Cape Town-based asset manager Allan Gray launched an umbrella retirement fund in March, adding another player to the increasingly competitive retirement market space.
Umbrella retirement funds are funds that serve multiple employers, unlike traditional stand-alone employer-sponsored funds.
More and more employers are going the umbrella route, largely because of the increasing burden of administering a retirement fund and having to comply with burgeoning regulation.
Saleem Sonday, the head of group savings and investments at Allan Gray, says the South African retirement industry today (excluding the government pension fund) manages assets of around R1.8 trillion.
Of this, around 49 percent is in non-commercial funds, 17 percent in commercial umbrella funds and about 34 percent in individual retirement annuity accounts and preservation funds.
Over the last four years, the market share of commercial umbrella funds has increased by 70 percent, according to Credit Suisse, at the expense of stand-alone employer funds.
“This should be a good thing. Since an umbrella fund clubs together multiple employers and its employees in a single fund with standardised rules and a single board of trustees, it is more efficient to govern and administer than a stand-alone employer fund,” Sonday says.
The commercial umbrella fund market is dominated by the large life companies, which make up 85% of the market. “Although there are some funds that offer super-efficient administration and simple products that sell themselves, mostly umbrella funds today have a reputation for high costs, poor transparency and complexity.
“We think this is an industry that could do with more competition. A new entrant using technology to provide better service than the incumbents at a competitive and more transparent price could win over clients,” Sonday says
“The recently-launched Allan Gray Umbrella Retirement Fund aims to give employers and members a transparent and easy-to-understand retirement saving solution. It has a simple product and fee structure, which means that employers and their employees have clear sight of contributions, returns and charges.
“Members benefit from superior service, competitive administration and investment management fees and there are no hidden costs,” he says.
“The product makes things simple for employers and puts member needs at the centre by offering an unbiased, limited range of high-quality investment managers, fair and transparent pricing and great service.”.