New issue
High employee turnover plays havoc on trustees’ requirements as fiduciaries responsible for individual member outcomes. Long-term investment strategies or dynamic benefit structures that shift members’ benefit exposures in accordance with their life cycle requirements are interrupted when a member transfers to a new fund or strategy. Similarly, high employee turnover undermines such compelling strategies as auto-escalation where employees’ contribution rates are gradually increased when their salaries are adjusted. If an employee is constantly switching between firms, they would always be on the lowest contribution band.
It would be a travesty if employers or trustees became indifferent to solving the long-term needs of employees simply because high turnover appears to undo, any efforts on their parts. While high employee turnover is a structural issue for some industries, employee turnover in general has also been rising globally. To cater for this, retirement reform is trying to create greater portability between funds and higher preservation rates, so that savings follow individuals through time and across employers. The focus should clearly be on how we get enough continuity between the basic elements of retirement funds so that:
- The member should be indifferent to which fund they belong to if they are all structured with the same outcome.
- The member should be able to access the same basic benefit requirements at approximately the same cost, irrespective of the size of the employer
In truth, to solve this problem correctly we need a model that provides solutions tailored to each individual’s requirement as they move through their lives, irrespective of where they work. There are now methodologies to do this cost-effectively. We just need to change the mindset of the industry to embrace the model.
