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One in three retirement funds saw workforce decline owing to retrenchments, liquidations

‘We saw about 40% of employers in umbrella funds suspending contributions, and one in three standalone funds suspending contributions’: Avishal Seeth – head of Umbrella Solutions, Sanlam.

NOMPU SIZIBA: Sanlam released the results of its 40th Benchmark Survey, which looks at trends taking place in the retirement industry. The survey showed Covid-19’s deep impact on the retirement industry. For example, it revealed that 27% of standalone retirement funds and 41% of umbrella funds’ employers suspended retirement-fund contributions last year, with the average suspension lasting 4.5 months.

Well, to share some of the key findings, I’m joined on the line by Avishal Seeth, head of Umbrella Solutions at Sanlam. Thank you very much, Avishal, for joining us. What were some of the main retirement-industry findings that came out of the Benchmark Survey?

AVISHAL SEETH: Hi, Nompumelelo; thanks so much for having me. Some of the key things that we discovered as a result of this year’s survey – when we look at fund consolidation we can see that there’s still a lot of consolidation from standalone funds into umbrella funds happening. We can see that accelerating into the future as well.

We also see that cybersecurity is creeping up high on the list of employers’ priorities. We can understand the critical nature of this, given the work-from-home situation at the moment and the prevalence of hackers taking employers’ data or companies’ data hostage, so to speak.

We’ve also seen that (retirement) benefit counselling has been received quite well by lots of members, with 69% of standalone funds telling us that the members have made greater use of benefit counselling. This is great because benefit counselling, we believe, is kind of the glue that will hold default regulations together and allow for the good implementation of default regulations and also thereby improve member outcomes. It definitely empowers members to make the right kind of decisions for their retirement. Funds have noticed an improvement in outcomes as a result of good benefit counselling that has been implemented.

NOMPU SIZIBA: Let’s just rewind a bit on that whole benefit-counselling thing. Where does that stem from? Just speak to us about the default regulations and what that speaks to – and was it particularly crucial, given what happened during the Covid-19 year of 2020?

AVISHAL SEETH: Absolutely. Default regulations stem from regulations that came into effect in 2019. What they refer to is that every retirement fund needs to have a default investment portfolio that members will be invested in – unless they make an alternative choice. There needs to be a default preservation portfolio for members that leave the retirement fund as a result of resignation or retrenchment and so on. If they don’t make an alternative choice, their savings are preserved in the fund.

And finally, there’s the need to have a trustee-endorsed annuitisation strategy for members at future retirement, just basically assisting members to reach good retirement outcomes through the regulation.

But importantly, the regulations also provide for retirement-benefit counselling. This is absolutely essential, because each of the defaults by and in themselves won’t actually improve outcomes. But if you have good counselling backing all of these default regulations, which guides members in the right direction and actually empowers them by providing them with the right information to make good decisions for themselves and their families, then I think that’s ultimately what’s going to improve member outcomes.

NOMPU SIZIBA: What I thought was interesting from some of your findings was the actual financial impact on members and on employers last year. I do see that many people had to face a situation where they didn’t get any annual increases. Some people had to take pay cuts, go on sabbatical for X number of months without any pay, and so on. That will have impacted how much people were able to pay into their retirement funds, and the fact that employers were also under pressure and could not make their contributions to the fund for their employees.

AVISHAL SEETH: Absolutely. It’s easy to forget. Because so much has happened over the past 18 months, it’s easy to forget that, prior to Covid-19 from an economic perspective we really weren’t in a great position already – and Covid-19 and the pandemic just exacerbated that. For many employers and companies it meant shutting their doors, it meant retrenchments, it meant reducing salaries. We’ve seen that effect come through in the level of contributions into retirement funds over the past year.

As you mentioned earlier, we saw about 40% of employers in umbrella funds suspending contributions, and one in three standalone funds suspending contributions. We have seen an improvement in the statistic of late, which is heartening. It’s good. But I do think that there’s going to be a tail-off of that experience as a result of the pandemic, and hopefully we can recover through the economy.

NOMPU SIZIBA: You spoke earlier about a number of standalone funds having to close shop. What’s behind that? Do you think that that’s going to continue, and is it very difficult for standalones to stand alone?

AVISHAL SEETH: What I spoke about was standalone funds moving into the umbrella-fund space, and this has been something that’s been a megatrend in the industry over the past five to 10 years. It started off with this discussion around costs and the view that costs in umbrella funds would be lower than in standalone funds. Then the default regulations definitely accelerated the move from standalone funds to umbrella funds, because of the increased liability on trustees and the increased responsibility in implementing defaults.

And now Popia (the Protection of Personal Information Act) coming into effect on July 1 is also making many standalone funds consider moving into umbrella funds. As a result of the increased onerous liability, the onerous legislation that trustees have to make sure is in place, cost plays a big role; and employers also simply want to focus on their core business activities rather than having the employees be trustees on retirement funds, and not really focusing on their core business activities.

You can imagine that there’s a real need for this, especially as a result of the pandemic, when employers want all of their employees to be focusing on keeping the businesses running and trying to maintain levels of employment and income.

NOMPU SIZIBA: We know that there’s been a lot of debate around retirement funds and the whole issue of prescribed assets and so on. Government talked about a greater focus on investing in infrastructure. I know that you surveyed funds around that. What are they saying about that? Is that something that they welcome and have an appetite for?

AVISHAL SEETH: The survey results did indicate massive interest in infrastructure and then investing, Our standalone funds – they said they’d invest about 6.6% of assets in infrastructure, and for the umbrella funds that number was closer to 5%.

But I think what’s important is that infrastructure investing is still relatively new to boards of trustees. They need to be educated better around this, and we need to understand what the opportunities are when it comes to infrastructure investing. Many people are still a bit scarred by what’s happened over the past many years in terms of the corruption around infrastructure and so on, but what we do know is that it’s very important that you want to invest into a future that you want to retire into.

Infrastructure is absolutely essential for our future in this country, and that’s why it’s actually critical that we try and refocus our energies into infrastructure investments and make sure that there are lots of opportunities to actually take advantage of this.

NOMPU SIZIBA: Avishal, more to talk about but not enough time. Thank you so much for your time. That was Avishal Seef, the head of Umbrella Solutions at Sanlam.

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I don’t subscribe to the scam of retirement funds.

I was in them for a decade and saw how they did zero. Did a few calculations and I’ve been outperforming them ever since.

Will never go back to that. Especially with all the constraints that put on YOUR money and the pending prescribed assets.

Not a chance.

Strange, I am happy with my pension fund.

Perhaps you just expect less

Eish – Give us the list of names please!

End of comments.

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