A NUMBER of factors need to be taken into account for employers selecting an umbrella fund (a retirement fund open to multiple employers), from governance to preservation options, but few are more complex than costs.

Comparing costs of umbrella funds, however, is set to become significantly easier from March 1 next year, when the new Association for Savings and Investment South Africa (Asisa) Retirement Savings Cost (RSC) Disclosure Standard comes into effect.

Michelle Acton, principal consultant at Old Mutual Corporate Consultants, says that this new disclosure standard will lead to a greater level of transparency across the industry, making it far easier for employers to select the most cost-effective umbrella retirement fund solution for their employees.

“As part of the engagement with the regulator, National Treasury and stakeholders for greater consolidation within the retirement fund industry, there is a growing need to find easier ways to ‘compare’ umbrella funds.

“Comparing costs of umbrella funds has always been challenging because the fees and charges of a particular scheme will be dependent on the number of members, salary profile and value of assets to be transferred.

“By ensuring standardisation across the presentation of these costs, employers will be able to compare like with like when considering quotations from different Asisa members.

“This will also make it easier for the Board of Trustees of umbrella funds to consider costs as part of their fiduciary duties,” says Acton.

She explains how this standardisation of cost disclosure will be achieved. “All employers and trustees will be provided with a template that indicates all costs that will be incurred at a scheme level. As there are a number of different types of costs involved in any umbrella fund, the template will reflect four separate components into which these various charges are allocated over various investment periods.

“The four components are investment management charges; advice charges; administration charges; and other charges, including regulatory, compliance and governance costs.

“Asisa members will have projected these costs over 10 years, based on a standardised set of assumptions, to derive the RSC for the umbrella fund as a whole.

“The value for each of the four components, as well as the total RSC, will then be displayed as a percentage in a table at four mandatory disclosure periods - one year, three years, five years and 10 years - and any costs not able to be included must be disclosed in free text notes,” she says.

When turning theory into practice, there are always other facts to consider. Acton points out that there are often a number of costs that are not fully available to the umbrella fund provider to include, such as consulting or adviser costs.

“New templates will need to be developed to ensure all information is made available and all investment providers will need to provide their total expense ratio for inclusion.”

Overall, Acton says that the new Asisa disclosure standard signifies “a great step forward” for the retirement fund industry.

“No two umbrella funds are the same, and while there will always be some element of cross subsidisation, this new disclosure standard will definitely make it less complicated for an employer or board of trustees to select the umbrella fund that best meets the needs of their membership and the service for which they are paying for.”

– PERSONAL FINANCE