FANews
FANews
RELATED CATEGORIES
Category Retirement
SUB CATEGORIES Annuties |  General |  Savings & Investments | 

Facing up to the realities of retirement

12 June 2008 Gareth Stokes

Old Mutual presented some of the findings of their 2008 Retirement Funds Survey at a function in Johannesburg yesterday. The survey gets to grips with the trends, attitudes and perceptions of various stakeholders in the retirement fund industry. And for the first time since its inception, the survey spent some time with retirement fund members to get to grips with some of the topical issues that affect them.

The survey was conducted independently among 58 fund representatives (accounting for approximately 110 300 active members and R25bn in assets), 22 decision makers in Umbrella Fund arrangements (covering 7 612 active members and R1.3bn in assets) and 10 intermediaries. Retirement fund members were approached through a focus group. And it was hard work. Seelam Gobalsamy, executive general manager of Old Mutual Corporate reveals that “This year’s Retirement Fund Survey results were gleaned from almost a hundred hours of interviews with various industry stakeholders, and are the result of in-depth independent analysis.”

Appearance versus reality – two sides of the retirement provision coin

Some of the survey results sound like a call for help to financial advisers across the financial services space. In particular FAnews Online was concerned with findings in the pre-retirement counselling and advice category. The survey found that while most pension fund members get some form of counselling the vast majority (50%) of these individuals only receive advice in the year before retirement. Retirement planning is a complex and lengthy process and there’s little the future retiree can do to correct any shortcomings in such a short space of time.

Another warning flag is that regardless of the time and money spent on education in recent years, there remains a huge disconnect between what retirement savers believe they have achieved versus their actual retirement provision. The survey showed that 40% of fund members were under the impression they had saved enough to retire on; while retirement funds say this number is closer to 23%. That means 17 out of every hundred retirement fund members are under the false illusion that their retirements will be rosy when the situation is exactly the opposite. This trend was confirmed when talking to actual retirees – of whom 69% said they weren’t getting the pension they expected. If these results are echoed across all retirement savers in the country then no financial planner can ever complain about a lack of opportunity. There are thousands of individuals just begging for professional advice. And how desperately they need it!

Communication emerged as quite a big issue among fund members and it is clear a greater focus on communication will be required in future years. Gobalsamy said “the average member still believes that he/she did not understand financial matters relating to their pension funds.”

Great progress on PF130 recommendations

Gobalsamy noted that most funds were well on the way to complying with the guidelines established in the PF130 document. 70% or more of all funds interviewed had an Investment Policy Statement, Code of Conduct, formal risk policy or risk policy framework and a formal communication policy with members. Fund administrators certainly seem to have taken the advice in PF130 to heart. The only disappointing aspect was that only 38% of the funds surveyed had a formal trustee assessment tool.

The survey confirms that fund administrators and trustees are placing more emphasis on corporate governance issues. However this focus was placing strain on smaller funds due to the weight of responsibility on trustees and the time and resource involved in properly addressing each requirement. An average R26 000 per annum is incurred in living up to governance expectations. More than half of those surveyed felt this cost was warranted – and Gobalsamy warned that “the downside risk of a fund having inappropriate governance” warranted such extra expense.

In summary it seems the big message from a consumer prospective is that the industry has a long way to go before the average retirement saver has a proper understanding of the retirement savings process. And that’s going to be the challenge as government launches its massive social security reforms in coming years.

Editor’s thoughts:
The Old Mutual 2008 Retirement Fund Survey makes for interesting reading. It not only reveals a greater attention to issues of corporate governance from fund administrators and trustees; but also highlights some serious misconceptions among the rank and file pension fund members. How can the financial adviser play a role in bridging the gap between expected and actual pension fund returns? Add your comments below, or send them to gareth@fanews.co.za

Comments

Added by Devil's Advocate, 11 Jun 2010
@Sandy Wingfield-Turner Would that include planning into embed oneself into a family's property trust/funds after marrying a divorcee, and mapping retirement out based on potential usufruct privileges, while leaving the blood related family trustees in distress? I'm simply intrigued as your comments leave out the more sinister aproaches to making retirement easier, that seem to be a more common practice of retired "money wise" financial advisers in this modern age.
Report Abuse
Added by Sandy Wingfield-Turner, 14 Jun 2008
These stats confirm the absolute urgency for pre-retirement planning...it should be a lifelong excercise! We recommend a retirement analysis at every client review pre retirement, and cash flow estimates during and post. Most government employees never know their status until months after they retire, in particular the educators... Thanks for great article
Report Abuse

Comment on this post

Name*
Email Address*
Comment
Security Check *
   
Quick Polls

QUESTION

Is relying on a primary home as a source of retirement equity still a viable strategy for South Africans?

ANSWER

Maybe, depends on location
No, too unpredictable
Not sure, 50-50
Yes, always
fanews magazine
FAnews November 2024 Get the latest issue of FAnews

This month's headlines

Understanding treaty reinsurance – and the factors that influence it
Insurance brokers: the PI scapegoat
Medical Schemes' average increases for 2025
AI is revolutionising insurance claims processing and fraud detection
Crypto arbitrage: exploring the opportunities and risks
Subscribe now