Pension funds look to bolster state reforms

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Johannesburg - Concerned that the government’s retirement savings interventions might take a while before rules like mandatory saving for retirement and preservation kick in, given the opposition they face from the labour unions, the pension fund industry could start looking at facilitating the reforms from its side.

At the Actuarial Society’s annual investment seminar in Cape Town on Friday, retirement fund managers charted ways in which the industry could pitch in to lower retirement saving costs and meet the National Treasury halfway in implementing its envisaged retirement saving reforms.

The Treasury began the process of retirement reform in 2011. Some of its objectives include implementing mandatory or automatic enrolment of workers into retirement funds; improving pre-retirement preservation; consolidating funds; and simplifying retirement savings products.

Anne Cabot-Alletzhauser, the divisional head of the Alexander Forbes Research Institute, said the government wanted to implement retirement reforms because it was trying to fill a hole that the industry was not filling.

“That [the government’s intervention] is probably going to take a long time to sort out. Meanwhile we have to do what we can. But the problem is that the answer to deal with this doesn’t fit within the model that already exists.”

Cabot-Alletzhauser said that for starters, the industry was too fragmented, which resulted in unnecessary costs as the retirement and pension funds employed the expertise of employee benefit consultants, actuaries, asset consultants, asset managers and administrators.

The industry should look at a new model that would allow what she termed an “uber-consultant” to move beyond the board of trustees and engage directly with employers.

She said that while employers could not force people to preserve their pensions because they did not have control over individuals’ retirement savings once they left the company, these consultants could engage them on where the retirement industry would come in when people changed jobs.

For example, the consultant could advise an employer to introduce preservation terms when it negotiated a contract with a new employee.

“It’s behavioural control things that employers could do but may not work. But it’s better than nothing,” Cabot-Alletzhauser said.

In 2012 and last year, the Treasury released a series of technical discussion papers on the proposed retirement reforms, and held consultations. It then announced draft proposals on a number of aspects last year and some of the proposals were implemented.

But the Treasury released an update in March showing that pre-retirement preservation interventions and mandation or automatic enrolment of retirement savings were medium- to long-term objectives.

On proposals to reduce charges and costs in the retirement industry, the Treasury said such goals would be achieved through regulatory interventions that would address the current structure of the retirement system, lack of preservation and other things.

But Cabot-Alletzhauser said the integrated model that she proposed would drive drown asset managers’ fees. And if the asset managers reduced their fees by half, the overall costs that went into administering each retirement fund member’s portfolio could make a more meaningful contribution to their savings.

When the Treasury released the last of its discussion papers series in July last year, it found that the local retirement system was expensive when compared with other countries. - Business Report


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