The likely advent of new tax changes affecting the treatment of retirement funds from March this year, which will change the way that employer-sponsored retirement funds are taxed and will impact on fund members in different ways, highlights the need for human resources personnel and retirement fund administrators to work more closely together. This is according to Costa Economou, CEO of Colourfield Liability Solutions, who is also a member of the Independent Commission for Remuneration of Public Office-Bearers.
Economou, who was a keynote speaker at the recent HR Summit & Expo Africa, says, “The main way to improve alignment between HR personnel and retirement fund administrators is through targeted training for those who work in a human resources capacity.
The advent of the new retirement fund-related tax regimes as of 1 March 2016, which are part of the ongoing retirement reform process, will require a significantly improved understanding on the part of HR departments, who are the main interface between the employee and the employer when it comes to employee benefits.
“A key shift in the retirement industry has been the shift from Defined Benefit (DB) to Defined Contribution (DC) arrangements. Unfortunately, the advent of DC arrangements has removed the financial risk employers historically were exposed to in offering such arrangements to employees. With the removal of this liability, employers now pay less attention to retirement plans. This, coupled with the lack of financial sophistication of members, has led to many retiring on inappropriate benefit levels.”
Economou says that for any company, its two key resources are its financial capital and its human capital, namely its employees. He says “The provision of adequate employee benefits, including an employer-sponsored retirement fund, is a key distinguisher in holding onto valuable human capital and allowing a firm to distinguish itself from its competitors.
A company’s human resources functionality plays a vital role in protecting and advising on such key employee benefits at different stages of the employee’s working life. Employers need to play a greater role in helping retirement fund members work towards achieving a comfortable retirement, and this is best done through maximising the information that is given to the members, frequently through the human resources department.”
Economou says, “Helping retirement fund members work towards achieving a comfortable retirement can be a complex task involving a number of different professionals to a greater or lesser extent. These professionals can include trustees, consultants, investment managers and the employer, which is frequently represented by the human resources division of a company. Members need clear guidance on their retirement fund matters, both when they are still working and when they reach retirement age and transition into retirement.”
Economou believes that DC funds have failed their members to a large extent. “HR departments can facilitate a more educated workforce. By focusing the employees’ attention to the correct retirement goals, and using the retirement platform to do this, will go a long way in helping members achieve sustainable retirement benefits.
He believes that more can be done to align the functioning of human resources departments with the retirement needs of members. “There should be a strong link between the pension fund universe and what the firm can do for the individual as regards total cost to company. With the provision of employee benefits, individuals obviously understand that their employer cares about them, which is an important part of the value-add proposition for the employee.
“However, I believe that human resources departments in general have not been as cognisant of employee benefits issues as they should be. The significant benefit of saving for retirement is not well communicated to employees.”
Economou says that there has been a distance between the retirement industry and company’s human resources departments, which, he says, needs to change. “There needs to be more alignment. In this way, the employer can reap the rewards of an improved perception of their employee benefits from the employees themselves, with resultant improvements in staff morale and decreased turnover.”