OBLIGATION TO PROVIDE ADVICE ‘WATERED DOWN’
Proposals to oblige your retirement fund to guide you on your options when you leave a fund or retire have been watered down, Magda Wierzycka, the chief executive of Sygnia, says.
The second draft of National Treasury’s proposed regulations directs funds to provide “retirement benefits counselling”, rather than a “retirement benefits counsellor”, which allows funds – particularly smaller funds that cannot afford a counsellor – to decide how to provide this service.
Wierzycka says this will give funds the option of providing you with static information, rather than real financial advice or education. This, she says, “is not different to what is happening right now and will not eliminate the practice of many unscrupulous middlemen being inappropriately incentivised to steer members towards particular financial advisers”.
It also maintains the status quo, which results in many members being steered into high-cost retail products, or pension products that do not have enough protection against the risk that they could outlive their savings.
The original proposals suggested that members who do not instruct their funds how they want to buy a pension at retirement would, by default, be put in the fund’s default pension. But if the default annuity pays a guaranteed pension for life, being “opted in” in this way could be irreversible.
The second draft proposes that you have to choose or “opt in” for the default annuity.
Wierzycka says trustees need to take greater responsibility for ensuring that members receive appropriate advice about their annuity choices at retirement. At the very least, she says, they should be forced to ensure that such advice is independent, objective and provided by credible financial advisers accredited by the board of trustees. The fund’s proposed default annuity should be included in the advice given on options at retirement, she says.
Steven Nathan, the chief executive of 10X, says he agrees that members need guidance when they resign or retire, but he is sceptical about the financial services industry’s ability to be transparent about costs. Until regulations force the industry to be transparent, counselling will not work, he says.