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SA retirement fund industry healthy - FSB

12 November 2004 Angelo Coppola

The retirement fund industry in South Africa is going from strength to strength with total assets of all funds increasing by nearly 5 percent from R867 to R909 billion.

The annual report for the 2003 calendar year showed that the net assets of self-administered funds increased by 4.5% from R352 billion in 2002 to R368 billion in 2003.

According to the report, in spite of total fund contributions increases of 12.2%, income from investments (including the adjustment to fair value) decreased by nearly 92 percent. Employer contributions increased by 14.5% while members' contributions went up by 8.5%.

Total net cash inflow increased by 73.3% from R19 043 million in 2002 to R32 994 million in 2003 as income increased by 20.7% while expenses decreased by 0.1%.

Return on investments (ROI) over the past five years has shown a steady decline from a high of 16.6% in 1999, to 0.7% in 2003. Benefits paid by all pension funds increased by 1.1% from R72 494 million in 2002 to R73 318 million in 2003.

Investment patterns of self-administered funds show that insurance policies (33%) still formed the bulk of investments, followed by shares in companies (30.6), followed by bills, bonds and securities (13%).

The balance is split between other assets (8.5%); deposits and Krugerrands (6.6%); collective investment schemes (5.4%); immovable properties (1.2%); loans (1.1%) and
debentures (0.6%).

During the period under review several inspections into pension funds were
conducted.

The inspections revealed, among other things, the following:
* Trustees of a fund failed to act with the required care, diligence and utmost faith in the investment of the funds' assets, resulting in a huge loss to the fund and its members.
Remedial action was taken and the fund trustees are taking legal action to recover lost money.

* Trustees of a fund did not act with the necessary due care and diligence by implementing amendments before it was approved and registered by the registrar.

Other statistics:

Number of registered administrators etc as at 31 August
2004:
Administrators 109 (2003:108)
Investment managers 73 (2003: 65)
Benefit administrators and investment managers 32 (2003: 34)
Employer administrators 81 (2003: 83)
Self-administered funds in default for submission of financial returns as at cut-off date of 10 August 2004: 267; for the cut-off date of 30 September 2003 the figure was 233.

Quick Polls

QUESTION

As National Treasury mulls a two-bucket retirement system, mandatory contributions and preservation, regulation 28 is being amended to allow up to 40% of retirement fund assets to be invested in SA-based infrastructure… Which of the following retirement fund ‘tweaks’ would you consider most beneficial to your clients?

ANSWER

Give fund members emergency access to retirement savings
Let fund members invest 40% in infrastructure
Let fund members invest 40% offshore
Mandatory preservation when resigning from a fund
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