Every rand that is funnelled towards the cost of managing a fund, rather than the members’ own savings, has a significant impact on their overall retirement pot. As a result, it is critical for the industry to partner with Government to reduce the cost in order to improve the level of savings among South Africans.
Research published by the UK’s Department for Work and Pensions revealed that in the UK a 0.25% reduction in costs had the potential to save a single member several thousands of Pounds over their lifetime. In total, a reduction in charges from 1% to 0.75% was estimated to result in an increase of £200 million over 10 years into the pockets of contributing members.
Similarly, Finance Minister Nhlanhla Nene said in a Parliamentary statement on retirement reforms in September 2014 that high costs can reduce up to 40 percent of the return in retirement funds in South Africa.
Nene then said in his statement that Government had embarked on a process of engaging with all stakeholders in the retirement industry to resolve the issue of costs and to assist contributing members in saving for retirement in the long-term. With Government committed to fostering an environment in which savers truly benefit from their retirement savings, a reduction in costs in South Africa could make a significant difference to the amount of money people are able to accumulate.
The publication of a cost paper by the National Treasury before the end of the year will provide further detail about proposed cost regulations for the management of retirement funds.
The industry is already seeing improved savings and at Liberty Corporate we have seen an increase in retirement contribution of more than 1.5% of pensionable salary over the last three years in the umbrella solution. This is due to umbrella costs being driven down and an increase in awareness of the need to save more.
To further improve awareness levels there will also need to be a joint effort between the public and private sector to educate the public on the importance of saving for retirement and the benefits any reductions in costs could have in boosting their retirement fund savings.
We foresee technology playing a major part in this awareness campaign in bringing information directly to members and facilitating a conversation around saving for retirement. Through this conversation, the industry can provide instant access to information and learn more directly from the public about their individual needs, forging a stronger relationship between both parties
Arno Loots: Head, Umbrella Fund Solutions, Liberty Corporate