Missed this FSCA Report? read on
After a couple of years under Twin Peaks, your writer assumed the retirement fund landscape might become easier to navigate, but it remains a complex minefield of definitions, legacy funds, missed reporting deadlines, and regulatory carve-outs.
Pesky ‘use at your peril’ definitions
The first few pages of the 2023 Retirement Fund Statistics Report, published by the Financial Sector Conduct Authority (FSCA), seek to explain which parts of the industry are subject to the Pensions Fund Act (PFA) and which not. These explainers are followed by a list of ‘use at your peril’ definitions that reinforce just how difficult advising in this field can be.
The report offers insights into the aggregate data for that portion of the retirement funds industry that is subject to regulation and supervision in terms of the PFA. Readers must also keep in in mind that the benchmarks, numbers, and trends shared in the report are mostly based off funds’ reporting to 31 December 2023. Your writer could not resist sharing the big numbers early on. At the end of 2023, South African retirement funds held over R5.8 trillion in assets, led by privately administered funds (R2.7 trillion); the Government Employees Pension Fund (R2.3 trillion); and so-called underwritten funds (R688.9 billion).
The breakdown of aggregate retirement fund assets requires a handful of notes to navigate including that the numbers are skewed by funds’ non-submission rates and that the underwritten funds balance reflects “the value of assets held by insurers to cover their liabilities to underwritten funds”. It turns out, per Table 2.2 of the report, that 1142 (48%) of privately administered funds and 1621 (86%) of underwritten funds are in default for non-submission of 2022 financial statements by the FSCA cut-off of 4 February 2025. Hold on. Why are we still reading about ‘non-submission’ in today’s aggressively regulated financial services world?
Explaining the non-submission debacle
The FSCA goes to lengths to explain this issue. They note that the defaulting funds are mainly smaller funds with assets below R20 million. Additionally, many of these funds have indicated that they are terminating or have ceased to operate, or that they are transferring their members to multi-employer funds, also called umbrella funds. Can we trust the top-line asset and return numbers? Yes, because up-to-date submissions from the largest 100 FSCA regulated funds comprise 83.84% of total assets, with the top 500 making up 98.02%.
Some retirement funds theory will help readers to unpack the report further. A good place to begin is with the types of funds that are subject to the PFA. These include pension funds, provident funds, retirement annuity funds, and preservation funds (including unclaimed and beneficiary funds). It takes a table spanning more than four pages for the regulator to describe the fund types you might encounter, and even these definitions are offered for your information only. The FSCA also warns that there are wide variations in the benefit structure, governance, and management of funds.
“Funds can be categorised as pension, provident, preservation, or retirement annuity funds [whereas] benefit structures can include defined contribution (DC), defined benefit (DB) or hybrid,” the FSCA wrote. Most FAnews readers will be aware that the GEPF is carved out of the PFA, being regulated instead under the Government Employees Pension Law. In practise, the GEPF sits alongside a host of other pension and provident funds established under other laws and administered by the Government Pensions Administration Agency.
Other funds that dodge the PFA
Other funds that do not fall under the PFA include those established in terms of the Transnet Pension Funds Act, of which there are three, and the Post Office Act, which sets out rules for the Telkom and Post Office Pension Funds.
Some sympathy is indicated for the FSCA because it is quite difficult to figure out how many active funds it supervises. The conduct authority estimated that there were 4896 FSCA registered funds at the beginning of 2023, with around 2419 pending termination. Even so, it expected 4265 funds to submit annual financial statements for the 2022 year. That is the basis used to determine the non-submission rates mentioned earlier in this text. At the end of 2023, FSCA supervised funds serviced just over 10.6 million active fund members, up from 9.6 million in 2022.
The report contains an interesting snapshot of how FSCA registered retirement funds’ R3.349 trillion in total assets are distributed. Most of the capital is invested in insurance policies (37.01%) followed by foreign assets (24.47%); collective investment schemes (13.96%); debt instruments (9.40%); and equities (11.51%). It is not possible to get a look through to asset class allocations from these numbers, though each asset manager and retirement fund would have to comply with regulation 28 at the member level.
Is this data useful?
As your writer paged through the performance, total expense ratio (TER), and total investment charge (TIC) tables he could not help but wonder about the data’s usefulness. It makes far more sense to assess these numbers at the member level, and it is this data that financial advisers and planners will obsess over.
For the record, the 5-year average return on FSCA registered privately administered funds topped 8.862% versus just 6.454% for FSCA registered underwritten funds. The 5-year average TER across FSCA registered funds was 1.022%. The regulator noted that its United Kingdom counterpart had capped the fee for pension fund providers at 0.75% and that this represented a benchmark for local providers to aim for.
The 2023 Retirement Fund Statistics report underscores how difficult it remains to navigate a landscape fragmented by complex definitions, overlapping legislation, and thousands of funds in the process of shutting down. Although most of your clients are probably members of mainstream FSCA regulated pensions, provident, or retirement annuity funds, you will occasionally have to delve into other areas of the retirement fund universe to give suitable financial advice. The legal frameworks impacting your clients’ retirement savings matter as you navigate them through their various life stages.
More work to do here…
At first glance, financial advisers and other financial services providers (FSPs) should be up in arms over the persistently high rate of non-submission of financial statements from retirement funds.
In an enforcement environment where advisers are frequently fined and / or debarred for contraventions of the Financial Advisory and Intermediary Services (FAIS) Act and its codes, the FSCA threat of “sending monthly reminders to the funds for the submission of financial statements, meetings, on-site inspections, etc.” seems a trifle tame. At the very least, the authority needs to double down on efforts to clean up legacy matters in this space.
One positive development to note is the April 2025 submission to Parliament of a conduct standard for pension fund benefit administrators. The standard, titled Conditions Prescribed in respect of Pension Fund Benefit Administrators, will replace the outdated Board Notice 24 of 2002. It hints at a tightening of governance, with added emphasis on ethics, data protection, and administrative rigour across the sector.
Advisers and employee benefits consultants should pay close attention to this standard because it will impact how third-party administrators operate, including the oversight responsibilities that fall to fund trustees’ sponsors.
Writer’s thoughts:
The rate of non-submission of annual reports by retirement funds seems absurd given South Africa’s tough financial sector regulatory framework. Do you feel that advisers are being held to tougher standards than other segments of the industry? Please comment below, interact with us on X at @fanews_online or email us your thoughts [email protected].
