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On double counting and dated statistics

03 May 2022 Gareth Stokes

There is something galling about dated statistics, especially when these statistics are held up as reflecting the present day state of a particular section of the South African financial services sector. Case in point, much of the retirement fund information used to underpin the Financial Sector Conduct Authority (FSCA) Financial Sector Outlook Study 2022 is only up to date to December 2019. And we are fairly certain that much of this information was presented during the last retirement fund media update we attended more than 10 months ago.

Is it time for real time statistics?

Should the industry not demand more from oversight bodies given the digital technologies at our disposal presently? In this ‘digital everything’ age, firms are able to give their executive teams minute-by-minute financial performance dashboards and publish their financial results within weeks of their financial year end, while retirement funds are required to keep individual members informed of their accumulated retirement capital almost in real time. In many cases fund members can log into their retirement fund and see daily updates of balances and other transactions. The question becomes: Why do we not aim for a real time statistical oversight of the banking, insurance and retirement fund sectors? 

It will certainly make journalists’ lives easier. Because when we first glanced at the Outlook Study we wanted to lead our story with: “South Africa’s retirement comprises 5158 pension funds” rather than “By December 2019, South Africa’s retirement fund industry comprised 5158 pension funds”. Another gripe is that the veracity of these statistics are further eroded by the regulator’s pedestrian progress in tidying up long-outstanding fund cancellations and insolvencies. It becomes a bit like peeling layers from an onion: follow along with me, if you have the patience. 

Like watching paint dry, yesterday

South Africa has 5158 funds, but four of these are not regulated by the FSCA. As most FAnews readers should know, the likes of the Government Employee Pension Fund and Postnet and Transnet pension funds are not regulated under the Pension Funds Act. So, that leaves (or left at December 2019) 5154 funds under the FSCA’s oversight. But only 1580 of these funds are (or were at December 2019) active. We are thus trapped in a situation where more than two thirds of the registered and still-regulated funds are dormant! “Many of the inactive funds are in the process of liquidation or cancellation or in the process of being transferred,” writes the FSCA. Of the active funds at the time, 927 were self-standing occupational funds and 445 were umbrella funds. 

The double counting complaint inferred in today’s headline crept in under the ‘industry developments and key trends’ section of the Outlook Study, where the report made mention of a 2% per annum annual growth in pension fund membership between 2015 and 2021, or rather end-March 2021. “These are not 16.4 million individual members, as this figure double counts individuals with more than one pension product, where an individual may belong to a pension fund, retirement annuity fund and a preservation fund,” noted the Outlook Study. Surely this is something that modern information technology could deal with, by consolidating per ID number as one possibility. As an aside, we recall the Association for Savings and Investment South Africa (ASISA) addressing a more complex double counting reporting issue some years ago. 

Unemployment no friend of retirement savings

There are plenty of challenges in South Africa’s retirement fund space, most notably rampant unemployment. Statistics SA reported a record high unemployment rate at 35.3% of working age adults for Q4 2021, meaning that almost eight million job seekers are unable to find work. And according to an expanded definition of unemployment, 46.2% of the labour force was without work at the time. To make matters worse, only around half of those in formal employment have a pension fund. “Pension fund coverage looks very different in the public sector compared to the private sector; in the former, 92% of workers have a retirement product, whereas only half and sometimes less have a retirement product in the private sector,” noted the Outlook Study. 

Although dated, the statistics paint a very grim picture of under-saving for retirement. For example, only 12% of the 3.6 million individuals in the retired age group received some form of income in 2020 and more than 90% of

retirees were unable to maintain their pre-retirement standard of living in retirement. It was also estimated that two thirds of retirement fund members had less than R50000 in their retirement funds and that the average value of benefits paid out had only slightly increased in real terms over the past decade. The outlook is unlikely to improve in a country that is struggling to achieve 2% per annum GDP growth coming out of pandemic. 

Conduct issues under consideration

The Outlook Study offered some insights into the Authority’s future regulatory focus in the sector: “the FSCA continues to focus on enhancing trustee conduct to combat the emerging risks that are related to the lack of knowledge and experience of trustees that run pension funds”. One of the concerns raised by the Authority is that pension fund members are being prejudiced due to unskilled trustees being unable to identify or prevent conflicted recommendations made by pension fund consultants. This concern could be addressed by introducing a continuous professional development toolkit for trustees to equip them “with the basic knowledge necessary for making informed ethical decisions to combat the issue”. 

The retirement industry also faces the daunting task of whittling away at its R42 billion unclaimed benefits mountain. Unclaimed benefits, which are defined as benefits due to retirement fund members or their beneficiaries that remain unclaimed 24 months after they fall due, have grown over the years despite ongoing efforts to track, trace and pay… “The key reason for the high level of unclaimed funds is that members change jobs without updating their personal information,” noted the Outlook Study. Other issues include poor financial literacy among low income pension fund members and poor record keeping by fund administrators. You can read more about the unclaimed benefits dilemma in ‘Introducing the unclaimed benefits super fund’

Streamlining the section 14B process

From a regulatory perspective, the FSCA is committed to  “streamlining and improving the section 14B process, whereby a pension fund applies to the FSCA to transfer its assets to a new administrator”. This issue remains of significant concern to financial advisers, fund managers and insurers who complain of lengthy delays in the process. “The FSCA has clamped down on incumbents holding up the process and now enforces a strict timeline; applications have to be lodged with the FSCA within four months after termination with the incumbent provider, and the FSCA then has 45 working days to approve the application,” noted the Outlook Study. “The incumbent administrator will have 60 days from approval by the FSCA to transfer the assets of the employer to the new administrator”. 

Writer’s thoughts:
One of the headlines that caught our attention recently was of a multi-national company being able to produce its annual financial results a couple of weeks after year-end. And while we appreciate the complexity of generating statistics for an entire industry, it would be nice if sectoral statistics could be produced faster. Are you happy with the quality / timeliness of the statistics produced by regulatory authorities for public consumption? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts [email protected].

 

 

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