Retire

Investment Nutrition: The Fuel For Retirement

14 March, 2019
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"Over the next 20 years, average defined contribution pot sizes are expected to increase by 91%."

There’s no denying it, in the same way fad diets work over the shorter term, simple investment strategies can also provide strong performance when everything works to their advantage. But, over the longer term, the result is likely to be the same for both our physical and financial health – a lack of fuel to power us through retirement. Ongoing investigations of the market for investment consultancy services by the Competition and Markets Authority (CMA) in the UK reinforce this point of view. In a provisional decision report, the CMA stated that they "encourage policymakers to consider how best to address the lower level of engagement by Defined Contributions (DC) schemes in investment matters." But there’s a disconnect between this and the design of DC investment strategies.

Changing Relationship Between Employer and Employee

Rather than the short term objectives, which drive the focus on current thinking in DC pensions, there needs to be an increased focus on investments, with a long-term time horizon and a disciplined set of core principles. This criteria will provide members with the fuel they need for a financially healthy retirement. Below are three key reasons we believe many investment strategies are lacking the ‘nutrition’ they need for the longer term, and why this needs to change.

Deficiency #1: Low Cost = Good Value

There’s no doubt that the current regulatory environment has a strong focus on cost, from the charge cap to value for money assessments. Low cost is also a key driver when selecting a provider. But there’s a key difference between cost and value that’s being missed by the market. This race to the bottom is compromising member outcomes.

Instead, the focus should switch to value – pushing hard on fees, but not compromising on selecting the best investments when they add value for members. An open architecture structure, with transparency on which funds can be used, can help to manage and improve this selection process.

Deficiency #2: A Focus on Cost Means Lack of Diversification

Diversification is said to be “the only free lunch in investments,” but we see a number of investment strategies in the market lacking the balanced nutrition to provide members with a healthy pot at retirement. Whilst we’ve had a market environment over the past 10 years that has broadly been favourable for simple, undiversified strategies, the future is uncertain, with political risk across the globe, uncertainty around the impact of climate change, and DC members who are struggling to save enough for retirement.

There’s a misconception that focusing on cost means you have to invest only in the traditional asset classes – equities and bonds. Not only does this leave members exposed, it also isn’t true. There are a number of more innovative asset classes that tick the box of being both cost-effective and strong diversifiers – emerging markets, infrastructure and property (on a listed basis) to name a few.

On top of this, we believe that set-and-forget long term allocations are leaving money on the table. When you have the right expertise and depth, using a dynamic asset allocation process, adjusting for short to medium term market views, can and does add value by positioning portfolios for all market conditions.

Deficiency #3: Members Move Around – Why Should I Care?

Members will be invested for upwards of 40 years, but on average members will spend 8.6 years at each employer1. So you can see why employers are reticent to spend time, and money, on designing their investment strategies. But if we all took that view, we’d be failing members. Over the next 20 years, average DC pot sizes are expected to increase by 91 percent2. In addition, assets under management in the DC workplace pension market are expected to increase to c. £1.7trn in 20302. Whilst many members may be relying on other sources of income currently, this isn’t going to be the case in the near future, and the shift from DB to DC pensions means more people will be increasingly reliant on their DC pot to fund their retirement.

Most people realise the importance of healthy eating and a balanced diet on their long term health, but often we don’t think they give the same care to investing for retirement. There are a number of reasons and key drivers for this –but these will need to be overcome for us all to have healthy retirements. While investment strategies which fall victim to these deficiencies will falter, and fads will run out of steam, an investment solution based on solid, grounded principles will stand the test of time. Choosing a DC pensions solution that has this at its core is critical. All parties will have a role in this, from members to trustees, pension providers to regulators, and we all need to take action to make sure investments are given the focus they deserve.

Download the Investment Nutrition: The Fuel For Retirement report to continue reading what we believe are the key reasons many investment strategies are lacking the nutrition they need for the longer term, and why it’s critical to implement change now.  You can also visit UK.mercer.com to learn more.
 

Oecd -https://stats.oecd.org/Index.aspx?DataSetCode=TENURE_AVE
FCA - Retirement Outcomes Review.https://www.fca.org.uk/publication/market-studies/retirement-outcomes-review-interim-report.pdf

More in Retire

Anil Lobo | 27 Jun 2019

Supplementary retirement savings plans can provide security and stability for older people who no longer have a steady paycheck — and India's National Pension System (NPS) aims to do just that. NPS is a supplementary Defined Contribution pension plan, and subscription to the scheme is purely voluntary in nature. Like most of the world, India's population is aging, and lifespans are increasing. As a result of improved health and sanitation conditions, the global life expectancy is forecast to increase from an average of 65 years in 1990 to 77 years by 2050.1 For most people, living longer means more non-working years to enjoy. But for growing numbers of people around the world, maintaining enough income to live comfortably during those non-working years is expected to be a challenge. Not only are most older people no longer earning income, but as the years advance, the cost of living and inflation continue to increase. As government leaders around the world consider ways to help citizens prepare for retirement, they can look to India's NPS as a model for boosting retirement savings and helping aging workers avoid poverty during old age. The Basics of India's National Pension System   In 2004, the Indian government launched its National Pension System with the goal of providing retirement income to its citizens.2 The system aims to institute pension reform and foster the habit of saving for retirement. Initially, the program was made available for government employees only, but in 2009, NPS became available on a supplementary basis for all Indian citizens between the ages of 18 and 60. A Tier I NPS account (a mandatory account offering tax benefits) is designed in such a way that it discourages early withdrawal until the account owner reaches retirement age. If the account owner intends to withdraw before retirement age, they are allowed to withdraw only 20%, and the balance has to be used to purchase annuity. The NPS offers a decent tax benefit for its participants — contributions are made before taxes — but a portion of withdrawals are subject to taxes. On reaching the retirement age, one can withdraw 60% of accumulations, which are tax free, and the balance of 40% has to be utilized to purchase annuity from approved annuity providers. One can defer the withdrawal and stay invested until the age of 70 or continue to make fresh contributions, if desired. Tier II NPS accounts provide voluntary savings options without stiff exit penalties or lock-ins. There is a proposal to provide some tax benefits under Tier II NPS, which would require a lock-in period of three years; however, this proposal is yet to be confirmed. Since the launch of the system, the Indian government has created additional social security programs to encourage retirement saving, especially among the working poor. In 2010, the government's Swavalamban Scheme committed to depositing 1,000 rupees into the accounts of each saver who contributed 1,000 to 12,000 rupees into their own account annually and was not covered by a government or employer pension. But in 2015, that plan was scrapped in favor of the Atal Pension Yojana (APY), which guarantees defined pension distributions during retirement for savers who meet certain qualifications based on their contributions. APY also offered a government contribution of 50% of the saver's total contribution or 1,000 rupees per year, whichever is lower, for a period of five years (from 2015 to 2020). India's NPS has gone through a few iterations and continues to evolve, but the plan is helping to boost retirement savings among Indian citizens. It's also shifting citizens' expectations: Instead of relying on younger family members to support them in their old age, many are now adjusting their savings and preparing to support themselves in their retirement years. On top of that, NPS is one of the cheapest investment products. Overall costs of the NPS are far lower than those of other products, and it is perhaps the cheapest pension product available. 3 Lessons You Can Learn From India's Model   For organizational leaders around the world, India's experiment in providing a national pension program for all its citizens offers a number of valuable lessons. 1. Unsustainable National Debt Requires New Solutions   Long before the NPS was launched, India's federal and state government employees were covered by a tax-funded defined benefit pension program that provided a 50% replacement wage at retirement with an inflation-linked adjustment. In the mid-1980s, this program cost the country less than $0.5 billion annually, but by 2006, with people living longer, the price tag jumped to more than $600 billion per year.3 Maintaining the program was unsustainable, and leaders realized they needed to develop a replacement program to ensure successful retirements for future workers and protect the nation's finances. Since the launch of NPS, all new government employees have been enrolled in it, fostering a responsibility among workers to prepare for their own retirement and protecting the government from continuing to run up unsustainable pension debt. 2. Tax Advantages Are Key for Supplementary Retirement Savings Plans   Most participants choose to invest in the NPS due to the tax benefits. However, some Indian citizens report that they did not opt for participating in the NPS as they perceived that some mutual fund instruments and private retirement savings vehicles have greater potential to beat the market and also provide better tax benefits. In order to encourage citizens and promote NPS, the government developed three categories of tax-saving options. The third of these options is exclusively for salaried employees whose contributions are made through the corporate model of NPS. All three categories can be availed together and exclusive of each other. Moreover, there was a recent relaxation in the tax-free withdrawal limit of corpus allowed at the time of retirement (from an earlier limit of 40% of corpus to 60% of corpus). Originally, though 60% was allowed to be withdrawn, the balance of 20% was taxed at normal rates, and making it entirely tax free has made it even more attractive. While a few senior executives may have access to other retirement savings plans, including employer-sponsored Defined Contribution superannuation plans, most of the population (particularly among the working class) do not have access to other retirement savings plans, and hence, the tax advantages inherent in NPS are crucial encouragement for them to save for retirement. 3. Citizens Need Education About the Model's Benefits   While the NPS offers a number of benefits to savers, participation rates remain relatively low.4 Some respondents to a recent survey revealed that not understanding the importance of saving and the advantages of compounding interest could have influenced their choice to stay out. NPS leaders have used a variety of methods for communicating and educating the population about the system. For instance, pilot programs staged in two different geographic areas hosted workshops, meetings and camps targeting unorganized sector workers and key stakeholders. Information was also distributed through cable television networks, radio, mobile publicity vans, seminars and road shows. India continues to measure the success of its pension program and may make more changes in the future. Many countries are struggling to solve the potential challenge of poverty in old age, but the NPS in India is an encouraging step toward protecting the future for many of its citizens, and it's worth taking a look at the model for inspiration. Sources: 1. United Nations: Department of Economic and Social Affairs,"World Population Prospects — 2017 Revision: Global life expectancy," United Nations: Department of Public Information, June 21, 2017, https://www.un.org/development/desa/publications/graphic/wpp2017-global-life-expectancy./ 2. "National Pension System — Retirement Plan for All," National Portal of India, October 22, 2018, https://www.india.gov.in/spotlight/national-pension-system-retirement-plan-all. 3. Kim, Cheolsu; MacKellar, Landis; Galer, Russel G.; Bhardwaj, Guatam, "Implementing an Inclusive and Equitable Pension Reform," Asian Development Bank and Routledge, 2012, https://www.adb.org/sites/default/files/publication/29796/implementing-pension-reform-india.pdf. 4.Zaidi, Babar, "5 Reasons Why Investors Stay Away From NPS. But Should You?" The Economic Times, December 27, 2018, https://economictimes.indiatimes.com/wealth/invest/5-reasons-why-investors-stay-away-from-nps-but-should-you/articleshow/61890679.cms.

David Anderson | 03 Apr 2019

Asian pension systems are facing major challenges. The region is experiencing seismic demographic changes, with rapidly aging populations and declining birthrates. But investment returns are relatively low due to geopolitical uncertainty and minimal interest rates. With the region having relatively few robust retirement systems, many Asian countries will struggle to provide adequate pensions. Governments need to take positive action now to reduce financial pressures and avoid intergenerational conflicts between the young and old. Life expectancy at birth in the region has increased by seven to 14 years in most countries during the last 40 years, according to the 2018 Melbourne Mercer Global Pension Index (MMGPI), which ranks pension systems round the world on adequacy, sustainability and integrity. This is an average of one additional year every four years. The increased life expectancy of a 65-year-old over the last 40 years has ranged from 1.7 years in Indonesia to 8.1 years in Singapore. Much of the rest of the world is facing similar challenges relating to aging populations, and nations are pursuing similar policy reforms. These include raising pension ages, encouraging people to work longer, increasing the funding levels set aside for retirement and reducing the amount of money people can take out of their pension accounts before they reach retirement age. The 2018 MMGPI findings pose the fundamental question: What reforms can Asian governments implement to improve the long-term outcomes of their retirement income systems? The natural starting place to create a world-class pension system is ensuring the right balance between adequacy and sustainability. A system providing generous benefits in the short-term is unlikely to be sustainable, while a system that's sustainable over many years usually provides modest benefits. Without changes to retirement ages and eligibility ages to access social security and private pensions, the pressure on retirement systems will increase, which could threaten the financial security provided to the elderly. Increased workforce participation by women and older workers can improve adequacy and sustainability. Japan, China and South Korea rank near the bottom of the Mercer index. Their pension systems do not represent a sustainable model to support the retirement of current and future generations. If left unchanged, these countries will suffer social conflicts, since pension benefits will not be distributed equally between generations. Japan, for instance, is taking baby steps to reform its pension system by gradually raising the mandatory retirement age of some 3.4 million civil servants to 65 from the current 60 years of age. Japanese retirees can now choose to start receiving their pensions at any point between the ages of 60 and 70, with greater monthly payments offered to those who start at age 65 or older. Having the world's highest life expectancy and lowest birthrate, Japan's population is expected to shrink. This challenging situation is already contributing to skill shortages, which will further impact Japan's shrinking tax revenue base. The Japanese government could improve its pension system by encouraging higher levels of household savings and continuing to increase the level of state pension coverage, since 49 percent of the working age population is not covered by private pension plans. Introducing a requirement that part of the retirement benefit must be taken as an income stream and not a lump sum will improve the overall sustainability of the social security system — as would reducing government debt as a percentage of gross domestic product, as this improves the likelihood that the current level of pension payments can be maintained. China faces different issues. China's unique pension system comprises various plans for urban and rural populations, as well as for rural migrants and public sector workers. The urban and rural systems have a pay-as-you-go basic pension consisting of a pooled account (from employer contributions or government expenditure) and funded individual accounts (from employee contributions). Supplementary plans are also provided by some employers, particularly in urban areas. The Chinese pension system could be improved by increasing the use of workers' contributions to pensions to enhance the overall retirement protection of workers and increasing minimum support for the poorest retirees. A requirement that part of the supplementary retirement benefit must be taken as an income stream should be introduced, as well. More investment options should be offered to pension holders to permit a greater exposure to growth assets, while pension plans should improve their communications with members. Hong Kong should consider introducing tax incentives to encourage voluntary member contributions, thus increasing retirement savings. Hong Kong should also require that part of the retirement benefit be taken as an income stream. Older workers should be retained in the labor market as life expectancies rise. South Korea suffers from one of the weakest pension systems for the poor when expressed as a percentage of the average wage at just six percent. Its system would benefit by improving the level of support provided to the poorest pensioners, introducing a requirement that part of the retirement benefit from private pension arrangements be taken as an income stream and increasing the overall level of contributions. Singapore's well-structured pension system is ranked top in the region and has seen improvements in sustainability. Its retirement system, the Central Provident Fund, provides flexibility to its members, who include all employed Singaporean residents and permanent residents. But more can be done. Barriers to establishing tax-approved group corporate retirement plans should be reduced, and the CPF should also be opened to temporary nonresident workers who comprise more than a third of the labor force. The age that CPF members can access their savings should be raised, as well. Since pension systems are an intergenerational issue, they require a long-term perspective. Pension systems, which are one of the largest institutional investors in any market, should increasingly recognize the importance of acting as good stewards of the capital entrusted to them, including managing risks, such as climate change. With Asia's aging populations staying productive well into their 70s and even 80s, it is critical to improve the provision of adequate and sustainable retirement income. Raising the retirement age, expanding the coverage of private pensions for workers and encouraging financial planning and early savings should be the focus of employers and policy makers. Article originally published in Nikkei Asian Review.

Janet Li | 20 Dec 2018

Quality of life is a powerful force. When a generation of citizens experiences unprecedented economic opportunities and long-term financial well-being, there is a strong desire to maintain—or advance—those standards. In China, a surging middle class is determined to enjoy their comfortable lifestyles well into the future. In addition, a younger generation of tech-savvy and financially sophisticated Chinese employees is redefining the meaning of retirement for a population of 1.4 billion people.  Trust plays a key role. The Chinese strongly believe in the ability of external financial support sources—such as the government, pensions funds, employers, families, life insurance benefits, and financial advisors—to provide for them in retirement. Younger workers just entering the workforce are placing even greater faith in online tools and financial apps to manage their long-term finances. This trust, however, will be tested as China pivots to accommodate larger global economic forces and powerful cultural developments—such as societal aging—as detailed in the Melbourne Mercer Global Pension Index (MMGPI). The Challenges of Adjusting to Change   The MMGPI measures the retirement income systems for nations based on three key sub-indexes: Adequacy, Sustainability and Integrity. A comprehensive analysis of these data sets determines a nation’s overall index rating. For 2018, China received an overall score of 46.2. For perspective, the Netherlands and Denmark received the highest ratings—with scores of 80.3 and 80.2, respectively—and Argentina earned the lowest rating at 39.2. Japan (48.2), Korea (47.3) and India (44.6) all received similar scores to China. Unsurprisingly, these growth economies face domestic and policy challenges that are familiar to China—especially with regard to providing financial support to millions of aging people in an era of declining birthrates.   In 1970, the average life expectancy in China was 59 years; today it is 76.5 years. Aging Chinese workers are living longer and causing seismic changes throughout population demographics in China. Increasing life expectancies will test the nation’s pension resources and the financial power of China’s middle class to support the parents and grandparents who worked so hard before them. Currently, China’s retirement income system entails a rural system and an urban system that leverages a pay-as-you-go basic pension. Those pensions consist of pooled accounts (from employer contributions or fiscal expenditures) and funded individual accounts from employee contributions. In some urban areas, employers also provide supplementary benefit plans. These combined resources, however, are not keeping pace with the needs of China’s aging population.  Communicating a Diversity of Resources The MMGPI’s analysis of China’s retirement income system reveals that the most impactful path forward entails bolstering existing services, implementing proactive policies and educating employees about the various options and programs that best suit their individual needs. Specifically, the index findings recommend that Chinese policymakers: 1. Continue to increase the coverage of workers already in pension systems. Enhancing coverage allows for a more robust safety net for millions of retired workers, raising the Adequacy quotient. 2. Increase the minimum level of support for the poorest aging individuals. This demographic represents the most vulnerable and highest at-risk group in the aging population, and the one that benefits the most from additional support. 3. Require that part of the supplementary retirement benefit must be taken as an income stream. Installment payments or income annuity payments offer a fixed, effective means of paying the bills—especially when used as part of a diversified retirement income strategy. 4. Increase the age to qualify for a state pension over time. People are living longer, which naturally translates into working longer and retiring later in life. This is key to boosting Sustainability. 5. Allow more investment options to members, thereby offering greater exposure to growth assets. Diversification is the foundation of smart investing. Providing more investment opportunities leads to increased financial stability—especially for China’s middle class, which desires new ways to empower their assets. 6. Improve communications and better educate members regarding the details of pension plans. The accelerated emergence of new investing mechanisms, policies and digital technologies means individuals are often uninformed about the latest opportunities.     A Collaborative Quality of Life   Successful cultures strive to provide a dignified quality of life to every member of society. This requires the fair and disciplined acquisition and distribution of assets. In modern China, those assets are largely being created by younger workers, particularly in the growing middle class which has experienced a tremendous rise in wages and opportunities. As China’s middle class increases its appetite for new consumers goods, high-quality luxury products and improved standards of living, it must also come to terms with budgeting for the long term—both for themselves and their aging family members.   Nearly 43% of Chinese workers expect to be able to enjoy their desired quality of life after retiring by increasing their retirement fund contributions and working side jobs to supplement their savings. This demonstrates that significant segments of the Chinese population acknowledge the pension challenges ahead and are taking informed personal actions to mitigate potential future struggles. This engaged approach to personal financial well-being, supplemented by smart retirement income systems from employers and government organizations can empower Chinese workers—from GenY and Millennials to their aging parents and grandparents—with a synergy of resources that will make quality of life a standard part of getting old. To learn more about retirement income systems in China and the rest of the world, download the full Melbourne Mercer Global Pension Index  and visit Mercer China.

More from Voice on Growth

Amy Scissons | 28 Nov 2019

What does it take to lead successful international teams? Successful teams are often united over a common goal and a shared set of experiences. But, as the workforce becomes more distributed and business travel becomes increasingly burdensome to the bottom line and detrimental to the environment, leaders need to be more creative in developing and fostering positive team dynamics. With fewer face-to-face meetings, how are international leaders coalescing their teams? Here are four habits I have adopted that you should consider in managing international teams: Habit 1: Remove the Mentality of "You Need to Be There"   Technology is, without a doubt, the game changer when it comes to international team effectiveness. Yet, human-led organizations often struggle to accommodate and leverage the speedy and persistent nature of change brought by digital technologies. There are, of course, times when face-to-face meetings are required; however, Mercer has noticed clients are demonstrating an increasing comfort level with holding seminars, conferences and other traditional in-person interactions via online meeting platforms. Though the virtual workforce trend is nothing new, it has reached an inflection point where clients often prefer to partner with companies that actively internalize the power and practicality of being agile, versatile and virtual. Today's transformative Chief Marketing Officers (CMOs) urge their C-suite peers to adopt have this mindset and leverage differentiating new technologies. As managers, marketing leaders will find that their employees and marketing teams are more productive and online more, if allowed to do their work on their own time. People react well to not only managing their work but also having the flexibility to set their own schedules. At Mercer, we have seen our people work with more excitement, passion and collaborative enthusiasm when provided the freedom to excel according to their personal cadences. Let talented people do what they need to do to get stuff done. Habit 2: Cross-Cultural Communication With International Teams   With the direction set and the team empowered to find their path forward, it's time to focus on communication. Different cultures, of course, perceive, process and interpret information and context differently. These differences can create communication breakdowns that are extremely costly in terms of time, quality and money. Effective messaging is direct and only refers to limited but critical pieces of information that necessitate a particular email, phone call or conversation. Inspiring leaders find their voice and communicate in a way that is simple, memorable and supportive. All correspondences among international teams should be carefully packaged, contained and well thought out. Don't underestimate the power of repetition. Often, when dealing with team members from multiple cultures and languages, repetition of established goals, processes, timelines and expectations is vital to successful outcomes. Repetition, when done with tact and clear intentions, is not disrespectful or seen as micromanaging. It bolsters the ability of everyone on the team to achieve their goals (honestly, I find repetition extremely helpful. By the time I'm reminded what we're trying to get done three or four times — especially in a few different ways — it sticks!). When you're dealing with cross-border teams, never assume that everyone fully understands the strategy and desired results on the first two or three discussions. Using repetition creatively helps the team focus on the north star. Habit 3: Be Succinct and Culturally Aware   Cultural awareness is learned. It took me a while to appreciate and understand the nuances of each member of my team, not only in their approach to solving problems, but the influence of their culture on their overall outlook. Our research on diversity and inclusion points to the value of ensuring all voices are heard on the team. As a matter of fact, there are a range of products today designed to enable employees to share their perspectives (separate from employee engagement surveys) — and many of these are being tailored for D&I purposes. With international teams, this lesson is particularly punctuated. When team members in Tokyo, Taiwan and Mexico City are speaking to each other, ensuring they use the same direct, simple and familiar language increases efficiency and the likelihood of success. Being culturally sensitive and aware is incredibly important. Years ago, I used to feel very concerned if people were not speaking up in marketing meetings or weren't instantly on video conferences showing their face, but I realized over time that people need to communicate in ways that make sense to them. As a leader, I've learned it is my responsibility to respect other people's learning and working styles and that — if I did that — these individuals would become increasingly more open and trusting of me. Marketing leaders have to earn trust, just like everyone else. It is important to not expect that people think and act the way you think and act. People come from different perspectives and have different personality types — from introverts to extroverts and everything in between. And that diversity is instrumental to success. Habit 4: Lead With Genuine Positivity   My favorite habit, is bringing my whole self to work. As leaders, we must make a conscious effort to be encouraging and find genuine, sincere ways to boost people's confidence. This takes time and awareness as each person behaves according to varying types of motivations, instructions and sensibilities. As a company, we have to be demanding, because we have aggressive goals. However, the most effective and rewarding route to achieving those goals is by making the conscious decision to encourage employees as they execute their responsibilities — especially during challenging times. Regardless of gender, race or nationality, I think that one overriding universal truth is that people respond more graciously, productively and passionately to authentic positive feedback and encouragement. I know this personally, because I have benefited from positive reinforcement many times in my career — often when I needed it the most — from my peers, colleagues and fellow team members. It really helps. In fact, the most successful leaders I know and have worked with are extremely positive people. Teams and individuals need to be reminded, particularly during tough times, that they are doing excellent work and they are moving in the right direction. Never underestimate how much a genuine comment, like "You're doing a great job" and "Keep going" can do for someone who feels overwhelmed, underappreciated or unmotivated at a particular moment in their career. Positivity is all about appreciating the time and work employees invest into success and giving them credit for their efforts and accomplishments. Originally published in Thrive Global.

Digital transformation and the Fourth Industrial Revolution are rapidly changing how workers perceive their professional futures and career experiences. Artificial intelligence (AI), machine learning and automation are replacing once reliable careers and industries with worried workforces, putting the global economy in a constant state of flux. These technological advancements, however, are revolutionizing how employees perceive and manage their own careers. Mercer's Global Talent Trends 2019 study reveals that both individual employees and employers must collaborate to address the disruptive impact of advanced technologies. Fortunately, in Latin America, Kimberly-Clark recognized this fact and partnered with Mercer to develop a game-changing approach to professional development in an economy defined by constant digital change. The solution combines the value of seasoned mentors within the workforce and a digital platform that empowers employees to create their own paths toward professional development. The Career Experiences Platform   Kimberly-Clark challenged us with the task of deriving positive outcomes from the costly disruptions that will impact the company's employees and business operations, so we went straight to the source. We surveyed 150 workers and discovered a startling outcome: 4 out of 5 employees reported having a lack of clarity regarding their careers and desired more support in finding that clarity. In light of these responses, we created a digital mechanism that enhanced job satisfaction and career stability for employees in an era haunted by the specter of the unknown. The result was the Career Experience Platform. 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Each agile sprint featured a clear objective, from brainstorming and interviewing employees and stakeholders to building detailed experience maps and designing an intuitive interface that employees found engaging. Mercer worked closely with every level of Kimberly-Clark's employee structure in manageable sprints and timelines to ultimately deliver an inspiring digital career playbook and suite of professional development tools and assets, so employees could create their own career path strategies. The Career Experiences platform features a customized host of tools and functionalities that combine the value of human wisdom with digital management insights and capabilities. By providing each employee with recommendations from seasoned mentors within Kimberly-Clark, employees can make informed decisions and professional development choices based on their personal aspirations. 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Our platform democratizes communications between employees and leaders, which increases mutual understanding, while reducing bureaucracy and empowering employees to take control of their own careers. The Career Management Platform offers employees at Kimberly-Clark an invaluable advantage as they consider the future: career management clarity. Designing and fulfilling a career plan is a complex process that involves navigating often nebulous and confusing opportunities and challenges. Mercer developed the platform so employees could leverage a self-administrated tool that grants them access to career experiences and recommendations from senior mentors. This collaborative dynamic provides employees with the ability to easily see they have both a future at Kimberly-Clark and access to top-notch career advice about how to achieve their professional ambitions. The platform compels employees to grow and dream at their own pace while constantly inspiring them to expand their skills, talents and knowledge base — as well as their job security and career paths within the company. Self-administration also allows employees to take control of their own careers and professional development. Everyone knows a friend or family member who had their careers hindered by an unhelpful boss or manager. This platform allows each employee to showcase their goals and accomplishments outside of the bias of any individuals who have disproportionate amounts of control over their future. For executives, this new level of access to the employees and human capital in their businesses is game changing. It's also worth noting that when a productive employee leaves because they feel overlooked, underappreciated or ignored, the multifaceted cost of replacing that employee can be quite burdensome to an organization. In Latin America, only 50% of employees in our engagement survey reported being satisfied with their career development opportunities — meaning there's a chance the other 50% have contemplated looking for a more satisfying job elsewhere. This can be devastating to companies that not only lose valuable people but also must spend significant time, money and resources to replace them. The New Horizontal Upward Mobility   Traditionally, career advancement was defined by moving upward — increasing your salary, position and power by making vertical moves up the corporate ladder. However, today, employees should consider horizontal moves as an effective, long-term career strategy. Our platform can connect employees to unprecedented opportunities for professional development. Though restructuring can mean the elimination of conventional jobs, our new world is increasingly connected by powerful technologies that provide employees the chance to move horizontally to previously overlooked but incredibly rewarding opportunities. For example, an employee could become a first assignment country manager in places such as Bolivia, Nicaragua or Uruguay. Change is underway, and the jobs of tomorrow will not simply require years of toiling behind the same desk or workstation using the same conventional skill sets. Beyond even horizontal shifts, career advancement in the future will require critical thinking abilities forged by challenging job experiences and unique professional histories. It's time to place new value on experiences that can result in more dynamic, well-rounded and informed employees. The Future of Work From Day One   Our research has found that the top three concerns for employees are job stability, salary and future career opportunities. We've developed the user-friendly Career Experiences Platform to reconcile these concerns. Kimberly-Clark trusted us to fulfill their mandate of creating new, unprecedented opportunities for their employees in an economic landscape where nothing is certain. The final result garnered an incredibly enthusiastic response from not only the employees but from their managers and leaders, too, who felt an obligation to provide their employees with a stable and rewarding career experience. The collective response of appreciation was moving for everyone involved. In addition, the platform poses exceptional value to workers and employers, because it can be implemented from day one of an employee's career. It serves as a source of truth throughout their journey within the organization. As the global economy adapts to digital transformation, Latin America and the rest of the world must find ways to empower employees and companies so that human beings and technology continue to invent new ways to find job satisfaction and quality of life. The Career Experiences Platform is an excellent start. The best lesson we learned from this experience is that employees and employers want what is best for each other — and we're glad we can facilitate that connection.  

Didintle Kwape | 14 Nov 2019

Africa's youth employees are a valuable, ample talent source that multinational companies can tap as they expand their operations throughout the continent. Record numbers of teenagers and young adults in Africa are either unemployed or underemployed but are willing to work if given the chance. In South Africa alone, where the unemployment rate is expected to grow beyond 30% this year, two-thirds of the jobless are between 15 and 24 years of age.1 Realizing the Untapped Talent Pool   "We are very much alive to the fact that youth unemployment is indeed a national crisis," stated South African President Cyril Ramaphosa in June 2019.2 Governments across the continent are now rewriting labor laws and breaking down bureaucratic hurdles to make hiring youth less cumbersome for both multinational corporations and local small businesses. They are also teaming up with nonprofit organizations to nurture young talent and teach necessary workforce skills. Alliances are being forged to aid these efforts, such as the International Labour Organization's (ILO) partnership with the African Development Bank, the African Union Commission and the United Nations Economic Commission for Africa (UNECA). Together, they hope to address youth employment at regional and national levels. To better prepare youth for work, the ILO provides employment services, skills development and labor market training — with a focus on technical and vocational education, apprenticeship and job placement services for disadvantaged youth.3 In June, Kenyan President Uhuru Kenyatta launched the Young Africa Works program, a public-private partnership for youth employees between the Mastercard Foundation, the Kenyan government and the private sector. Within the next five years, the program aims to groom and place five million young Kenyans in "dignified and fulfilling work." 4 The MasterCard Foundation, along with two Kenyan banks — Equity Bank and Kenya Commercial Bank, as well as their respective foundations — will provide about $1 billion in capital, business development services and market linkages for the program. The aim is to create these jobs for youth employees, which will also help over 200,000 micro-, small- and medium-scale enterprises strengthen their productivity, sustainability and creation growth.4 The international hotel industry is one sector that's nurturing the development of the continent's youth, as hoteliers expand into Africa's emerging markets, according to Jan Van Der Putten, Hilton's VP of Operations for Africa and Indian Ocean.5 Hilton now has 46 hotels open across Africa, including sites in Morocco, Kenya, Zambia and Botswana, with plans to more than double that amount in the next five years. Expansions in tourism and hospitality will not only boost socioeconomic growth, but it will also provide meaningful employment opportunities. As such, it's paramount to foster an environment to help African youth workers succeed. Training the Youth of Today   In addition to basic workforce skills, the emerging digital economy also requires youth employees to learn the skills of digital fluency, creative thinking, problem-solving, collaboration, empathy and adaptability.6 Simbarashe Moyo, a Mandela Rhodes Scholar at the University of the Witwatersrand, notes, "Although countries like Rwanda and Kenya are already making considerable progress in preparing their youth for the digital economy and the future of work, more African countries are yet to take meaningful action to address the yawning skills-gap and digital infrastructure inadequacies bedeviling the continent."7 Moyo advises that African nations need to equip youth for the future of work. First, they must create responsive education systems that will equip the youth with the proper skills and a sense of responsibility. They also need to develop a nationwide digital infrastructure to improve interconnectivity between nations. In addition, to keep stakeholders in check within the expanding digital economy, they need to formulate proper regulatory policies. Lastly, they need to optimize public-private cooperation to support digital training initiatives on a larger scale. "Collaboration between governments, multinational development banks and the private sector will create room for innovative financial models which promote upskilling among Africa's youth," Moyo writes. "This will also reduce inequalities caused by duplication of efforts, especially when establishing digital infrastructure in African nations. Public-private cooperation will therefore enable more young Africans to access training programs and digital infrastructure." Empowering the New Workforce   Employers can also take advantage of the rising use of mobile phones among Africa's youth by providing training and development programs via mobile apps. Workers in South Africa echo the sentiments of those in other countries who rate opportunities to learn new skills and technologies as the number one way they can thrive at work, according to Mercer's Global Talent Trends 2019 report. The survey also shows that workers like to learn independently, and they want their employers to provide platforms enabled with access to curated knowledge and expert sources. A combination of both employer- and employee-driven training can give people more control over what and how they learn while tying their development directly to organizational goals. Mercer's research also reports that 99% of companies are taking action to prepare for the future of work, and they're doing so by identifying gaps between current and required skills supply, developing future-focused people strategies and adapting skill requirements to new technologies and business objectives. For multinational organizations interested in expanding in Africa, these steps will prove critical to upskilling, enabling and empowering the youth workforce. By taking the time to understand what Africa's youth employees need and developing integrated people-centric strategies for them, multinationals can be at the forefront of developing the continent's workforce. This will allow them to meet stakeholders' needs today, while also building a bigger, better and smarter workforce for tomorrow. The long-term benefits will result in a completely reinvented Africa — with engaged workers as far as the eye can see. Sources: 1. "Africa's Youth Unemployment Rate to Exceed 30% in 2019: ILO," 7Dnews, 4 Apr. 2019, https://7dnews.com/news/africa-s-youth-unemployment-rate-to-exceed-30-in-2019-ilo. 2. D, Sourav. "Youth unemployment a 'national crisis' in South Africa, says Ramaphosa," Financial World, 18 Jun. 2019, https://www.financial-world.org/news/news/economy/2276/youth-unemployment-a-national-crisis-in-south-africa-says-ramaphosa/. 3. "Youth Employment in Africa." International Labour Organization, https://www.ilo.org/africa/areas-of-work/youth-employment/lang--en/index.htm. 4. Mbewa, David O. "President Kenyatta launches program to tackle Kenya's youth unemployment," CGTN, 20 Jun. 2019, https://africa.cgtn.com/2019/06/20/president-kenyatta-launches-program-to-tackle-kenyas-youth-unemployment/. 5. "Exclusive: An interview with Hilton's Jan van der Putten on expansion in Africa," Africa Outlook Magazine,7 Apr. 2019, https://www.africaoutlookmag.com/news/exclusive-an-interview-with-hiltons-jan-van-der-putten-on-expansion-in-africa. 6. "World Development Report 2019: The Changing Nature of Work," The World Bank Group, 2019, https://www.worldbank.org/en/publication/wdr2019. 7. Moyo, Simbarashe. "4 ways Africa can prepare its youth for the digital economy," World Economic Forum, 29 May 2019, https://www.weforum.org/agenda/2019/05/4-ways-africa-can-prepare-its-young-people-for-the-digital-economy/.

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