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There is no silver bullet

16 May 2006 Angelo Coppola

Rob Rusconi was speaking about retirement fund reform - during a presentation of the results of a survey commissioned by Old Mutual SA into the retirement fund industry in South Africa.

Rusconi has re-emerged as an independent consultant and is on-board to advise Old Mutual about retirement fund reform.

As an opening remark he said that he doesnt like retrospective legislation as he says that you cant run an economy in this manner. He was referring to the Statement of Intent (SOI).

The SOI was a step in the right direction, although he stops short of calling it an admission of guilt. To counter this comment he says that in certain quarters the SOI was seen as going to far, while others say that it wasnt enough.

He says that the process of policy reform is a complicated one and thus the time spent on getting it right, is needed.

Governance is the main issue, and the fact that the regulators are doing something about it. The members needs are paramount. The big picture is that something is being done. From a policy makers point of view, governance is being taken seriously, and the FSB is moving in the right direction.

Whether the FSB has the manpower to enforce and monitor is really not an issue. Give them the budget. He did have good words for National Treasury and believes they are working in the right direction.

The point is that the damage has been done and people will be loathed to move back into the savings environment. The policy makers need to act with wisdom, and not speed. He went on to say that there is no silver bullet and its more a question of incremental change.

There are no international solutions that South Africa could adopt, as no one has got it right yet.

As a starting point South Africa is in the minority when it comes to voluntary retirement savings. Most other countries have some form of compulsory savings for retirement.

There also appears to be some movement towards a national savings fund, and something that has been implemented by New Zealand. Other countries have adopted a wait and see approach.

On the other hand the attempt to combine housing and pensions in terms of access to capital, is something that hasnt worked internationally witness its failure in Mexico and Singapore.

Portability is also a good option, and international research in Australia, Latin America and Eastern Europe, shows that it can work, as seen in the development of individual retirement funds, which allows easy movement between funds, and encourages member choice, with a focus on replacement ratios and capital accumulation.

Governance is the key issue in pension funds. Trustees will see their responsibilities increase. The fiduciary responsibility does extend to the providers of services to the funds and to their members. In some ways the governance issues for trustees will be reduced as there is a move towards product governance.

The local move should be to follow best international practice, and the OECD has a strong focus on pension fund policy issues.

It appears that umbrella funds are set to grow, although they should be called something else as there is a stigma attached to the old umbrella funds. He prefers the term multi-employer funds, and sees the line blurring between these and other retirement funds.

Editors thoughts
* As always Rusconi provides impartial input into the real issues. Interestingly there is no silver bullet to improving the savings culture in SA.
* And its always about governance and disclosure

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