Preparing for a better tomorrow
Retirement funds have had to navigate a particularly challenging three years, as macroeconomic and political factors have driven markets more than stock specifics have, according to Natalie Phillips, SA head of Institutional, Investec Asset Management.
“Against this backdrop of disappointing returns, we expect an increased focus on outcomes rather than peer relative performance. We believe that active management can play an important role in this regard, given how concentrated South Africa’s direct, listed bond and equity markets are.”
Phillips says with most South African retirement funds now defined contribution (DC) schemes, the onus is squarely on the employee to navigate the investment fortunes and health of the fund. One of the biggest risks in a DC scheme is that the member’s returns are below average over
the period until retirement, which would directly translate into a lower retirement income. Ultimately, members have to outperform inflation.
“In preparing for a better tomorrow, employee-elected trustees have to carry the fiduciary responsibility of ensuring they are sufficiently trained and knowledgeable on local and offshore investment markets.
“This responsibility is huge as it requires technical and specialist skill, particularly as the investment industry has become increasingly
more sophisticated and complex. We need only to reflect on the past decade and the growth of credit markets, the growth in the listed property market in South Africa and the development of the alternatives space, such as private equity and hedge funds.
“Industry bodies such as the Institute of Retirement Funds Africa, along with the asset management and life insurance industries as well as financial advisers, have an important role to play in engaging with members to help educate them
so that they understand what they are buying and the implications of the level of risk they are assuming.”
Phillips believes that as the industry evolves there is likely to be a more holistic approach in meeting member needs pre- and postretirement. Trustees will have a far greater role and responsibility in helping aid members in tracking their savings up to retirement. For example, funds can use a liability index to illustrate how their returns are measuring up against a stated replacement ratio target.