What to look for when you decide to preserve

Umbrella funds are likely to encourage you to keep your savings in the fund even if you leave the employer that is participating in the fund. They are therefore likely to come up with competitive offerings, but it is important to remember members may still move if they are unhappy with the funds, says Daniel van Andel, a manager in Allan Gray’s product development team.

Umbrella funds cater for multiple employers in a single fund and are often sponsored by financial institutions.

It remains to be seen to what extent standalone employer-sponsored or occupational funds will embrace the new regulations under the Pension Funds Act requiring them to put certain defaults in place — if they will put forward attractive in-fund preservation options or guide members to outsourced preservation funds, he says.

Employer-sponsored retirement funds have in the past not been required to keep track of and administer your benefits after you resign. The extent to which these funds promote this in future will depend on the fund objectives and capabilities of the administrator. For many funds this requirement may be the final straw which prompts consolidation into an umbrella fund, Van Andel says.

He believes some employersponsored retirement funds will want to keep preservation in the fund to a minimum and will look to existing preservation fund providers for bespoke preservation funds for their members.

Van Andel says retirement fund providers should regard the default retirement fund regulations as an opportunity to pull the accumulation, preservation and annuitisation stages of retirement savings together into a seamless journey for you, the member.

Providers who can achieve this are likely to deliver a better income for you.

When you choose where to preserve your retirement savings, consider these:

Costs: Retirement funds for individuals like preservation and RA funds have higher costs than those catering for many members such as an employer-sponsored or umbrella fund.

However, Sanlam has aligned the investments and costs on its umbrella and preservation funds, says Kobus Hanekom, principal consultant at Simeka.

Alexander Forbes is also offering lower costs on its preservation fund to members who transfer their savings from employer-sponsored funds or umbrella funds administered by the company, says John Anderson, the head of group client services.

10X CEO Steven Nathan says it is vital to keep a lid on fees, as every 1% in fees you save over a 40-year period adds 30% to your retirement income.

Also look for a fund that does not have any early termination charges if you decide to move your savings to another provider, Nathan says.

Investment choice: Van Andel says the choice of underlying investments on your preservation fund and access to established top performers should inform your choice.

Nathan says if you have a preference for an investment style – either active management or indexing – then the availability of your preferred option would also be a consideration. However, any low-cost option will likely exclude most actively managed options.

Servicing: Van Andel says you should look for a provider that offers good service, with both digital access and the ability to talk to someone on the phone.