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Developments in the retirement funds sector

During the pandemic employers or employees asked ‘nearly 47% of retirement funds’ to reduce or temporarily cease their contributions: Olano Makhubela – divisional executive of retirement funds supervision, FSCA.

FIFI PETERS: Earlier today, August 24, 2021, the Financial Sector Conduct Authority (FSCA), which is the body that is responsible for market conduct, regulation and supervision, held a webinar to discuss recent developments in the retirement funds industry. We have Olano Makhubela, the divisional executive of retirement funds supervision from the FSCA joining the show. Olano, thanks so much for your time. Exactly what happened at the webinar today, what was discussed and what was the purpose?

OLANO MAKHUBELA: Good evening Ms Peters, and good evening to your listeners, and thank you for having us on your show. The webinar was more of our regular around-the-table ‘Salute the Media’. It’s mainly to have an engagement, a discussion, a chat with the media on various issues affecting the retirement industry. Because we hadn’t had one for quite some time, we thought it would be a good time to actually do one on retirement funds, given the impact of Covid and all the other issues coming up. That in a nutshell was the purpose of it.

FIFI PETERS: What has the pandemic done to retirement funds so far?

OLANO MAKHUBELA: The pandemic has had a negative impact on literally every level of our lives. Whether it’s the economy, whether it’s social, whether it’s personal – we have all felt its impact. …we actually ran a survey to assess the specific impact on retirement funds, and the results we received indicated that nearly 47% of retirement funds were approached by an employer and/or employee, requesting to reduce contributions into the fund or temporarily cease contributions. That provides quite an interesting problem in terms of assessing the impact of Covid.

There’s a survey that also indicated that the services and manufacturing industries, which have been hardest hit e.g. the hospitality sector. As the lockdown kicked in, many companies literally went into full shut down, which meant no income received, which therefore meant challenges with making payments to employees and therefore contributions to retirement funds. You therefore saw this unfortunate outcome.

And in certain instances, employers had to literally liquidate, therefore affecting the retirement funds, which also ended up having to go through some liquidations.

So the impact has been quite prominent, but the industry is still robust. That is why we also are thinking about how best to also assist in restructuring the industry. Issues around, for example, auto-enrolment to enable better coverage have been considered. So that has been the impact of Covid on the industry.

FIFI PETERS: Olano, [at] the last briefing that we had with the former finance minister Tito Mboweni – I think that happened last month or so when he was outlining how the latest stimulus or Covid plan announced by the president would be funded – there he said that National Treasury was in discussions around possibly allowing individuals to access a portion of their retirement funds or retirement annuities because these are tough times. Where is that process? What’s the FSCA’s thinking on that?

OLANO MAKHUBELA: A good question and I will answer it. I will not dodge it. I think it’s a policy issue [laughing] because we have also been engaging with Treasury as the regulator. It is actually making good progress in that regard. In fact, they were in parliament today discussing the issue. The idea is to come up with a two-bucket system, which will enable contributions into a preservation pot, preserved until retirement, and another pot which will enable some form of access.

When this pandemic started, Ms Peters, most of us thought it would just last for a couple of weeks. Unfortunately we went into a second wave, third wave, and it was becoming apparent that employees are now starting to really feel the effect of Covid, and hence the need to consider whether some kind of early limited access could alleviate some of the challenges.

Where we agree with Treasury is that, if indeed there’s going to be some immediate access, then it should be coupled with preservation, because the biggest challenge in the system is the level of preservation when employees change jobs.

And so if the system enables mandatory preservation, then that will really enable a much more robust system going forward.

Listen/Read: Johan Gouws of Sasfin Wealth on government’s prosed mandatory pension system

FIFI PETERS: Well, we look forward to hearing the outcomes of that debate. In fact, you’re echoing something very similar to what Alexander Forbes – which joined us on the show little earlier – was saying around a portion being set aside for preservation. We look forward to speedy policy, sir, on that front, but we’ll leave it there for now.

Thank you to Olano Makhubela, who is divisional executive of retirement funds supervision at the FSCA.

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