A mega fund view on retirement fund challenges
Investment performance is just one component in a complex retirement fund landscape that spans employers, fund administrators, fund members and regulators, to name a few. There are few better placed to comment on the investment side of the equation than Sonja Saunderson, who is chief investment (CIO) officer at the EPPF, one of the few remaining defined benefit (DB) funds in South Africa.
Putting fund members first
The EPPF, which is open to all permanent employees who are younger than 65 and working for Eskom, its subsidiaries and other participating employers, holds around R250 billion in total assets. Saunderson was invited to the 2026 Sanlam Benchmark survey launch to comment on fund sustainability and long-term member outcomes in the standalone DB fund context. She promised to expose the main trends affecting retirement funds, in addition to covering investment concepts such as fund adequacy and liability management.
The presenter said that the latest Benchmark findings supported the view that a retirement fund member’s overall financial wellness through his or her life-stage journey was as important as the investment outcome. It also raised awareness of shortcomings in the system. The first ‘red flag’ statistic was that only 71% of standalone funds, and just over half of umbrella fund participants, had a stated target pension. “How do you manage a pension fund if you do not have a stated target pension?” Saunderson asked.
Additional statistical red flags arise from members’ individual financial behaviours. According to the latest Benchmark survey of retired consumers, 47% were still paying off debt; 70% who took a lump sum at retirement had already depleted it; and 77% were forced to make financial adjustments to get by. “The industry challenge is that funds must move from product administration to governed member-outcome ecosystems,” Saunderson said. Solutions should span adequacy through contribution design, preservation and realistic target pensions; advice to encourage better member decisions up to retirement; and household budget reality in retirement.
Looking through a real economy lens
Benefit payments, liquidity and solvency are core considerations for retirement funds whether they operate in the DB or defined contribution (DC) space. As custodians of members’ assets, retirement funds also have a responsibility to look through a universal owner lens to digest members’ interaction with the general economy. The audience was reminded that fund members were impacted by real-world forces such as economic growth, energy security, geopolitics, infrastructure challenges and unemployment, to name a few.
“A lot of systemic risks translate into investment risks that we, as an investment team, need to monitor and navigate,” Saunderson said. She said the EPPF had responded by building its sustainability policy on the three pillars of economic parity, environmental regeneration and social justice. By addressing these aspects in unison, the fund is able to fulfil its mandate as a prudent universal asset owner. Currency crosses, fuel prices, inflation and interest rates matter; but they cannot distract from big-picture considerations like liability matching, liquidity monitoring and portfolio exposures to alternatives and infrastructure.
The first of two trends described during this talk was that members need more than investment performance from their fund. “Members need support throughout their financial journey,” Saunderson said. One way to achieve this is to become a financial wellness provider like a Sanlam or Old Mutual; but for retirement funds the sensible approach is to build behavioural nudges and enabling tools into the solution set. This means steering members towards the right product and support structures, including access to financial advice, at critical junctures along their retirement journeys.
A multi-dimensional investment problem
The second trend is that allocators of capital face a multi-dimensional investment problem. Geopolitics, financial market concentration, country constraints and liabilities were all singled out as considerations to factor into investment decisions. The CIO mentioned JSE-listed Sasol Limited to show how volatility at a single share level had a disproportionate impact on a benchmark, in this case on a portfolio’s exposure to carbon gas emissions. Another curveball came from the artificial intelligence technology stocks, which are overrepresented in US indices and show up negatively on environmental rankings.
Commenting on South Africa’s unique challenges, Saunderson listed energy constraints, fiscal discipline and everybody’s favourite, infrastructure. How should a pension fund’s investment team respond? “We have done a lot of work on our strategic asset allocation to make sure that it is resilient under different market conditions,” she said. Another approach is to elevate alternative markets, domestically and offshore, into the broader asset exposure mix. An important point was that government should not force pension funds to invest in infrastructure; assets will flow into alternatives and infrastructure opportunities that are investible, offer credible returns and are liquid.
The EPPF shared a snapshot of its current and proposed alternative strategy allocation, described as “a controlled allocation sized within total fund risk, liquidity and governance limits.” Geographically the exposure shifts from 57% South Africa; 10% rest of Africa; and 33% offshore to 43%, 7% and 50%. And the asset class mix will gradually move from the current 44% private equity; 12% private credit; 23% real estate; and 18% infrastructure to 47%, 14%, 18% and 19%. This shift to alternatives is driven by shrinking listed market opportunities, and the realisation that investible infrastructure projects are net good for South Africa.
Sustainability as risk management
“Sustainability is a financial risk management process that is integrated into each and every investment decision that you make,” Saunderson said, restating that a just climate transition was closely aligned to the fund’s aforementioned environmental regeneration pillar. The EPPF believes that a credible climate pathway must reflect concentration, coal dependence, jobs and investment opportunity. Unfortunately, measuring climate change, and the impact of asset management decision-making on climate outcomes, remains somewhat of a challenge.
If you are a consultant in this space, then the fund has done some of the heavy lifting for you, sharing four key considerations it makes when reflecting on climate impact. First, a small number of issuers can dominate portfolio emissions; second, South Africa has an energy-intensive, carbon-emissions-dependent economy; third, you need to seek balance through a just transition lens; and fourth, establish and track towards a credible transition plan. The complexities involved here support ongoing consolidation in the retirement fund space.
The key focus areas to deliver responsible investment outcomes in the retirement fund space begin with your fiduciary duty of making sustainability part of the risk, return and member outcomes debate. Others include building capability across the board, executive and investment teams; measuring what matters to improve decisions and expose trade-offs; using stewardship to leverage influence; and, of course, staying humble.
Prudence, purpose and practical execution
“We must recognise that the pension fund world is much more complicated than we typically believe it to be,” Saunderson concluded, adding that sustainable retirement provisioning now goes beyond investment management to a holistic approach combining prudence, purpose, and practical execution. It is an undertaking that your writer reckons is ‘easier’ in the DB world, where environmental and social concerns can be explored without eroding members’ pensions.
Writer’s thoughts:
The big-picture retirement fund issues discussed in today’s piece can feel far removed from financial advice, but they really matter. How do you balance macro factors and fund administration realities when advising your clients? Please comment below, interact with us on X at @fanews_online or email us your thoughts [email protected].
