Everything you need to know about Employee Benefits
Sanlam held its 2008 Employee Benefits Symposium at Vodaworld (near Johannesburg) yesterday. Dawie de Villiers, chief executive officer of Sanlam Structured Investments, noted that navigating the ever-changing retirement fund industry was a bit like using a GPS system on Johannesburg’s roads. The GPS has to continually recalculate the route to accommodate various road closures necessitated by Gautrain and other infrastructure projects. Each regulatory change in the employee benefits environment forces industry stakeholders to pause and take a moment “recalculating” the way forward.
As the opening speaker at the symposium, De Villiers presented some of the key findings of the group’s Employee Benefits Annual Survey 2008. Based on responses from 200 retirement funds the survey findings were compiled by BDRC, an independent research house. The survey was limited to the Defined Contribution (DC) environment and included pension funds, provident funds and umbrella funds. And for the first time feedback included 300 video (and another 300 telephonic) interviews conducted with pension fund members in Johannesburg, Durban and Cape Town. Some of this footage proved extremely entertaining when played back to symposium attendees.
How much money is in the pension pot?
Before analysing the survey responses it makes sense to get an overview of the South African retirement landscape. According to Statistics SA there were approximately 48.5m people living in the country in 2007. A Labour Force Survey conducted in September of the same year shows that 13.2m of these individuals benefited from some form of employment. Unfortunately more than a third of these (3.6m) were categorised as informally employed. “The most important statistic is how much money is in our retirement pot,” said De Villiers. This was answered by the Registrar of Pension Funds which estimates the total at around R1.3trn. These facts in hand, De Villiers proceeded to unpack the survey results in five main categories: communications, funding goals, contributions, investments and the proposed National Social Security System (NSSS) reforms.
Where communication is concerned there is a growing sense that fund members are ill equipped to process the information they receive. So although 95% of funds surveyed sent annual benefit statements to members, 68% provided members with rules booklets and 44% distributed annual trustee reports there’s a sense that these communications might not assist fund members with the real task at hand – making the correct decisions to ensure adequate funds in retirement. It certainly seems as if symposium attendees understand the issue. When asked whether they thought “the average retirement fund member had enough knowledge to make good retirement decisions” 96% of the audience said “NO!” We reckon the other 4% were experiencing teething troubles with the hand-held voting devices...
The ‘funding goals’ section of the survey attempts to gain a better understanding of the focus of retirement fund trustees. Most of the survey questions focussed on whether trustees managed the funds to optimise retirement benefits, withdrawal benefits or both. 50% of respondents indicated that retirement was most important with just 5% admitting to a withdrawal bias. De Villiers indicated that he was surprised that the number of respondents focussing on both of these areas was not higher than the 40% recorded.
The life stages challenge to investment decisions
How much should you be ‘paid’ to take the investment decision out of your funds’ hands? In the investment segment of this survey Sanlam found that only eight of 200 funds offered lower fees to members choosing the default option. It follows that the extra communication and administration involved with allowing individual members to make their own choice is negligible. 46% of the funds surveyed offered member investment choice… One of the challenges to the industry was to create products to address the equity versus life stage debate. De Villiers said that changes made due to life stage considerations saw members being “moved out of equity pre-retirement only to move back again through living and with-profit annuities.”
Overall contributions to retirement provision remain on the decline. Total retirement contribution (which includes the net employer contribution and employee contribution) has shown a steady decline since 2002. Back then it stood at 12.4% compared to the 2007/2008 ratio of just 10.9%. A summary of all the categories considered in the survey shows that only the costs associated with the provision of death benefits declined slightly (from 1.8% to 1.7%). It was more expensive to provide disability benefits (1.1% to 1.3%) and administration (1.0% to 1.1%) in 2008 than previously. And while 15% of gross income is put toward savings – only 10.9% goes to retirement!
The National Social Security System (NSSS) remains the biggest ‘story’ in the employee benefits industry. What concerns FAnews Online is that 43% of survey respondents felt negative about the plan while a mere 35% were positive. It emerged during the symposium that a great deal of this negativity stems from doubts over “government’s ability to manage the fund.” We expect more clarity will emerge over this year and appreciate government’s commitment to gradual (phased) changes.
In light of all the challenges De Villiers believes the industry “needs to take stock – recalculate – and make sure it is on the right path going forward.”
Editor’s thoughts:
Sanlam’s survey also raised a potential threat to the retirement fund industry that will have to be given serious attention before the National Social Security System is implemented. There’s been a huge increase in the number of funds that expect their members to resign prior to the NSSS implementation to access fund values. Would you consider resigning your job to access your fund values if you thought government’s NSSS solution would ‘force’ preservation? Add your comments below, or send them to [email protected]
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