Outlook for 2015 favours retirement fund investors

Steven Nathan, Chief Executive of 10X Investments.

There are a number of international and local trends that have the potential to impact investors in 2015. This is according to Steven Nathan, Chief Executive of 10X Investments, who says that while the retirement reforms have been postponed, there are still a number of trends that investors and fund managers should be aware of in 2015.

International retirement investment trends in 2015

. Passive management: Internationally, greater pressure will be placed on retirements funds to make more use of passive investments strategies, explains Nathan. "There was a clear move towards this in 2014, with increased flows into passively managed funds and outflows from actively managed funds. In the UK, for example, there was significant pressure on the Local Government Pension Scheme to switch to passive investment managers."

. Retirement age: With increasing life expectancies, a number of countries around the world are also considering raising the retirement age in an effort to reduce the growing burden on taxpayers' contributions that go towards paying for pensions, he explains. "A number of countries put plans into place to raise their respective retirement age thresholds, such as; Australia, Germany and the UK."

. Greater transparency: 2015 will also focus on a move towards improved transparency, explains Nathan. "For example, there is a proposed amendment to the Pension Schemes Bill in the UK to ban non-disclosure agreements between pension funds and asset managers. This would assist pension fund investors who would be able to compare fees and determine whether they are getting the best deal possible."

Local retirement investment trends in 2015

Looking at the local market, Nathan says that it will follow the international market trends. "However, these will most likely take place at a noticeably slower pace."

. Active vs. passive management: The debate between active vs. passive management will continue in 2015. Nathan says that asset consultants and brokers will continue to recommend active rather than index funds to investors. "Despite the international move toward more passive investment strategies, the top-performing funds will be held up as proof that active management works. Conversely, underperforming actively managed funds will base their poor returns on a dysfunctional market."

. Retirement reform delays: With the postponement of the retirement reforms until 2016/17, pending further consultation with NEDLAC, he believes that this will be another year of legislative uncertainty. "Unfortunately the debate on these reforms will continue, without much progress, we believe. The overarching goal of these reforms is to simplify the retirement industry in South Africa and to harmonise the tax treatment of the different retirement products. But until this impasse with the unions is resolved, the industry will continue to remain unnecessarily complex."

. Fees: Nathan says that there was significant pressure on financial services companies to reduce fees in 2014, which will likely continue this year. "In response to this pressure, many companies launched low cost products to protect their market share, however, only a few applied a reduction in fees across all products."

. Monthly income disability benefit: Nathan says that one reform that will go ahead on 1 March 2015 is that the monthly income disability benefit will no longer be taxed and the premium will no longer be tax-deductible. "This significantly enhances the benefit of existing claimants, who will no longer pay tax on their disability income. If possible, claimants should save some of this windfall to bolster their retirement income."

. Lower returns: Returns over the last 40 years have exceeded their long-term average, points out Nathan. "As a result, we expect to see lower returns ahead. However, this may not necessarily take place this year."

Nathan says that it is important that investors don't get distracted by changing investments trends or past performance. "Investors should rather focus on maintaining an acceptable savings rate, resist the urge to cash in before retirement, invest in a sensible portfolio and keep their fees low.

That is the sensible way to secure comfortable retirement."