The prospect of retirement can be a double-edged sword. While the dramatic increase in leisure time is attractive to many, the financial worries of retirement can often take the lustre off those precious golden years.
Employers’ advice at this stage is crucial. Guiding and supporting your employees in the crucial issues of continued medical insurance, life cover and savings can help both parties in the long run. A company that looks after its employees right through to the point of retirement and beyond will be more attractive when it comes to talent acquisition and retention. And removing the fears that lead employees to delay retirement will help to maintain the delicate balance of workforce dynamics.
So let’s look at these three crucial issues in more detail and examine the benefits of helping your employees to get them under control.
- Continued company medical insurance
In the last 30 years, access to retiree healthcare has dropped dramatically as employers look for ways to limit rising healthcare costs. In 1988, according to the Economic Policy Unit in the US, two-thirds of large employers with over 200 employees offered health cover to retirees, but according to the Kaiser Family Foundation 2017 Employer Health Benefits Survey, only 25 per cent now offer the same retiree benefits.
So why go against this trend?
Because worries about healthcare costs can lead employees to postpone their retirement. The knock-on effect of this is that employers can be prevented from renewing the workforce and attracting new talent. Since older employees tend to earn more and cost more in healthcare costs than their younger counterparts, it can also have a detrimental effect on total compensation strategies and active health insurance risk pools.
Make employees feel valued
By offering your employees the option to continue your company-wide medical insurance into retirement through top-ups, you will remove a major retirement worry. This is particularly important since many employees will not be able to fall back on healthcare cover in their home country in retirement at all.
In its 2017 survey, the Kaiser Foundation found that the vast majority of companies offering retiree health benefits also made those benefits available to ‘early’ retirees, in other words those retiring before the age of 65. This suggests that companies that recognise the cost advantage of offering retiree healthcare understand the high costs that can be associated with employees postponing retirement.
Indeed, as the Upjohn Institute For Employment Research in the US notes, companies design the appropriate age and skill composition of their workforce to maximise profits. ‘Changes in the age structure of a company’s workforce due to delayed retirement,’ it points out, ‘can affect labour costs, productivity, profitability and sustainability’.
How this benefits employers and employees
By prioritising employee protection in retirement rather than short-term cost-cutting, you can produce long-term cost reductions for your business. This is done by maintaining the optimal mix of employees with different skills sets and skill/experience levels. It can also trickle down as an effective tool for employee engagement and retention. For employees, it removes the worry of how to pay for cover in retirement and the dent it could make in their retirement savings.
- Advice on life and critical care cover
Often sold alongside life cover, critical care cover typically pays out a lump sum if the insured suffers from a serious or chronic illness (such as cardiovascular disease or cancer) covered under the policy. You should be advising your employees to take out critical care and life cover for retirement before the maximum entry age.
We only need to look at a few stats to understand why this is particularly important here in the UAE, where no government medical cover is offered to expats. Recently released claims data, gathered in the three years to 2016, show that cancer accounted for 48 per cent of critical illness claims in the Middle East, with vascular disease (heart attack and stroke) a close second at 46 per cent.
Growing threat of obesity
Diet and lifestyle in the UAE are also causing mounting health problems: industry figures suggest that 70 per cent of men and 40 per cent of women living in the UAE are overweight or obese. Meanwhile, nearly half of all payouts in the Middle East between 2013 and 2015 were indirectly linked to high Body Mass Index.
The World Health Organization (WHO) suggests obesity is responsible for at least 80 per cent of premature heart disease, stroke and type II diabetes and 40 per cent of cancers. In addition, research suggests that by 2020 more than one in three adults in the UAE could develop diabetes or prediabetes.
The increased likelihood of such serious and chronic conditions in the UAE strengthens the case for critical cover as a vital component of retirement planning advice.
How this benefits employers and employees
With life cover in place, retirees will have the peace of mind that any debt in the form of mortgages or loans could be covered by a payout when they die. With the addition of critical care cover, retirees will receive a lump sum in the event of being diagnosed with a critical illness, even if treatment for the condition is covered by their health plan.
This removes the need for them to cover out-of-pocket medical expenses such as prescription drugs from their retirement savings plan, meaning retired employees will be less likely to outlive their assets in retirement and are less likely to postpone that retirement.
- Personal finance and savings plan
Employers should be advising their staff to avoid the traditional contractual savings plans offered by large life companies, as they don’t generally represent good value, nor do they give cost-effective flexibility.
Clients with contractual policies are traditionally tied into specified terms, often as long as 25 years with excessive early surrender penalties. They often incur high product charges which stifle growth and reduce overall returns. In addition, charges incurred through exercising the so-called ‘flexibility’ features of contractual plans adds yet another layer of drag in the performance of the policy.
By contrast, the benefits of advising non-contractual plans is that they genuinely offer the flexibility which the old contractual plans were sold on, but none of the crippling costs.
This is important because, according to recent industry research, 60 per cent of employees in the UAE are worried they will not have sufficient funds to live comfortably in retirement. It therefore presents an opportunity for organisations to increase employee engagement by helping them to take action through effective retirement planning advice.
How this benefits employers and employees
By encouraging flexible non-contractual policies, employee savings plans can be adapted to suit changing circumstances. With their vastly improved cash-in value and no lock-in period, this allows employees to start, stop, increase or decrease contributions at any time without penalty.
This means that employees are more likely to retire on time, or even early, because the worry of burning through retirement savings is dramatically reduced or removed. It gives employees the peace of mind that their retirement income can cover unexpected bills, such as out-of-pocket medical expenses, which may not be covered under an employer’s retiree heath plan.
This in turn reduces the continued high-cost payroll burden of a top-heavy workforce. As a result, it allows companies to renew and balance their workforce according to commercial considerations alone. It also drives increased engagement by virtue of the fact that HR’s advice can help employees take action to address those concerns.
Creating opportunities by addressing concerns
By making provisions to help employees with these three specific areas of concern, employers have a golden opportunity to increase employee engagement, retention and productivity by helping their staff to navigate the worries associated with impending retirement.
Advice and action on retirement planning can help to drive down costs in the long term and will allow organisations to better plan their workforce demographic without the unplanned distraction, disruption and cost of retirement postponement.
Rather than regarding such services for your employees as another expense, recognise the long-term benefits and make it your policy to invest in helping to establish a secure, contented future – both theirs and yours.
Stephen MacLaren is the director at AES Financial Services