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How easy will it be to mobilise the savings of the nation?

11 May 2015 Jonathan Faurie
Jonathan Faurie, FAnews Journalist

Jonathan Faurie, FAnews Journalist

At the recent Association of Savings and Investments South Africa Conference, one of the panel discussions included a high level panel, and focused on the mobilisation of the savings of the nation. The discussion uncovered some interesting facts.

Painting a picture

The discussion was moderated by Thabo Khojane, MD of Investec Asset Management, who tried to paint the full picture of the situation, focusing on both the positives and the negatives.

There is a lot of focus in the industry on the challenges which plague the retirement industry in South Africa. But as Khojane points out, we must not forget that we do actually have a world class retirement sector which is comparable with many in the world. The sector’s coverage rate is between 60% and 80% and assets under management come to over R3.2 trillion. Khojane further pointed out that the industry has contribution rates which are in line with World Bank standards.

However, the financial crisis has had a significant negative effect on savings rates in South Africa. In the 1980s, the South African household savings rate was at 2% of pensionable salary, which has now dipped into negative territory. This is a statistic that is concerning for government who has decided to show its hand to formulate a retirement reform programme which it hopes will improve the situation.

Stern resistance

Government was on track to implement its retirement reform this year, but this was met by strong opposition by trade unions, who apparently showed that their weight was more considerable than that of government’s. Government had to push back its plans, and now retirement reform initiatives may only be in place in 2016 and perhaps only 2017.

Jan Mahlangu, Retirement Funds Coordinator for the Congress Of South African Trade Unions, points out that despite the negativity, we are a nation of savers, and those who can’t are prevented to save by legislative and cost hurdles.

“There is no way you can call domestic workers and taxi drivers non-savers. How can they save if they are expected to join their own funds? In our view, we need to have a National Economic Development and Labour Council (Nedlac) structure so that we can find a way to include these people into the system,” said Mahlangu.

Among those joining Mahlangu on the panel was Jonathan Dixon, DEO of Insurance at the Financial Services Board (FSB). Mahlangu made a special appeal to the regulator to look at the industry and to come up with ways in which costs in the industry can be reduced. “If there are vulnerable people (domestic workers and taxi drivers) who are currently part of retirement funds, their contributions are just enough to cover the costs of the fund. There is no real saving taking place,” says Mahlangu.

Other hurdles

While the cost issue is a significant hurdle, it is not the only one in the industry. There is also a cultural issue that needs to be looked at. Nicolaas Kruger, CEO of MMI Holdings, said that one of the biggest issues to work past is the fact that South Africans essentially live by a culture of instant gratification. We tend to worry about the future when the future comes as opposed to planning for the future today.

He also pointed to the fact that there is a certain level of mistrust between the public and the financial services sector. This is currently being resolved through the implementation of key pieces of legislation by the FSB, but Kruger also said that we need to have a look at our own businesses to see whether we are client centric enough.

“Savings products have improved significantly over the years, but they are still not where they need to be. There needs to be true value for money, there needs to be transparency and there needs to be flexibility in retirement products. I feel that the Retail Distribution Review and Treating Customers Fairly will be serious building blocks in delivering value,” said Kruger.

Retirement journeymen

Dixon agreed with Kruger pointing out that the regulator has made significant strides in building consumer trust. However, he did acknowledge that there was still a lot of work that needed to be done.

“Savings in the country is difficult with unemployment and little economic growth. We are also facing the challenge of trying to overcome household debt levels. The consumer culture may be temporary, but we need to work on it,” said Dixon.

He concluded his talk by pointing out that there were a number of initiatives in the industry that are being put in place to limit the amount of debt there is in the industry. Because of the common understanding of the challenges that face the industry, there is significant legislation being worked on to limit the actions of micro-lenders and in the near future, access to affordable and appropriate financial products will hopefully be available.

Editor’s Thoughts:|
Perhaps Dixon’s parting thought was most significant. He said that if we are serious about mobilising the savings of the nation, then we must improve access to affordable and appropriate financial products. Whether this will be easy or not remains to be seen. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

Comments

Added by daniel, 11 May 2015
I'm skeptical, maybe cynical, on the efforts of ASISA and authorities/legislators to come up with a workable solution - very often "vested interests" and "protecting profit margins" stand squarely in the way of progress. I'm not sure what is meant by "affordable" or "appropriate" either. To my mind many savings products are simply far too expensive, and I'm not referring only to product/admin costs, but especially the underlying fund management charges. What we need is more qualified and trained financial advisors out there, but without the need to sell expensive products, like endowments and RA endowments, where the lower income groups are often the soft targets for misselling. Ironically, FAIS and supporting legislation are forcing bona fide financial advisors only to focus on HNW groups and the other lower -income groups are left in the dark.
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Added by Ayanda, 11 May 2015
Apart from Kruger doing a brown-nose trick for your benefit, "appropriate"and "affordable" are all in the eye of the beholder, Mr Dixon.
Is even more arbitrary regulation based on subjective and personal interpretation on the way?
Quo vardis the Rule of Law? Is it all to be rule of man from here on in?
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