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
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Added by Devil's Advocate, 11 Jun 2010