Time to eliminate overly complex pension products

Simpler retirement products, improved transparency and a focus on the individual investor is sorely needed in a pension industry that has for too long been overly complex and inaccessible.

On the back of widespread discontent with the pension industry – not to mention escalating government concern about a looming pension shortfall - it’s time for the industry to act.

“Instead of options, we need to offer solutions. And most importantly, we need to give every individual pension fund member the best chance to achieve their retirement goal,” says Steven Nathan, CEO of 10X Investments.

Part of the problem is that the pension industry is just too complicated.

“Many investors are overwhelmed by the choice and complexity of retirement products, and the industry certainly has not delivered financially independent pensioners,” says Steven Nathan.

Indeed, industry research concludes that in SA, half the people who contribute regularly to a retirement fund end up with a final income replacement ratio below 30 percent.

Nathan is calling for the pension industry to take a long, hard look at itself.

“We would like to see fewer options, lower fees, more independence, and clearer information about pension performance.”

Ideally, says Nathan, fees should be no more than one percent over the full investment term.

Nathan recommends appointing independent Trustee Boards, and telling investors clearly and regularly where they stand relative to their goals.

“Administrators should communicate key information – like present salary and contribution rate and the average long term real return of a balanced portfolio net of the fees paid.”

He adds that being more transparent, prioritising investors’ best interests and staying in line with international best practice are likewise essential.

In SA, the savings industry is in the spotlight as retirement, social security and tax reform underline government’s resolve to address a looming pension shortfall.

But the problem reaches beyond SA’s borders, as international research highlights the need for pension planning to be more transparent and streamlined.

Instead of confusing pension investors with a complex mix of charges, fees and penalties, the National Association of Pension Funds in the UK has called on the industry to be clear and transparent about exactly how much money is being eroded by costs.

Nathan is lobbying for the same outcome in SA.

“We want investors to be able to effectively and simply compare various pension products, demand lower fees from service-providers and know exactly what they are getting from their investments,” he says.