

0.9%

Rand value of enterprise development spend (i.e., support for small business)

374 333 333.33

* LTIP – long-term incentive plan Source: IRAS 2017 data

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PART 6 Chapter 2

SECTOR CASE STUDIES

We believe employers are understanding more and more how incredibly significant a more expanded benefits platform could be in helping them address the challenges of a rapidly changing world of work. With this in mind, we hope to provide you with an even more comprehensive analysis of the South African employee benefits landscape next year.

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PREVIOUS PART I HOME

ACKNOWLEDGEMENTS

BENEFITS BAROMETER 2017

THANK YOU Benefits Barometer 2017 is the product of the Alexander Forbes Research Institute, headed up by Anne Cabot-Alletzhauser. Through extensive dialogue with industry experts and a comprehensive analysis of industry data, the team identifies how industry needs to rethink issues to better meet client needs. We would like to thank the following people who contributed their articles and insights to make this publication the great work of service to the people of South Africa that it is:

xx xx Andrew Darfoor

Anne Cabot-Alletzhauser

Ayabonga Cawe

Dean Furman

Erich Krohnert

Musa Mbeje

Marvin Mohan

Michael Prinsloo

Ann Streak

Sibongile Vilakazi

External parties who contributed special articles and special insights from Rethink Africa: Siddharth Mehta Principal and Workforce Analytics Practice Leader Mercer Consulting

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Matthew Nel and Ros Gordon Shisaka Development Management Services

Margaret Oâ&#x20AC;&#x2122;Connor Chief Strategist Impact Brands Africa

Michael Rea Managing Partner IRAS

Aaron Sothmann Workforce Analytics Consultant Mercer

BENEFITS BAROMETER 2017

External experts who shared their thoughts and insights Accenture Value Proposition Team

Professor Christian Friedrich, University of the Western Cape (UWC)

Nomsa Gumbi Department of Higher Education and Training

Dr Liz Gwyther, CEO Hospice Palliative Care Association of South Africa

Suzanne Hattingh Managing Director, LPI

Dr Jaco Hoffman Associate Professor Optentia Research Focus Area North-West University

Dr Sebastiana Kalula Acting Head: Geriatrics, The Albertina and Walter Sisulu Institute of Aging

Pilasande Magwentshu Department of Higher Education and Training

Haig Nalbantian Senior Partner Workforce Sciences Institute Mercer Consulting

The management team of RandAid

Duma Sibande Department of Higher Education and Training

Rayne Stroebel Founder and Managing Director, GERATEC

Anne-Magriet Schoeman CEO, Mercer Consulting South Africa

Deon de Swardt Consultant, Mercer Consulting South Africa

Alexander Forbes colleagues who also contributed to the discussions: John Anderson Michael Kirkpatrick Thabo Mashaba Matthew Ryder Barry van Zyl

Zizipho Dingana Tracy Janssens Senzo Mthembu Myrna Sachs

Youri Dolya Vickie Lange Claudia Palm Zaid Saeed

Phyllicia Kekana-Singubele Lettah Mpanza Johan Oosthuizen Utsile Tlou

Lynn Stevens Chief Marketing Officer

Shawn Govender Consulting Art Director

Nkgomo Bojosinyane Art Director

Melissa Davidson Consulting Copy Editor

Irene Stotko Senior Copy Editor

Kim Jonson Designer and DTP

Simone Sallie Project Manager

Sharon Stephen Digital Designer

Alexander Forbes Marketing team:

Sharmaine Chanee Production Manager To the clients who allow us to analyse their data on an ongoing basis. Thank you!

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BENEFITS BAROMETER 2017

BENEFITS

BAROMETER 2017

Visit www.alexanderforbes.co.za to view and download the Benefits Barometer.

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