Super schemes not super for small businesses

An adviser came to see me the other day… said he wanted to talk about what he could do for me.  “That would be interesting,” I thought “there are a few things I’d like to explore”.  Only problem is, he was thinking about me, but I was thinking more widely, particularly about my increasing conviction that I have a role to play in encouraging my staff to save for their retirement.

You see, I know the statistics.  Surveys tell us that New Zealanders are not very good at saving, and particularly bad at saving for their retirement.  We live in a spend now, pay it off later society, where credit rules supreme.  You have only to look at the amount of money spent advertising loans – borrow now, borrow more, take your mortgage from us – compared to the much lesser amount spent advertising investment products.

Surveys tell us that between 30% and 40% of non-retired adults are not saving for their retirement – and contrary to popular belief, these are not all the young, the poor and the stupid (well, at least not the uneducated).

Most people want to save, they just can’t quite get there.  While the introduction of the Cullen Superfund has persuaded some people that they need not worry, the numbers who believe the government will provide them with an adequate retirement income remain low (at less than one in five of the not yet retired).

So what’s stopping them?  Mainly, confusion, and a total failure by investment companies (and advisers) to secure any faith in their products.

Okay, so we’ve been through a bad patch!  The longest in living memory, was it?  As investment markets deteriorated, our obsession with property as the ultimate solution to our retirement income problems deepened.  After all, the house will be there, no matter what (floods, earthquakes notwithstanding – at least it can be insured for its replacement value).  So long as it’s paid for by the time I retire, renting it out will provide an ongoing income stream, that’s linked to the state of the economy.  Return on investment – who cares?  Income is income, and there will always be people who need or want to rent.  Simplistic?  Well yes, but the best things are sometimes the simplest!

So, while investment property remains the nirvana of savings for the average investor, the barriers to entry are rising, leaving most of my people with no immediate prospect of saving in this way. 

That’s where the adviser came in, or so I thought.  My plan was simple. 

• identify a ‘good’ retirement savings product which would suit the average young to middle aged above-average income earner;
• add a little flexibility to cope with variation across the potential 20 – 30 participants;
• encourage my team to participate, and make it easy for them (by deducting the money at source so it doesn’t become part of their ‘disposable income’).

The adviser was initially keen – particularly for me to contribute to the scheme!  I worried that this would disadvantage employees who choose not to participate, some because they are already doing the right thing for themselves!  I worried about the increased costs of employment, inequitably applied (particularly when the new Holidays legislation is going to cost me, lots and soon).  I worried that my adviser couldn’t adequately explain what would happen to my contributions if a person left before they’d stayed long enough to take the full amount.  There’s a lot for a business owner to worry about

So I did what all good managers do – I delegated!  I passed it all on to my newly appointed HR manager.  A meeting was arranged – the adviser brought in reinforcements in an attempt to persuade us to contribute to the scheme, with news that it wasn’t worth proceeding if we didn’t do so.  Get real guys – this isn’t going to happen!  No wonder the number of employer schemes has shrunk…..

Well, here’s the reality – more than half of all people in New Zealand work for companies smaller than mine.  Someone needs a plan for employers like me – people who want to encourage their staff to save, and provide them with the administrative mechanism to make it easy (perhaps even with a little fee sweetener based on the number of people who establish accounts).  Surely that’s easier than persuading people one at a time?

So opportunity lost!  Perhaps I should just syndicate the ownership of our business premises and allow staff to buy into that as their rental-property-foot-in-the-door – now there’s a simple idea!

You see, my adviser was much more interested in my personal business – going to the extent of reminding me how one of my similarly middle-aged female colleague had recently died of cancer as a salutary warning that I could lose everything if I didn’t have the right protection. 

Bad taste?  Yes, but not entirely his fault.  He’s only trying to sell what he’s been trained to sell – the term “business owner” sparks thoughts of key person insurance, disability and / or income protection and the like, with little thought that business owner = employer = a whole group of potential clients instead of just one!  We are the people that make the economy turn – and our needs extend well beyond protecting our personal situation. 

Debra Hall

Debra Hall is Executive Director of Synovate New Zealand Ltd, and has been researching consumer views on investment and insurance products for over 12 years.  The views expressed in this column are her personal opinions, based on personal experience and data from surveys owned by Synovate, or used with permission of the clients involved.