Cape Town - The Symposium focussed on many of the upcoming challenges including enhancing competition, transformation scorecards; and National Treasury’s (NT’s) proposed ‘two pot’ retirement funding solution and allowed the audience a behind the scenes look at how the Sanlam Umbrella Fund board plans to tackle these challenges.

In his address to the 2022 Sanlam Umbrella Fund Symposium, Fund Chairman David Gluckman acknowledged the challenges facing retirement funds, while celebrating the healthy competition that defines the umbrella fund market circa 2022. Over the last decade, the commercial umbrella fund market has expanded from nine major providers, a million or so members and ZAR70 billion in assets to one with 12 major providers, over two million members and more than ZAR450 billion under management. “The growth in assets, membership and providers confirms that South Africans see the value in umbrella funds, with intermediaries happy to introduce these solutions to their clients” Gluckman says.

The regulator holds the key to section 14 transfer efficiencies

One of the factors affecting competition in the retirement fund space is that it remains difficult for employers and individual fund members to move from one fund to another, through a regulated process known as a section 14 transfer. “The slow section 14 transfer process is not a shortcoming that can be laid on the industry or on providers as the issue arises from regulation – regulators and policymakers must consider every bit of legislation in light of whether or not it inhibits competition,” Gluckman says.

A panel discussion held at the symposium felt that the regulators should step in to address the delays that have stalled section 14 transfers of late. “There is an opportunity for the regulator to make a paradigm shift to simplify the process and thereby improve consumer outcomes,” said Gluckman. His sentiment was echoed by Cheryl Mestern, an Independent Trustee at Sanlam Umbrella Fund, who said that “the industry would welcome a new section 14 transfer regime”.

‘Two pot’: a complex but necessary solution

The 2020-21 COVID-19 pandemic highlighted how fragile and vulnerable the majority of South Africans are, with millions of citizens lining up for the ZAR350 per month social relief grant. Aside from proposing some form of basic income grant, government sees improved retirement outcomes as an essential tool to tackle systemic poverty. “NT’s proposed ‘two pot’ system is a hot topic in retirement reform, and an important issue for the industry to debate,” says Gluckman. “It acknowledges that South Africans cannot be denied access to their retirement savings in circumstances where they cannot put bread on the table”.

Kobus Hanekom, Principal Officer of the Sanlam Umbrella Fund, says that the ‘two pot’ proposals have been well received by the industry. “There has not been any significant pushback as far as the principal is concerned; the price we are going to pay is in the extra complexity and cost,” he says. The solution, as proposed, will also impact the tax authorities. According to Hanekom, SARS will face serious pressure should it experience an 8-or-10-fold increase in retirement fund withdrawal applications.

Although premature to comment on the yet legislated ‘two pot’ solution, Mestern suggested that a successful implementation was possible as long as funds got their member communication right. “The important thing is going to be to explain the finalised solution to members so that they understand it sufficiently to inform their retirement decisions,” she says.

Upping the transformation stakes

The Sanlam Umbrella Fund once again voluntarily submitted their BEE scorecards to authorities, with excellent outcomes under board diversity. “We did really well on the board part of the scorecard because our board has wonderful transformation and gender credentials,” says Hanekom. The procurement scores were more subdued because of relatively lower procurement values from smaller service providers, which outcome will turnaround in coming periods thanks to, for example, Sanlam Investments recently exceeding 51% black ownership.

The industry must position for pending changes in the regulator’s transformation focus. As soon as the Conduct of Financial Institutions Bill is enacted, the Financial Sector Conduct Authority (FSCA) will start monitoring and enforcing the transformation compliance of retirement funds, meaning that retirement fund trustees will be responsible to maintain the appropriate level of transformation across their funds. Success in the transformation space, according to Gluckman, requires the consistent application of BEE scorecard measurement and reporting industrywide.

The Sanlam Umbrella Fund Symposium panel discussion highlighted just some of the obstacles that stakeholders in the retirement fund industry must navigate. Jolly Mokorosi, the Fund’s Lead Independent Trustee, says that longevity is a major risk and that fund members need to be educated on the impact of living longer on their finances. Mestern notes that death claims processing through the pandemic caused many sleepless nights while Gluckman hints at cyber risk as a future concern.

“The biggest future challenge is the amount of change that looms under headings like infrastructure investing, transformation and ‘two pots’,” concludes Hanekom. “Each of these will change the way we do business and change the main players in the game.”