Retirement reform: still early days

Financial advisors would be well-advised to continue with business as usual since it would be premature to take action or offer advice based on the current retirement reform proposals.

The proposed social security and retirement reforms are aimed at ensuring the financial well-being of all South Africans at retirement. However, it is still unclear exactly what form the benefits will take, how the public will be expected to contribute, and when it will be implemented.

Current savings not penalised

Given that the retirement reforms are guided by the aim of encouraging and ensuring retirement savings, it is probably safe to assume that any savings accrued between now and the time the reforms are introduced will not be penalised. So advisors continuing to dispense their usual advice where savings are encouraged is probably still a good idea.

Consider the insurer

One area where the introduction of the new reforms may have an impact is through the possible consolidation of the industry. Large funds could possibly absorb smaller funds, or large umbrella funds may be created. It is therefore important that advisors consider this when placing business, at least until the reforms are introduced and solidified, to ensure stability for their clients' investments.

Focus on shorter-term needs

Additional considerations of which advisors should be aware include the fact that withdrawal benefits before retirement are likely to be limited, leaving advisors with the opportunity to focus on the shorter-term savings needs of clients. Also, while the reforms will affect everyone, higher income earners will be less affected, and thus their retirement savings needs less catered for. This will be an area where advisors can continue to add value.

A gap in the market

From a life insurance perspective, the proposed reforms are likely to include limited risk cover for death, and possible disability and medical needs, so there will undoubtedly be a gap between what is provided via the compulsory contributions and what is required to meet clients' true needs. Advisors will therefore play a very important role in ensuring their clients have appropriate cover once the new structure is in place.

Making your voice heard

As we approach the introduction of the social security and retirement reforms in South Africa, advisors have a golden opportunity to help influence the direction retirement reforms will take, and subsequently the effects it will have on the local industry and clients. However, this will only happen if advisors make themselves heard and contribute to the debate.