Stronger together: The FPI and the ASSA team up to protect South African consumers

27 August 2020 The Financial Planning Institute (FPI) and the Actuarial Society of South Africa (ASSA)

The Financial Planning Institute (FPI) and the Actuarial Society of South Africa (ASSA) have signed a Memorandum of Understanding that will see the two professional bodies work together to help retirement fund members select annuity options more likely to produce a sustainable retirement income.

For decades the FPI and the ASSA have represented the interests of both their members and the public by giving input on regulatory changes, educating consumers and generally improving the financial health of all South Africans. The MOU signed earlier this month recognises the fact that in many cases the interests of the two bodies, which already have a significant membership overlap, should be aligned.

“Two heads are always better than one,” says the FPI’s CEO Lelané Bezuidenhout. “Working closely with ASSA will allow us to recognise issues that are pertinent to both organisations and to align advocacy efforts around matters such as default regulations ensuring that the best interest of the consumer is kept in mind at all times.”

What the MOU means in practice

A key component of the MOU is the commitment by the FPI and ASSA to develop a best practice standard outlining advice points to be considered by financial planners when making recommendations to retirement fund members entering or exiting a retirement fund. This advice standard will relate to investment choices, preservation options, annuity options, and group risk options based on a member’s unique circumstances.

“The reality is that the vast majority of South Africans are retiring with grossly inadequate levels of income at retirement, presenting a retirement planning crisis. This is exacerbated by largely inappropriate decisions when members leave retirement funds”, says ASSA’s Costa Economou. “As custodians of the advice that many retirement institutions and members receive, there is no doubt that the respective resources within ASSA and the FPI need to be aligned to ensure the long term and sustainable well-being of South Africans. We have a duty to the public interest in helping South Africans achieve a dignified retirement”.

Last year, National Treasury introduced Regulation 39 of the Pension Fund Act, commonly referred to as the default regulation, which requires all retirement funds to assist retiring members with solutions to enable them to convert their accumulated savings into a sustainable retirement income. Default options put in place by retirement funds could consist of guaranteed life annuities (including with-profit annuities), living annuities, or a combination of both.

The default regulation places a strong emphasis on the sustainability of retirement income. According to Bezuidenhout, many South Africans who did not save enough for their retirement are opting for living annuities because of the ability to draw a higher income in the early years of retirement and because there is the hope that something could be left for beneficiaries. “Almost 80% of retirement funds flow into living annuities and unfortunately a significant proportion of annuitants run out of money before they die.”

Living annuities are sophisticated financial instruments which are inappropriate for some retirees, adds Economou.

According to Economou, the MOU with the FPI will go a long way toward ensuring that professional members of the FPI around the country will be properly informed about how best to structure default options to ensure that the individual needs of their clients are met.

“Education and continuous professional development form part of an FPI professional members’ overall competencies,” says Bezuidenhout. She furthermore adds: “The FPI through our member committees is regularly updating curriculum and learning materials to ensure that members are kept abreast of the latest developments in the financial planning space. As part of the MOU, both bodies will have representation on relevant FPI and ASSA committees to ensure that broader input is given into curriculum and learning materials.”

The small print

In addition to the high-level cooperation engendered by the MOU, the agreement also contains some essential finer details. Namely:

- The leadership of the two bodies will meet at least four times a year to discuss issues pertaining to the financial landscape in South Africa
- The FPI will have representation on ASSA’s Retirement Matters Committee, and ASSA will be represented on the FPI’s Employee Benefits Competency Committee
- There will be input by each organisation on the other’s educational curriculum
- The aim is to co-host conferences on topical issues and matters
- The two bodies will share commentary papers on regulatory issues and/or proposals and set up joint working groups as required.

The bottom line

“When it comes down to it, both of our professions exist to serve the South African public,” explains Bezuidenhout. “The MOU ensures that we will be supporting each other on mutual matters in our dealings with regulators, professionals and the public.” You don’t have to know much about music to tell that this can only be a good thing.


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