HR Connect New Zealand Volume 1, Issue 3, 2012

Funding our retirement

Against a backdrop of KiwiSaver celebrating its fifth anniversary and KiwiSaver providers processing the first scheme withdrawals, Aon Hewitt's most recent Remuneration Forum examined Workforce Diversity through the lens of our ageing population.

If the success of KiwiSaver is to be measured by uptake alone, it can only be described as a huge success, with now close to 2 million members and $12 billion of funds under management. In our present retirement landscape however, KiwiSaver is meant to complement NZ Superannuation (NZS), the sustainability of which continues to receive attention in the media, as well as political and social commentary.

It is no secret that across the entire developed world, demographic change is putting more and more pressure on national pension systems. Although New Zealand fares better than some of European and North Asian OECD nations, the 'silver tsunami' or demographic bulge of the 'baby boomer' generation entering retirement will see the cost of NZS increase from 4.7% of GDP in 2010, to 8% of GDP by 2050, according to 2012 Treasury reports.

NZS is funded by tax revenue in the year it is paid as opposed to being saved for by on-going employee, employer and taxpayer contributions as happens with KiwiSaver. Any discussion as to whether the doubling of this cost is a) affordable and b) equitable for the next generation needs to be had now, as individual plans around retirement income are made over decades.

The workforce is changing and the multi-generational teams of the future are going to present organisations with engagement, productivity and remuneration challenges. Retirement income policy, or lack of, could potentially further exacerbate these challenges. With arguably few examples of genuine thought leadership from New Zealand's political parties around the long-term fiscal challenges related to NZS funding, the question then becomes, should NZ organisations be taking a greater lead and assuming a bolder voice in the broader ageing workforce debate?

Emerging trends in employee wellness

Research has shown a measurable link between a person's health and lifestyle and how productive they are at work. Wellness, Wellbeing and Health and Wellbeing are among the catch phrases currently being used by organisations to label programs aimed at improving the health of employees, to in-turn, improve business results.

The approach is gaining momentum worldwide as employers and employees face significant challenges:

• Escalating healthcare costs are a concern for employers globally. In both private and public schemes there is a need to better predict and manage healthcare costs among employers.
• A shift from public social security/healthcare systems to private systems is, in most regions of the world, increasing. This increases employers' responsibility and liability. Appropriate risk management requires attention to make sure employee responsibility increases as well.
• Chronic disease is the leading cause of death and disability around the world. Companies are affected by the reduced productivity and increased costs caused by chronic disease. Many initiatives to address chronic disease are fragmented in their focus on one type of disease or in one region.
• Employee engagement and the growing understanding that low or decreased employee engagement negatively impacts productivity. More and more employers are embracing the research and case-based evidence that higher employee engagement improves business bottom line.
• Absence and disability impacts employee productivity and costs organisations money. The prevention and management of this is increasingly important to employers keen to manage costs and optimise the return on investment in their staff.
• An ageing labour force and the elevation of the retirement age are issues reinforcing the need to keep employees productive.
• Acquisition and retention of talent in some sectors particularly is an on-going issue for organisations. There is strong and emerging competition in certain markets for skilled workers and employers must demonstrate creativity to remain attractive and present a viable proposition for current and future workers.

"Employers are taking a variety of approaches to overcome these challenges and improve employee wellness" says Peter Harland, Manager, Health & Benefits at Aon Hewitt. "Programs such as quit-smoking, Mental Health First Aid, subsidised gym and exercise programs and counseling services are helping employers reduce the impact of physical and mental health conditions on their bottom line."

Aon Hewitt believes that the key to successful corporate wellness programs is alignment to organisational business strategy, rather than a silo approach. "In this way, the wellness program is directly influencing costs related to human capital, as well as promoting engagement and productivity" says Harland.

For more information how Aon Hewitt can help your organisation develop and implement employee wellness initiatives contact Peter Harland on +64 9 362 9127 or email [email protected].

Retiring happy, wealthy and wise

On 1 July 2012 KiwiSaver turned five and members who are aged over 65 and have been in a KiwiSaver scheme for at least five years can now withdraw money from the scheme.

What are the options?
Members who can withdraw from the scheme have several options. They can:

1. Keep money invested in KiwiSaver
2. Set up a regular withdrawal from their account to supplement New Zealand Superannuation and other retirement income
3. Access some or all of the money (including employer and government contributions) from time to time
4. Keep on contributing and make occasional withdrawals of money if needed.

Members who are still working should check whether their employer will still contribute to their account. Employers don't have to contribute for members who can withdraw money, but many employers have decided to continue providing this benefit for valued employees.

There are benefits to keeping your money invested in KiwiSaver!
KiwiSaver provides an easy, transparent and very cost effective way to invest money and may be a better option than withdrawing your money and just leaving it in the bank. With life expectancies increasing all the time, retirement savings have to last for a while and so must keep pace with inflation, in order to maintain its value. It is also important to have a diversified investment (investing in many different shares and fixed interest investments) plan so your eggs are not all in one basket.

KiwiSaver is also often a more straight forward investment choice than other options.

Why AonSaver?
AonSaver offers flexible investment options to suit your needs. We have 4 Investment Managers and 13 investment portfolios for you to consider. Completing our risk questionnaire online at www.aonsaver.co.nz will help you establish your risk profile and see which investment option suits that risk profile.

We keep you informed about your investments and the markets. The AonSaver website gives you access to investment information, educational material, fact sheets, the latest industry news and more. If you provide your email address we can also send you our newsletters with the latest news.

Retirement can be a bit like Clark Kent taking off the Superman suit. It involves peeling off an identity from an industry, a company, or a personal work history and entering an entirely new life stage. There's freedom and excitement, the time to do all the things we've been waiting for, but there's also some fairly key life changes and adjustments to make, some of which may be unexpected. Planning for retirement mentally as well as financially is a key to living the good life in retirement.

The three non-negotiables for improving employee engagement

Aon Hewitt research has identified three non-negotiable practices that organisations must follow to improve employee engagement. Analysing the people practices of more than 200 Australian and New Zealand organisations, Aon Hewitt's Your Pathway to Improving Employee Engagement report provides research-based advice on how organisations can improve employee engagement.

• Embed engagement into business practices. Engagement improvement plans must be aligned with business strategy and managed as an ongoing activity, rather than a one-off standalone initiative. Engaging people must be part of everyday business processes.
• Share accountability for change. More than nine out of ten (93%) of those companies which improved employee engagement share accountability between senior leaders, people managers and HR, compared with 66% of other organisations¹. This shared accountability helps align the actions of these key influencers of employee engagement in a business.
• Focus on the basics and good communication. There is no substitute for frequent, quality conversations between team members and their immediate managers. Don't be over reliant on HR systems, processes and frameworks as the sole method for improving engagement.

These three non-negotiable practices can have a measurable impact on any company's bottom line, with Aon Hewitt research demonstrating a clear link between engagement, productivity and profitability. Our 2011 Best Employers study found that Best Employer organisations (with an engagement score of 65% or greater) demonstrate an average profit growth almost four times that of other organisations.²

Despite this, it is clear that many companies have a long way to go in reaping the demonstrated benefits of strong employee engagement. Less than a third (31%) of Australian and New Zealand organisations recorded improved engagement in 2011. For more information, please contact Jocelyn Anso on +64 9 362 9296 or email [email protected].

¹Aon Hewitt Australian and New Zealand database of 95 organisations that measured engagement in 2011 or 2010 and conducted a prior measure no more than two years before.

²2011 Aon Hewitt Best Employers in ANZ study of 200 organisations.

The information in this document is general in nature and should not be relied on as advice (personal or otherwise) as your personal needs, objectives and financial situation have not been considered. This document has been prepared by Aon New Zealand trading as Aon Hewitt.

Aon Hewitt has taken care in the production of this document and the information contained in it has been obtained from sources that Aon Hewitt believes to be reliable. Aon Hewitt does not make any representation as to the accuracy of the information received from third parties and is unable to accept liability for any loss incurred by anyone who relies on it. The recipient of this document is responsible for their use of it.

© 2012 Aon New Zealand trading as Aon Hewitt