The 2019 Sanlam Benchmark research – South Africa’s most comprehensive and respected retirement industry study – contains the country’s first analysis of how the default regulations were implemented by retirement funds.
David Gluckman, head of Special Projects at Sanlam Employee Benefits, says that focusing on improving the lives of members is the key to making retirement great again.
Sanlam’s study has been conducted since 1981 and this year 100 funds, 100 employers and 100 employee benefits (EB) consultants were surveyed via a combination of face-to-face interviews and online studies.
Default regulations – a slow start
Gluckman says the research provided the first objective review of how Default Regulations had been implemented. “The data around compliance paints a bleak initial picture. Funds had until 1 March 2019 to comply with default regulations, so it is very early days. However the research has found at least 24% of retirement funds were still struggling to meet all of the regulatory requirements around the time of the 1 March 2019 implementation deadline.
“This is consistent with the Financial Sector Conduct Authority’s (FSCA) reporting of slow uptake, with many funds that lodged applications for exemptions leaving it right up until the last month to do so,” adds Gluckman.
Default regulations aim to improve the level of savings by South Africans through a range of interventions including the implementation of default investment strategies, default preservation, trustee endorsed annuity strategies and retirement benefits counselling.
“Retirement Benefits Counselling done well will surely result in better member decisions at resignation and retirement, which in turn will lead to a bigger pool of funds available, which in turn will allow more members to benefit from quality financial advice,” Gluckman says.
Focus on investment value, not costs
Gluckman says another big conversation needs to happen around actual outcomes. “Funds need to focus on the outcomes being delivered to members rather than fixating on costs. Costs have always been central to the retirement debate, however, when we asked 100 independent employee benefits consultants what their number one wish was, the biggest call was for their own clients to stop fixating on costs over value.”
While cost efficiency is important, the conversation needs to shift to value instead. “Ultimately, it’s about enabling financial resilience. The fact that the majority of umbrella and standalone funds surveyed believed just on 20% of their members would be able to retain their standards of living into retirement is incredibly alarming. There needs to be more focus on what consultants, administrators and providers are doing to proactively improve members’ outcomes.”
The current scenario can only be solved by a perfect combination of factors. Better member communication, education and counselling can only do so much. A focus on better investment by clients can only do so much. A regulator with strong leadership can only do so much. Ultimately, it’s a coordinated effort by all stakeholders that has the best chance of assisting South Africans towards achieving financial resilience, says Gluckman. “We need to work together to make retirement great again.”