Absa, South Africa’s largest retail bank by customer numbers, says it supports government’s proposals to improve the preservation of pension money and the governance of retirement funds. However more needs to be done to reach agreement between stakeholders on the detail of exactly how better preservation can be achieved. Also to be applauded is the commitment by government to protect accrued/vested rights says Cobus Strydom, Head of consulting at Absa Consultants and Actuaries.
One of government’s main concerns is that even South Africans, who are members of retirement funds, do not save enough for their retirement. This is because many members take their retirement savings in cash before they retire (e.g. when people change jobs). National Treasury has released four discussion documents last month to strengthen retirement savings and will release one more document to expand on the issues of costs.
Economic conditions for South African pensioners are becoming more and more challenging with interest rate cuts eroding retirement savings. Pensioners are also battling to make ends meet due to soaring food and transport costs. “Given that October was Pensioners Month, it is only fitting that we support government’s plans to have a look at retirement savings and how that could ultimately benefit those who want to retire comfortably, says Strydom.
One of Government’s proposals with regards to preservation of retirement money is a “default preservation option” to which the withdrawing member’s pension balance must automatically ‘ “transferred” when a member resigns. Members who opt to withdraw their pension benefits in cash must be required to seek advice.
“Absa supports the default preservation option, but due consideration should be given to the future communication with the members and the introduction of a de minimus rule. We also support the proposal that members must first obtain advice when electing to take their benefit in cash. Special consideration should be given to an appropriate cost model for the administration of these members and the remuneration of financial advisors in this regard,” Strydom added.
Absa also supports Government’s proposal to restrict a member’s access to retirement benefits in the event of withdrawal to one third of benefit with special allowance for real hardship cases. Strydom however warns that the allowance of hardship exceptions will be very difficult to manage and may prove to be costly for the member.
Government has also focussed on the role of trustees in fund governance and has acknowledged that many trustees may lack the competence and skills to make investments and management decisions with the best interest of members. Another problem is conflicts of interest in the way that trustees discharge their duties to members.
“It is a good proposal by Government to standardise and make trustee training compulsory. However special consideration should be taken in respect of the possible increased costs associated with trustee training and professionalising the role of the principal officer,” concluded Strydom.