Reg­u­lated default an­nu­ities mean a more se­cure re­tire­ment

Saturday Star - - INSIGHT -

think beyond sav­ing to re­tire­ment age and con­sider “cradleto-grave” in­vest­ment goals. They will be re­quired to as­sist mem­bers dur­ing both the ac­cu­mu­la­tion phase and the re­tire­ment phase. Prior to the reg­u­la­tions, trustees were re­quired to as­sist mem­bers only dur­ing the ac­cu­mu­la­tion phase.

The reg­u­la­tions res­onate with reg­u­la­tion 28 of the Pen­sion Funds Act, which re­quires trustees to con­sider their fund’s li­a­bil­i­ties (or, in this case, each mem­ber’s re­tire­ment goals) when in­vest­ing.

Trustees of de­fined-con­tri­bu­tion funds (most re­tire­ment schemes in South Africa) will have to com­ply with the new reg­u­la­tions by for­mally im­ple­ment­ing a default ar­range­ment for cur­rent fund mem­bers, mem­bers leav­ing the fund and re­tir­ing mem­bers. Where a fund has al­ready started putting any of th­ese default ar­range­ments in place, the board has un­til March 1, 2019 to align them with the new reg­u­la­tions.

Although the reg­u­la­tions have been in the pipe­line for at least two years, im­ple­men­ta­tion of default an­nu­ities has been slow. About half of the re­spon­dents to the 2017 San­lam Bench­mark Sur­vey – many of whom are trustees – in­di­cated that they have not yet started to im­ple­ment default an­nu­ities. This hints at the gov­er­nance is­sues with which many trustees al­ready strug­gle.

Trustees are likely to face two ad­di­tional chal­lenges when im­ple­ment­ing a default an­nu­ity strat­egy. The first chal­lenge will be to nav­i­gate their way through the var­i­ous types of an­nu­ity prod­ucts, many of them quite com­plex, of­fered by the dif­fer­ent providers. The sec­ond chal­lenge will be en­gag­ing with gen­er­ally dis­con­nected and un­in­ter­ested fund mem­bers to align them with an ap­pro­pri­ate default an­nu­ity prod­uct.

In the race to im­ple­ment default ar­range­ments, and in light of the chal­lenges men­tioned above, the risk is that trustees will opt for off-the-shelf turnkey so­lu­tions that are tacked onto ex­ist­ing op­tions.

In­stead, trustees should see the reg­u­la­tions as an op­por­tu­nity to re­frame their view on the “cra­dle-to-grave” jour­ney from their mem­bers’ per­spec­tive.

RisCura be­lieves the reg­u­la­tions are an op­por­tu­nity to im­ple­ment a re­tire­ment phase that com­ple­ments the goaldriven in­vest­ment strat­egy of the ac­cu­mu­la­tion phase. Both phases can be in­te­grated into a so­lu­tion that al­lows for a seam­less tran­si­tion from pre- to post-re­tire­ment, while tak­ing ad­van­tage of the in­sti­tu­tional ben­e­fits of­fered by the ac­cu­mu­la­tion phase. Petri Gre­eff is the prin­ci­pal of in­vest­ment con­sul­tancy RisCura.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.