NMG Benefits promotes smart financial decisions

NMG Benefits

promotes smart financial decisions

Craigh Chidrawi, Executive Head of Institutional Business at NMG Benefits, speaks to SA BUSINESS INTEGRATOR about key decisions employers/employees/investors can take to enable financial security for the future.

What has the impact been over the past couple of years from a financial services sector perspective?

The past few years have been characterised by a low growth environment, and that wasn’t helped by the economic impact of the Covid lockdowns. Because it serves individuals and employers across all industries, the financial services sector has been equally affected. One significant impact on the retirement fund industry is the way group life premium costs have increased since Covid. There have been significantly more death claims than expected, and the value of these claims was also higher than expected.

Craigh Chidrawi is Executive Head of Institutional Business at NMG Benefits.

He oversees the company’s retirement funds consulting and actuarial businesses in South Africa and Namibia, as well as its retirement fund administration business. He has almost three decades of experience in the employee benefits industry.

As a result, our risk benefit consultants have seen insurers increasing premium rates by as much as 60% because of the increased claims experience in the scheme.

What were some of the core decisions taken by NMG Benefits to assist clients navigate severe budgetary cuts?

We consistently engage with our clients to ensure that we can help when they need it most.

As each client’s situation is unique and often relates to the industry they operate in, the solutions and assistance needed differed. We assisted many clients who had to retrench staff with financial planning information and advice.

Many companies had made the decision to suspend retirement & pension contributions during the pandemic. What options does NMG Benefits offer for employers and employees to try to get back on track?

Several funds that we provide services to leveraged off the opportunity to reduce their retirement fund’s contribution rate temporarily.

When this happened, our consultants and financial planners helped members understand the implications of this move. Where the fund rules allow it, we’re encouraging members to consider making additional voluntary contributions to make up a shortfall.

Considering increases in repo rates, inflation, and a struggling economy, are we seeing a reduction in investments?

We analysed NMG’s retirement fund administration database of standalone and umbrella fund members to identify trends in 2021.

The average gross contribution for all members was 11.65% of annual salary, down from 12.7% of annual salary in 2019. It’s likely that this was due to the temporary contribution relief that many funds introduced in 2020.

What is the long-term impact of this, and what does NMG Benefits recommend is the best course of action to secure a solid financial future?

The best course of action starts with having the right information. Our retirement fund consultants use data analysis to help the retirement funds we work with identify issues that the fund and employer need to focus their attention on. They then develop strategies to improve retirement outcomes for each unique member group. Often, this involves encouraging members to increase their contributions to retirement savings.

One of your objectives reads as “To find a way for stronger futures”. Please elaborate on NMG Benefits key services.

Our purpose to find a better way for our clients and their employees has led us to develop a number of smart, industry-related tools and products that deliver value to the business, employees and members. Underpinning our purpose is our mission to give every member the best advice based on their individual circumstances. We are committed to finding a better way for all our stakeholders that supports the notion of stronger futures for all.

What are the product offerings of NMG Benefits, and how do these suit sector and individual needs?

Health, happiness, freedom, security – these are the things that people want most of all, and we want to help people get them. That’s why we’ve been providing versatile, smart employee benefits products since 1992.

The NMG Umbrella SmartFund, a multiemployer umbrella retirement fund, is our flagship fund. Combining the contributions of many employers and members helps drive down costs for employers while delivering strong returns for our members.

Employers can choose their level of involvement in managing the fund, as well as the most appropriate investment strategy.

How does NMG Benefits technological advancements assist employers and employees make informed decisions?

NMG Benefits Diagnostic Tool: NMG recently created a unique employee benefits diagnostic tool, a web-based application that helps employers measure the effectiveness of their overall employee benefits programme.

The tool considers health and wellness, remuneration and engagement, and retirement and insurance to give an overall assessment of the employee benefits programme that is in place with benchmarks against the NMG client base. NMG SmartAlec: We know that members aren’t always keen to read booklets on financial subjects. To assist our clients, NMG has introduced a financial education gamification chatbot that we call SmartAlec.

It bridges the gap between financial products and people with an ultra-intuitive WhatsApp chatbot, making financial content accessible by using simple terms and local storylines that help promote an emotional connection with the user.

The WhatsApp chat experience is designed to offer a range of educational financial courses: Basic Finance 1 and 2, Retirement, Insurance, Healthcare and Advanced Retirement Fund.

How have changes to Regulation 28, which allows for more diversification of investments, impacted retirement funds?

The recent announcement that South African pension funds can now invest up to 45% of their portfolios offshore means investment managers now have greater flexibility in allocating assets greater access to global investments.

This can have potentially far-reaching effects for members, as it gives investment managers more options to diversify their investments. This will lead to improved diversification of portfolios and should see better risk-adjusted returns over the long term.

How does the expertise of NMG Benefits (and partners) play a factor in this?

The increase in offshore exposure brings additional considerations that trustees would need to consider. These include the potential for currency hedging, offshore manager selection and fees for offshore investments. There would also be administrative impacts which need to be considered, such as for example withholding taxes and custody issues.

NMG’s investment consultants can provide advice before investment policies and mandates are changed. Any changes in approach to offshore investment need the approval of the trustees of each fund.

What has the uptake for this been?

We aren’t seeing dramatic changes at this stage. While the industry has welcomed the increased allowance, it is likely that it will take some time for investment managers to assess their options and offshore opportunities.

Individual members need to consider their long-term goals, objectives, and capacity to take on additional risk when choosing an investment portfolio.

For retirement funds, the boards of trustees need to ensure that the overall investment strategy of the fund remains focused on the fund’s mandate of helping their members reach their goals within the new regulatory limits.

Overall, NMG is excited about the opportunities that the amended regulations bring and look forward to discussing these with clients to improve outcomes.

What are the positives of NMG Benefits being a standalone fund?

In the last decade, we’ve seen several large retirement fund administrators stop providing

administration services to standalone funds, preferring to only offer umbrella funds.

Standalone fund administration is a core function of our business, and we will continue to provide administration services to these standalone funds. Here, the employer needs to be willing to deal with the governance requirements of managing a retirement fund and appreciate having a greater control over the retirement fund itself.

Looking ahead, what are some factors to be on the lookout for from an investment perspective?

The recent increase in the repo rate, combined with steep increases in fuel and energy prices, points to a tough time ahead for South African consumers battling to make ends meet.

While consumers will be constrained for now, the longer-term effect is that they end up spending less. In theory, this means demand for goods goes down, and prices are brought back in line, in response to supply and demand principles.

Now, however, external factors like the Russia/ Ukraine war mean the normal tools to manage inflation (monetary policies) may not be as effective.

What are some of the key actions that NMG Benefits would recommend investors take in the next few months?

One of the immediate effects of the increasing interest rates is that households who have debt will now have higher debt repayments.

This raises the risk that highly indebted consumers will start defaulting on their debts. The flip side is that those who have excess funds will save more, as they will earn more interest on their savings.

Our advice to consumers is that they should aim to pay off their debts as quickly as possible and where they are in difficulty, they should seek help and debt counselling.

They should also avoid taking on new debt, or taking on additional debt to pay off debt, as this will lead to a slippery slope which will be hard to recover from.

Consumers who are nearing retirement should discuss the best way forward with their financial advisors. Those who are five years or more from retirement should remain invested but consult their advisors to get a holistic view of their commitments and assets and work out the best strategy for their circumstances.

Knee jerk reactions during times of market turmoil usually lead to sub-optimal outcomes.

In addition, retirement funds allow members to leave their benefits in the fund after they retire or resign. This offers members who have the means to leave their assets in the fund, the opportunity to benefit from the lower institutional fees offered by retirement funds, while their investments recover from the current turmoil.

The increased interest rates will hit local businesses hard, as they could find it more difficult to obtain or service loans, which could limit their growth. As with consumers, though, businesses with excess cash will benefit from putting their money in higher yielding investments.

Within a portfolio context, investors will have diversified holdings of instruments across multiple asset classes such as equities, bonds cash and property – all of which would react differently to the interest rate changes. 

About NMG Benefits

NMG Benefits is an independent, authorised financial services intermediary and expert employee benefits firm. Their transparent, advice-led consulting services span across healthcare, retirement, investment, short-term risk insurance, personal finances and actuarial services. NMG operates mainly in South Africa, Namibia and Botswana. Website: www.nmg.co.za