FANews
FANews
RELATED CATEGORIES

Tougher regulation necessary

01 April 2014 Carla Letchman, FPI

National Treasury released a paper entitled 2014 Budget update on retirement reforms on 14 March 2014. This paper places the entire retirement reform process into context and provides information on the way forward.

It is commendable that Treasury is giving stakeholders insight into their thinking and allowing for general commentary to be submitted. Comments can be sent to Treasury by 30 April 2014.

A strong theme of engagement is noted throughout the paper. Treasury is open to consulting directly or through the National Economic Development and Labour Council to finalise a framework for retirement reform.

Government is showing its seriousness

Treasury has released four technical discussion papers in 2012 and the fifth in 2013. Each of these papers dealt with a particular element of the reform. Some of the proposals mentioned in these papers have already been implemented, most notably the alignment of provident funds with retirement funds from 1 March 2015. A further noticeable and welcomed amendment was to the Pension Funds Act which permits the Registrar to impose fit and proper requirements on fund trustees.

One of the stated goals of Treasury is the implementation of mandating or auto-enrolment. This, in essence, would entail that all formally employed workers be obliged to save for retirement in an appropriate vehicle. This, it is noted, would ultimately contribute to lowering the costs within the retirement funds industry.

A further element to this is the improvement of preservation. Workers who are formally employed, and who contribute to a retirement fund, tend to withdraw their funds entirely and this could leave them in a vulnerable position at retirement. Treasury is considering compelling preservation. Preservation will be subject to rules which cater for our unique socio-economic circumstances as a country. One withdrawal per taxpayer per year will be permitted per preservation fund; subject to terms and conditions.

Improving the fund disclosure imperative

Improving fund disclosure is another important objective. A prescribed charge disclosure methodology is proposed. This goes hand-in-hand with simplifying retirement savings products and making them portable between providers.

The Treating Customers Fairly principles need to be applied to the development of the product. Treasury will consult further in this regard and will begin with an initial focus on underwritten retirement annuity fund benefits and commercial umbrella funds.

A further element which escalates the costs of products in the industry, as stated by Treasury, is how intermediaries are remunerated. It is suggested by Treasury that transparent fees be charged instead of commission. One of the short-term reforms they have identified that goes towards solving this problem is the Retail Distribution Review (RDR). A draft proposal on intermediary remuneration on investment products, including retirement annuity policies, and rebates on investment platforms, will be published in May 2014 when the Financial Services Board releases the report on RDR.

Making choices for your client

Individual member choice was introduced with the revised Regulation 28. However, if the member fails to make an election, the default option needs to be appropriate according to Treasury. It is noted in the policy document that there is currently no regulation in South Africa in this regard.

Fund consolidation is another cost driving factor that was identified and it was noted that there is currently 3 000 active retirement funds. Apart from the consolidation of funds, it is also recommended that the structure should be standardised. This will increase efficiency, portability and drive down the costs with the volume of members.

In conclusion, for Treasury to achieve the stated goals, which ultimately culminate in reduced costs in the retirement funds industry, they would require stronger regulation which they have identified as an intention. They have highlighted effective supervision as key and tougher market conduct regulation. This will ultimately result in members being treated fairly.

Quick Polls

QUESTION

South Africa went to Davos to pitch itself as an investor-friendly destination, then signed an Expropriation Act. What message does this send to global investors?

ANSWER

Invest at your peril
SA is open for business
Two steps forward, one land grab back
Welcome to Hotel California
fanews magazine
FAnews February 2025 Get the latest issue of FAnews

This month's headlines

Unseen risks: insuring against the impact of AI gone wrong
Machine vs human: finding the balance
Is embedded insurance the end of traditional broker channels?
Client aspirations take centre stage as advisers rethink retirement planning
Maximise TFSA contributions before year-end
Subscribe now