The importance of being earnest when making choices for others
Retirement / 23 October 2019, 3:00pm / Hilan Berger
Whether you describe them as your staff or your colleagues, having influence over which retirement fund your fellow workers save into comes with a very big responsibility.
Too often the people with influence over other people’s retirement savings funds don’t realise the gravity of their role in what will amount to the largest investment any of those workers ever make. For most people, the quality of their lifestyle – indeed their very survival – during their so-called Golden Years will depend on decisions made by members of the board of the company they work for, or other decision-makers they might never meet.
Think it sounds far-fetched? Think about it for a minute: a pension fund is one of a few game-changing investment opportunities within easy reach of the working classes. Membership of a retirement savings fund ranks with buying a property and accessing higher education in terms of opportunities to secure a decent, sustainable lifestyle.
Here is a cheat sheet of some of the key topics for those in this position of influence to consider:
Fees: How much are you paying and for what?
It is also very important to understand what you are paying and for what. It can be difficult to understand the overall fee you are paying because costs can be represented in different ways. There can be a fee per member, a charge as a percentage of assets or a percentage of salary bill. There can be one all-in fee or various different charges (admin, platform, advice and other charges). Also, fees can vary over time and be determined by complex formulas.
The fee structure is also important for determining the cost implications for individual members. If the fee is based on a percentage of assets, those who have more money saved will pay more than those who are new to the system. If it’s a percentage of salaries, those who earn more will pay more.
Either way, you should not be paying more than 1 percent of assets in total. Rule number one is to be sure you understand what you are paying, and how to compare that with other options.
The main choice here boils down to funds that track an index or those that are actively managed. Index trackers give you a 100 percent chance of capturing a slice of the growth of the market as a whole. Actively managed funds give you a small chance of outperforming the market.
The 10X High Equity Portfolio (our flagship portfolio) has consistently outperformed the average return of large fund managers (before fees) since inception (December 2007). On top of that, 10X’s total fees are generally half the industry average and so 10X saves most clients at least 1 percent pa (of the investment balance) in fees.
Communication and support
Helping your employees retire well goes beyond offering them membership of a retirement fund. Members should be given information and support from the day they join until the day they retire so that they can maximise the benefits of membership.
10X Investments’ second annual South African Retirement Reality Report (RRR19), which was released in September, found that membership of a corporate retirement fund is often a worker’s only experience with retirement saving. The report found that more than 60 percent of people who had at some time belonged to a corporate retirement savings fund knew little or nothing about the fund, or were not interested. What a terrible waste of an opportunity to educate and empower South Africans to tackle the looming retirement crisis on an individual basis.
The RRR19 found that the ignorance and indifference was most likely the result of a lack of communication from the employer and/or the fund combined with the complexity and lack of transparency that are the hallmarks of many corporate scheme offerings. These two factors are mutually reinforcing: the more complex the fund seems to be the more likely it is that the members will be reluctant to ask questions.
Over-complicated products and pricing creates unnecessary confusion. Members should be able to easily understand their fund and the fees they are paying. They should also know what their personal retirement goal is and be able to see how they are tracking towards it. With the 10X Investments’ member portal, My10X, members can see everything they need to know about their investments at any time.
10X Investments also offers free access to the wider public to interactive tools, such as the retirement planning calculator and the earnings calculator for those already in retirement, on its website. Anyone who wants a personalised retirement plan fills in a few numbers on the appropriate calculator and receives a personalised retirement plan.
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A retirement savings fund has many benefits, but they are not worth anything if members don’t understand them or can’t access them. An example is additional voluntary contributions, or AVCs, frequently a very cost-effective way to save additional funds for retirement. Members who don’t know about AVCs or are unable to work out how to make them often end up setting up a more expensive personal savings product.
A well-run fund is critical to protect members, whether you are talking about an individual’s ability to access benefits or confidence that their savings are safe should anything go wrong.
Hilan Berger, Head of Institutional Business at 10X Investments