1980s

The 'Struggle' Years

Today it is sometimes difficult to imagine South Africa during the 1980s. It was a time of conflict, lack of freedom and discriminatory laws. This was also evident in the retirement fund industry. In our first survey in 1981, only 75% of funds were open to members of all races. Eligibility for retirement fund membership was limited in other ways too (for example, it was restricted to senior staff members) and there were often different benefit conditions for men and women.

Retirement benefits were provided on a defined benefit basis, with retirement benefits being defined in the fund rules as a factor of your final salary and years of service to the company. It was a very paternalistic structure – members had little choice but also carried very little risk. It is worth bearing in mind that there was no legislation forcing employers to provide a retirement fund to members, but most employers decided it was necessary for the benefit of their employees and to attract talented staff.

Near the end of the decade, through the influence of trade unions, we saw an increasing shift from pension to provident funds. The driving force behind this move was the restrictive withdrawal conditions in defined benefit pension funds.

1990s

Political Freedom and Reconciliation

The 1990s brought political freedom, empowering citizens by giving all South Africans the opportunity to vote in multi-racial elections and a new constitution to guarantee their rights.

Similarly, members were empowered by the move from defined benefit to defined contribution funds, where their retirement benefit depended on the accumulated contributions in their member account. Many members could now make their own investment choices, choose their own level of life cover, decide on their contribution rate and purchase the annuity of their choice when they retired. Democracy extended to retirement funds – members could vote for half of the fund’s trustees, giving them a far greater say in the management of the fund.

However, with this freedom came the responsibility to accept the risk of both poor decisions and investment returns. While some members thrived on the freedom to align their benefits with their own specific financial circumstances, many members found the range of options bewildering. But instead of looking for help, many members pushed the whole idea of saving for retirement and even retirement itself to the back of their minds.

Our member survey revealed that 27% of active members only planned to seek financial advice when they were five years from retirement. Many members still have a defined benefit mind-set, assuming that as long as they belong to a retirement fund, it is someone else’s problem and that they will be adequately covered in retirement.
This is not helped by the fact that most trustees view their responsibility as ending when a member retires or withdraws from the fund.

The focus is on building up a cash value up to retirement, not considering what retirement income a member can purchase from an insurer. This is perhaps best illustrated by the following survey results: 84% of trustees/employers are concerned about how members utilise their retirement benefits, but only 22% want any further involvement with retired members.

2000s

The Consolidation Years

In the 2000s we saw increased legislation and enhanced fund governance to protect members, as well as a focus on driving down administration costs. To achieve economies of scale in our fragmented industry, smaller retirement funds increasingly moved to an umbrella fund arrangement, standardising the benefits provided to members and allowing more efficient administration of these funds.

However, throughout this period, just under half the members consistently believed they were not on track to meet their financial goals. Often this could be linked to specific member actions, such as taking their retirement savings in cash when changing jobs. The lack of preservation is confirmed by the following result: 71% of funds estimate that members will withdraw take their full fund value in cash.

The industry responded to the lack of preservation and other sub-optimal outcomes by focusing on communication and education. Surely better informed members would make different decisions? Communication tools used included a wide range of electronic, paper-based and face-to-face media. 56% of funds have a formal strategy to provide advice and 76% provide pre-retirement counseling. It does not seem that this has made a significant difference to many members.

2016s

Rethinking Retirement

Over the years we have witnessed numerous changes in the financial services sector, but none quite as profound as the changes brought about by technology. We have applied a ‘systems thinking’ approach to unpack the research insights. Systems thinking asserts that each individual element is interlinked and interdependent for the entire system to function optimally as an integrated whole.

This is a fitting approach for the retirement industry which, in itself, is at the heart of a technology revolution and impacted at every touch point. This ranges from investment administration platforms to the way funds and employers engage with members through the use of retirement fund web portals and mobile applications (apps).