‘Employer RAs don’t benefit all members of retirement funds’
threat within the entire retirement reform debate,” Gluckman says.
“What we are seeing with the emergence of group RAs is a different model being proposed; one that seriously undermines the solidarity principle. If we get this wrong, it could endanger the entire privatesector retirement-funding system.”
The main providers of group RAs defended their products this week, criticising commercial umbrella funds for not providing individual members with financial advice, combining an investment and group risk assurance in a single product, and the difficulty of moving savings from one fund to another, because this requires applying to the FSB for a section 14 (of the Pension Funds Act) transfer.
‘TOP TWO ISSUES’
Richard Carter, the head of product development at investment company Allan Gray, which has the biggest group RA book, says: “We don’t believe that solidarity is the key issue when it comes to retirement savings.
“The top two issues are the lack of savings and preservation. If our group RA can help address these issues by encouraging people to save for their retirement and not take out the money along the way, then we think it is a great contribution to the government’s aims.
“Solidarity in retirement arrangements matters most in two areas: costs and risk benefits. Regarding costs, we think that the RA structure, where administration and cost savings are spread across the entire RA fund of more than 14 000 members, supports the solidarity principle. Our product does not offer risk benefits.”
The providers of umbrella funds say the move towards group RAs is possibly being driven by:
Pressure on asset managers. Asset managers manage billions of rands of savings on behalf of stand- alone occupational retirement funds sponsored by employers. Many asset managers have seen their share of the almost R3-trillion retirement fund market decrease as an increasing number of stand-alone funds convert to commercial umbrella funds. The umbrella fund sponsors typically manage the assets in umbrella funds.
Commissions to financial advisers. Financial advisers earn commissions based on the monthly contributions paid to umbrella funds and group RAs, but with a group RA, advisers also earn a commission based on a percentage of a member’s total savings.