Spoilt for choice

19 May 2004 Angelo Coppola

Member investment choice in retirement funds is a great concept but it does not always work in practice, says David Klug, the actuary for Consulting Services at Metropolitan Employee Benefits.

“There are a number of practical difficulties that can come with having individual member choice.

“Among them is the fact that many retirement fund members do not have sufficient knowledge about investments to empower themselves to make appropriate decisions,” he explains.

The concept of member choice arose when pension funds shifted from defined benefit to defined contribution structures. As the investment risk was passed on to the employee, it was felt that retirement fund members should have a say in how their funds were invested.

“Initially, trustees made these decisions on behalf of retirement fund members, but it has become common practice to extend this function to members,” Klug adds.

“Members can be highly emotional about their retirement investments and can lose sight of their long term investment objective.

“If given the chance, some members might shift portfolios each time they read about market movements without taking into account their retirement goals as well as other factors related to their individual retirement needs,” he continues.

“On the other hand, retirement fund trustees work closely with retirement fund managers and are therefore likely to be more objective and stick to the goals of the fund.”

Klug observes that there is still a great need to educate members about saving for retirement.

“Much focus has been on trustee training, but the retirement fund industry will need to work out ways to educate members. This is possible at a fund level, relying on many forms of communication media,” he says.

He also suggests that financial education should be incorporated into the school curriculum so that by the time individuals begin working, they are more adept at making investment decisions and planning for their future.

Quick Polls


There are countless articles written about South Africa’s poor retirement outcomes. Which of the following would you single out as the biggest contributor to local savers not accumulating enough to buy an adequate and sustainable pension?


Lack of personal accountability
Poor participation in formal retirement funds
Reluctance to seek financial advice early on
SA’s high unemployment rate
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