As­sess­ing the im­pact of risk ben­e­fits on re­tire­ment funds

Weekend Witness - - Scene Around -

RE­TIRE­MENT funds find them­selves fac­ing grow­ing gov­er­nance re­quire­ments and un­cer­tainty due to pend­ing leg­isla­tive re­form.

Of­ten over­looked is risk cover. Con­sid­er­ing risk cover in the con­text of the three ma­jor driv­ers of mem­bers’ risk — sex, Aids and obe­sity, can be cru­cial in ac­cu­rately plan­ning and de­ter­min­ing costs.

Neil Parkin, group as­sur­ance ac­tu­ary at Old Mu­tual Cor­po­rate said the cost of risk ben­e­fits in a fund di­rectly af­fects the level of money go­ing into each mem­ber’s re­tire­ment sav­ing, since there’s just one pot of money to draw from.

He cited 2011 statis­tics from the Med­i­cal Re­search Coun­cil, which es­ti­mated only 60% of 15-year- olds would reach age 60.

“The fact is many mem­bers sim­ply won’t make it to the re­tire­ment party. As a re­sult it’s im­por­tant to be aware of the im­pact of the ma­jor risk driv­ers and how they could af­fect the fund,” he said.

The South African group risk mar­ket, sim­i­lar to the Euro­pean mar­ket, charges a sin­gle pre­mium rate for all mem­bers. How­ever, the pro­file of a mem­ber can vary — purely based on their sex.

“World­wide, stud­ies have found that women gen­er­ally live longer than men. This ex­pe­ri­ence has been echoed in our ex­pe­ri­ence as well,” said Parkin.

Based on the aver­age ex­pe­ri­ence across the Old Mu­tual client base, “for ev­ery young woman that dies, we’d ex­pect four older women and 11 older men to die,” said Parkin. There­fore, it fol­lowed that an em­ployer with many young women on the books would have a much lower risk pro­file than one who em­ployed many men.

“Many funds pro­vide age-re­lated ben­e­fits — where the amount of cover is de­ter­mined by the age of the mem­ber. Cross-sub­si­dies by age can typ­i­cally be de­fended since most young mem­bers will age and then be sub­sidised by the next gen­er­a­tion, but gen­der is un­likely to change, mak­ing the ar­gu­ment for gen­der-re­lated ben­e­fits an in­ter­est­ing one,” he said.

He said an­other fac­tor af­fect­ing the risk of a fund was the ef­fect of med­i­cal ad­vance­ments for Aids.

There was ev­i­dence the rate of Aids deaths was de­clin­ing.

“Re­search across a num­ber of our clients since 2008 shows a 20% re­duc­tion in the mor­tal­ity rate,” he said.

“How­ever, while we are see­ing fewer deaths, we are also see­ing more dis­abil­ity claims due to Aids. In 2001 just one per­cent of Old Mu­tual’s group dis­abil­ity claims were due to Aids. Ten years later Aids claims ac­counted for more than 10% of to­tal dis­abil­i­ties.”

But, Parkin said, the dis­ease was a short-term cause of dis­abil­ity, with most claimants re­cov­er­ing suf­fi­ciently to re­turn to work.

“The hope is that the sav­ings from fewer Aids deaths will fil­ter through into en­hanced dis­abil­ity ben­e­fits for all mem­bers,” he said.

An­other silent epi­demic ex­ert­ing an in­flu­ence on mor­tal­ity and health was obe­sity.

“Obe­sity is on the rise in lowand mid­dle-in­come coun­tries. In South Africa it has reached epi­demic pro­por­tions,” said Parkin.

Obe­sity is a risk be­cause of life threat­en­ing con­di­tions as­so­ci­ated with it, such as heart dis­ease, high blood pres­sure, high choles­terol, can­cer and type 2 di­a­betes.

“Obe­sity is set to not only im­pact on life in­sur­ance, it will also have a pro­found ef­fect on health costs. And when pay­ing for health costs be­comes a pri­or­ity, less money is avail­able for re­tire­ment sav­ings or other risk cover.”

— Wit­ness Re­porter.

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