The fastest-growing umbrella fund in South Africa – the Sanlam Umbrella Fund – has called on the employee benefits industry to consider a model similar to the Effective Annual Costs (EAC) standard introduced by the Association for Savings and Investment South Africa (ASISA) for retail investment products earlier this year.
“An industry-agreed standard method for comparing charges on investment savings products would allow employers to make better, more informed decisions. We believe that a similar cost model to the EAC should be considered for the umbrella fund industry, since it provides a fair measure for transparent disclosure in respect of charges relating to retirement funds,” says Irlon Terblanche, CEO of Sanlam Umbrella Solutions.
Umbrella funds have become a very popular, affordable and tax-efficient retirement savings solution for both employers and employees. The commercial umbrella fund industry has grown from just under 800 000 members in 2009 to more than 1.7 million members today with the collective value of funds under management sitting close to R269 billion.
The EAC standard, created in the spirit of Treating Customers Fairly (TCF), was designed to eliminate the confusion around different cost measures currently in use for investment products. From 1 October this year, all financial institutions that are ASISA members need to comply with the standard. It has, however, not yet been extended to cover occupational retirement funds, including umbrella funds.
Terblanche says despite this, Sanlam Employee Benefits is already complying with the principles of the EAC standard across all applicable products. The Sanlam Umbrella Fund, for example, was the first umbrella fund to offer new-generation pricing that is transparent and easy to understand.
“We strongly believe a standardised way of reporting charges to members of occupational and commercial umbrella funds is crucial. It will increase disclosure and transparency so that trustees, brokers and fund members are in a position to evaluate and compare costs and fund or product offerings on a like-for-like basis. Currently, many fund members are in the dark as to how much they pay and what they are actually paying for. This is a situation that cannot continue!”
He adds that such transparency will also promote an environment where members have greater accessibility, choice and flexibility when selecting preferred investment instruments that can offer practical, sustainable and secure retirement options. For the employer, it will provide an informed perspective as to the fund options and benefits being offered to ensure that employees’ retirement journeys are well optimised.
“The industry should also consider introducing appropriate service-level agreements between umbrella funds, benefit consultants, employer groups and individual members. This could ensure that fund members will remain appropriately informed about their fund investments as well as fees charged.”
Terblanche says umbrella fund members often have limited information as to why certain charges are levied by retirement funds and employee benefit consultants. Another important factor is the degree of investment being made, for example, to upgrade and advance the administration platform, thereby ensuring that member contributions can be invested rapidly, and keeping fund members informed, enabling them to track and manage their retirement fund investments.
He says Sanlam Employee Benefits is part of a dedicated, expert working group instituted by ASISA to look into retirement funds costs disclosure. “It is hoped that the outcomes of these determinations will be applied within the retirement fund space at the earliest opportunity.”
Terblanche says Sanlam and the Sanlam Umbrella Fund trustees will continue to campaign for the adoption of a standardisedway of reporting charges to clients when it comes to all commercial umbrella funds. “This is part of the broader debate on how to lower fund charges while increasing the value added to members in order to improve member retirement outcomes,” he concludes.