ACTUARIAL LENSE: Are you reaping the non-financial benefits of offering employee benefits ?

ACTUARIAL LENSE: Are you reaping the non-financial benefits of offering employee benefits ?

Very few people understand what pension funds or insurance companies are or what they do.

THESE days, when a company hires a new candidate, they simply tell them exactly how much their pay is going to be, and that the company will contribute a monthly sum of money equal to say, 10 percent of their salary into a ‘pension fund’ for them. They give that new employee a scheme booklet and that’s that! Suppose this new hire is 30 years old. If all goes well,this person will work for that organisation for the next 35 years until they retire at 65 with just a meagre knowledge that the company is putting 10% of their salary aside into something called a ‘pension fund’.
The consequence of such a scenario is that this employee will only realise the financial significance and benefits of the amount of money that the company put aside for him/her, at a time when they will be in retirement and actually receiving the benefits. Unfortunately however, at this stage, such an individual will not be of any economic use to the company – they would have retired!
The above may seem like an extreme scenario, but if your company offers any form of employee benefits to your workers over and above their salaries, you must pause and ask the question; “are we deriving the non-financial benefits of offering these employee benefits?” If you are offering benefits that your employees neither understand nor value as beneficial to them, then you have some work to do. Every cent spent on your human capital must go some way towards attaining your corporate goals – whatever they may be.
Companies usually design their benefit structures to meet a set of predetermined goals such as; attracting the right talent to the organisation, rewarding high flyers, rewarding long service, increasing employee morale, and so on. How certain are you that these goals are being met?
The scheme booklet
Zimbabwe may lay claim to a high literacy rate but the financial literacy rate of the average adult is not that high. Very few people understand what pension funds or insurance companies are or what they do. That being said, very few employees take the time to go through the scheme booklet. More so, if the booklet includes pension jargon that only actuaries and pension administrators understand. Words such as ‘emolument’ and ‘commutation’ have no place in a scheme booklet.
In a nutshell, this simply means that some companies are paying their employees generous benefits that the employees do not fully understand. Companies are pumping money into their pension schemes and it is no different from pumping money into a black hole.
What should be done?
Employees understand the concept of a salary. Why wouldn’t they, when they patiently wait for the pay day so that they can go to the bank to make that withdrawal? But unknown to your employees is that at the same time as their pay check comes, the company injects a percentage of their pay into their pension scheme.It is the onus of the employer to educate the employees about the immense benefits of its benefit scheme.
Pension funds are one of the most tax efficient savings vehicles available and thanks to our lenient post retirement tax regime;some people get their pension, free from tax.
To conclude, let us take a look at an example of the additional costs that an employer has to pay for an employee earning a mere $700 per month. Suppose they contribute 10% to the pension fund, and also pay for social security benefits plus group life cover and a basic health plan. All these additional benefits will add as much as $164 in costs – and that’s before we consider taxes!Surely the person footing these expenses would want to make sure that these benefits are appreciated by the staff in their employ.
If you are among the group of employers looking to realign their benefit offering to the needs of their employees, but are worried about the cost of doing so, the good news is that the expensive part is putting money into the benefit scheme,explaining the benefits should be a walk in the park.

Follow us on Twitter on @FingazLive and on Facebook – The Financial Gazette

Connect With Us

Fingaz Polls

CEO term limits...good or bad idea?