Deadlines missed but retirement debate continues

TheFSB's Rosemary Hunter says a huge amount of work must still be done to finalise changes to pension fund legislation. Image: FA News

Draft regulations on fund defaults‚ which will usher in compulsory preservation of retirement money‚ and a report on retail distribution review‚ which will alter the way advisers charge for their services by cutting out commission structures‚ were due by the end of May.

But instead of rushing through changes‚ industry experts said the Treasury and the Financial Services Board (FSB) were busy with a comprehensive consultation phase to ensure any problems‚ which may harm the interests of the industry or members‚ were ironed out before changes were implemented.

The FSB said it hoped the planned final dates for all the changes mentioned in the Treasury document - stipulated as late 2015 - would still be met.

The FSB's Deputy Executive Officer for Pensions‚ Rosemary Hunter‚ said there was a huge amount of work and a long consultation period ahead of the planned deadline for the final changes. "But we hope we make that date," she said.

Draft amendments to the Pensions Funds Act are still expected early next year and the reform that will extend cover to vulnerable workers is due later this year.

Costs being closely examined

Investment Solutions' Alan Wood says costs must be looked at "very carefully" as investors are more astute today. Image: FA News

The Head of Institutional Business at Investment Solutions‚ Alan Wood‚ said while the expected draft regulations had not been issued yet‚ industry regulators were already calling on the sector to "look at costs very carefully".

"The Treasury is adopting a very sensible approach as they are not dictating what the changes will be. We all accept the need for change and for costs to be reduced. But you can't enforce change at the expense of destroying an industry that is run very well‚" Wood said.

The default annuity or pension changes will require retirement fund trustees to ensure a simple-to-understand pension is paid out of a fund‚ or by a third-party provider. But the debate rages on whether it would simply mean adopting a passive approach on investment strategies‚ which would lower costs‚ or if it needed to be far more strategic and active in nature.

A major problem remains that too many people cash out their retirement money when they change jobs‚ and businesses and government seem to agree the default rules should end that practice via compulsory preservation rules.

However‚ it is the nature of investment strategies and the role of trustees and advisers in the process that seems to be tripping up the final rule changes. Expert in pension education Dave Crawford said he had noticed that a lot of institutions were making a fuss about costs. "Consumers are asking what they are being charged‚" he said.

Changes are due to be finalised next year

Wood said he had noticed trustees were beginning to pay far more attention to costs.

There is consensus that time is running out to meet the deadlines for pension reforms. Image: Stuart Miles Free Digital Photos

The Head of Linked Investment Service Providers (LISP) at Stanlib‚ Shaan Watkins‚ said while the policy deadline had passed‚ the Treasury was consulting widely and some changes were being made by the companies themselves.

A LISP is a company that enables investment in a wide range of collective investment schemes‚ such as unit trust funds‚ via one source.

Advisers were asking how they could manage clients better and were addressing this.

He expected platforms to migrate towards direct models‚ which would encourage the use of self-service offerings‚ as has happened in the UK. There will also be a push to move clients up the value chain to make it more profitable as charges come down. The advent of far more online platforms is likely to change the landscape of South Africa's asset management sector over the next couple of years.

From March next year‚ tax deductibility of contributions to retirement funds will be aligned so that member contributions are tax deductible up to 27.5% of taxable income (to a maximum of R350‚000 a year).