Focus on the individual member
‘We’ve developed a contribution matrix that will facilitate retirement aspirations’
THE PAST TWO YEARS have not been a great time for retirement fund administrators. Rulings by Pension Funds’ Adjudicator Vuyani Ngalwana rocked the industry, ultimately resulting in a “Statement of Intent” that saw administrators return roughly R3bn to clients.
One intriguing feature in the entire “bulking” and secret profits affair was who said what. SA’s major administrators had little option; many rulings had gone against them and they had to confess. And the rest? A few put forward vague statement about when and how bulking was acceptable – without actually spelling out what they’d done.
However, a deafening silence came from the majority – which could only leave the impression that they’d been bulking but had not (yet) been caught out.
To its credit, the Verso Group went on record at the height of the scandal and said they didn’t bulk retirement fund clients’ money together to negotiate better interest rates from banks and that the practice wasn’t acceptable if clients weren’t fully informed and had not agreed to bulking.
But what also seems to distinguish the group’s retirement fund administration company – Verso Financial Services – from other administrators is its focus on members and not only the trustees that appoint it.
MD Edward Thomson makes no bones about the fact that Verso sees it as essential to serve the board of trustees. “They appoint us, and keep us appointed. We just want to take service to a level further.”
That means that included in its comprehensive fund administration service is a focus not only on the fund and the trustees but also the members as individuals with different needs. “The goal of all retirement funds is to provide retirement benefits,” Thomson says. “Most members assume that implies their retirement planning needs are catered for. The reality is that most funds won’t provide retirement benefits that will enable members to enjoy the same quality of life as that experienced prior to retirement.”
He says most administrators only look at the board of trustees and roll out administration according to them. “We say we should be looking at the individual members. We can offer so much more.”
With only about 8% of retirement fund members retiring with monthly income equal to their last salary cheque while still working, Thomson says members should be provided with their fund information and advice that will enable them to take early action to ensure that their retirement needs are on track.
Verso Financial Services has accordingly developed what it calls Member Financial Management, a value-added service that makes members aware of what their likely retirement benefit level will be and if necessary – as it is in most instances – how they can plug the retirement gap.
“On joining a fund members are informed of their retirement expectation as it relates to their current income. That’s followed up annually in the benefit statement with an analysis, presenting the member with a course of action to achieve either a 75% or 100% replacement of salary on retirement. By informing members of their retirement gap and tracking their progress, members have a clear understanding of their fund retirement expectation,” Thomson says.
Members often only realise retirement benefits won’t match the final cheque when they actually retire, or a few years before retirement – when it’s too late to do anything about it. But do members heed Verso’s advice?
“There’s some apathy,” says Thomson. “We can appreciate the position of some members – they need the money for day-today living and can’t afford to catch up. But at least by doing our annual analysis members know their position, so it won’t come as a shock to them on retirement.”
And by being aware that they face a retirement savings deficit at least members can try and improve their position if their financial position improves. Anybody about to blow a large increase or bonus on luxuries might think twice if they’re constantly reminded that their final retirement benefit is going to fall short.
Thomson adds that some members take the annual analysis extremely seriously and make sure they take steps to close any gap. He says Verso Financial Services will approach a board if necessary to try and improve the fund’s level of benefits, perhaps by putting members into a higher risk investment.
“Member Financial Management also encourages trustees to provide for flexible contribution rates,” says Thomson. “As members join the fund at different life stages, the number of years to retirement will vary from member to member.
“As only the member has access to his true financial position it would be logical to allow the member to contribute at sufficient levels to achieve a 75% or 100% replacement of salary. We’ve developed a contribution matrix that together with the fund’s investment strategy will facilitate the member’s retirement aspirations.”
Verso sees it as essential to serve the board of trustees. Edward Thomson