Blue Chip Journal - June 2019 edition

RETIREMENT FUNDS
half this amount could benefit a member
who is saving R3 000 per month for 40
years, to the tune of close to R5-million.
In reality, this is what is happening in the
South African retirement fund industry.
Retirees have to live on less than 30%
of their pre-retirement salaries
Relying on industry participants, let’s
put this in some kind of context. In
the retirement industry, we talk about
the net replacement ratio, which is a
person’s projected income at retirement
as a percentage of their salary before
retirement. Most South Africans will retire
with less than 30% of their pre-retirement
salaries. You need to put away between
15% and 18% of your gross monthly salary
each month in order to accumulate enough
money to retire on.
How independent are the consultants?
New Treasury regulations introduced
in August 2018 require financial service
providers to offer default investment
solutions for their funds. They must also
provide counselling to members when
they retire, leave the fund or make choices
within the fund.
The question then arises: who will
provide this counselling? The service
providers? Or independent counsellors
with no financial ties to the product
providers?
This is no small matter. If we are going
to rely on service providers to counsel
members, you can be sure that the thrust
of this advice will be tainted by conflicts of
interest. The last thing a financial service
provider wants is to point to the benefits
of a competing fund.
Despite a slew of laws and regulations
intended to keep the retirement industry
honest, there are too many loopholes and
financial ties, backed by clever lawyers, to
make this a reality. Hence, much of my
time is spent educating CEOs and chief
financial officers on the reality of the
retirement fund industry. Executives have
a fiduciary duty to their employees. Why
squander up to 40% of their retirement
funds on bloated fees?
Allowing service providers to manage
conflicts is like leaving children to run
amok in a candy store. The regulators
should have zero tolerance for any conflict
of interest.
Asking the tough questions
CEOs and their executives should be asking
tough questions of their retirement fund
administrators, managers and advisors.
Why is the all-in cost on some umbrella
funds 1% and others 3% of total assets?
Why do some employers even entertain
advisors who are employed by the selfsame
product providers?
The day is fast approaching when
members will quite justifiably ask how
employers can allow such obvious
conflicts to erode their savings.
The Financial Advisory and Intermediary
Services (FAIS) Act requires full disclosure
of costs sold by intermediaries/advisors, as
well as those of competing products, but
National Treasury doubts that this is being
followed. There may be light at the end of
the tunnel if the ASISA signatories abide
by the Retirement Savings Cost Disclosure
Standard that will become mandatory in
all umbrella retirement fund quotations
on 1 September 2019.
All of this deception and preying
on the ignorance of the consumer
works in favour of the product sellers.
The retirement industry has become a
shark tank, and South African savers are
carcasses on which to feed. It is time to
get some honest debate around some of
these issues. The press reminds us daily of
the failings and corruption in government,
but very little is said about the gouging
that is taking place in retirement funds.
That must change if we are to bring reform
to a sector desperately in need of it and to
provide retirees with the just rewards of
their many decades of labour. As it stands,
much of those rewards, and they are huge,
go to someone else. It’s time we called
“time out” on this nonsense.
Trevor Taylor CFP®, Managing Director,
Chartered Employee Benefits
www.bluechipjournal.co.za
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