New regulations a step in the right direction

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While funds have a wide choice in structuring their preferred annuity strategy with both in-fund and out of fund options being allowed as well as living or life annuities, Hiller van Rensburg says funds are required to have an option that is appropriate for most members of the scheme, and the fund should negotiate the best possible rates on behalf of its members.

Retirement benefit counselling is another important aspect of the default regulations. Hiller van Rensburg says retirement benefits counselling is defined as the disclosure and explanation, in clear and understandable language — including risks, costs and charges of:

• Available investment portfolios (not just the default);

• Terms of fund’s annuity strategy; • Terms and process by which a fund handles preserved benefits; and

• Any other options made available to members.

This will mean more member communication and in particular face-to-face member engagement to ensure that the information is properly understood and communicated.

Hiller van Rensburg emphasises that while the counselling is not financial advice, it is a service that can help retirement fund members make better retirement choices.

He contends that the default regulations extend the obligations and influence of retirement funds from employed members into their retirement, which has the potential to significantly improve the overall benefits enjoyed by members — but it will extend the responsibilities and administrative burden of retirement funds and their trustees.

“While the changes are to the benefit of members in that better choices are the most likely outcome of the new regulations, they require additional work that will come at a cost.

“The important thing for all funds to do here is to balance the cost of providing and complying with the new requirements and against the net investment being made for members,” says Hiller van Rensburg.

He explains that administration costs will increase due to additional requirements on funds to provide more services and to pay for the infrastructure that will have to be built and maintained.

More member communication as well as tools to monitor the delivery and effectiveness of the messages will have to be developed. This too will add to the costs.

However, Hiller Van Rensburg believes the default regulations are a step in the right direction to encourage saving towards a sustainable retirement and will also improve retirement funds’ member engagement.