Evolutionary Awards – Alexforbes: Retirement Fund of the Future

Category: Evolution in employee benefits and advice

Describe your evolution:

Global research confirms that retirement funds are lagging in their understanding and integration of sustainability.
South Africa’s retirement fund industry holds assets of more than R4.6 trillion, also comprising a material portion of the JSE Limited. Given that retirement funds play a vital role in the creation of household wealth, it is critically important for funds to continue to deliver on member expectations in the short, medium and long term. To do this, funds need to become more aware of the changes which may lie ahead and appropriately position themselves now to be resilient and sustainable in the future.

Past failures in retirement funds have demonstrated the catastrophic consequences of inadequate governance and oversight as well as an historic lack of long-term thinking within the strategies of retirement funds. These failures serve as a powerful reminder of the importance of well-governed, compliant, forward-looking and responsible retirement funds. The status quo is no longer sufficient, and the need to adapt and innovate has become paramount.
Alexforbes research suggests that the world is experiencing changes at a rate which is unprecedented in human history, and that this rate of change is likely to continue to accelerate in the future. Changes are largely driven by a heightened consciousness about the interrelationship of society, the natural environment and the economy, as well as technological developments.

In light of the long-term duty of care which retirement funds carry, adopting a more strategic, long-term approach is a value protection and value creation imperative. Retirement funds play a unique role in the economy and financial markets both locally and globally, presenting an opportunity for funds to influence the future, not simply react to it. Over the long term, through advocacy, stewardship and the allocation of capital, funds have significant influence within the economy and a duty of care to ensure that there is a healthy universe of investable assets in the future.

Retirement funds must transcend traditional retirement planning approaches if they are to survive, thrive and deliver on their mandates to members.

As leaders in the industry, Alexforbes understands the urgency and importance of this paradigm shift and what it means for retirement funds.

It is with this imperative in mind that Alexforbes conceptualised and designed the Retirement fund of the future (RFotF).

The RFotF design represents the ideal retirement fund that is aspirational in its design, and that sets the industry standard for a best-in-class, leading and future-fit retirement fund. This is a completely novel concept in Africa and, according to our research, the world. The closest related concept is the World Bank sustainable investment disclosure checklist, which has a significantly narrower focus than the RFotF design and future-fit gap assessment.

Through the RFotF future-fit gap assessment, Alexforbes determines the maturity baseline for a retirement fund and then develops a tailored and practical maturity roadmap towards improved sustainability and resilience. The comprehensive approach combines deep industry insights, cutting-edge solutions and a proactive stance towards emerging trends, ensuring our clients remain ahead of the curve.

The future of retirement funds depends on proactive adaptation and innovative thinking. Alexforbes is at the forefront of leading this paradigm shift, making sure that retirement funds are not only prepared for the future but are active participants in shaping it.

Dawie de Villiers: “In an industry that is ubiquitous, the retirement fund of the future concept stands out as a singularly unique solution with the ability to transform the future of retirement funds, ensuring their sustainability, relevance and impact: ultimately enabling a better life in retirement for individual members.
From the initial foresight to conceptualise the idea, to registering the requisite trademarks, securing board support, building the solution and taking it to market, despite significant skepticism, the progress over the past 20 months has been phenomenal and indeed trailblazing.”

Describe the impact your evolution has had in response to its identified challenges and targeted outcomes.

One of the first RFotF success stories, is the publication of the Alexander Forbes Retirement Fund (AFRF) inaugural integrated annual report in 2023. Although King IV, in 2016 already, included the recommendation that retirement funds, like corporates, should publish integrated annual reports, less than a handful of retirement funds have embraced this concept.

The design of the RFotF specifically includes the requirement for responsible and leading retirement funds to publish integrated annual reports.

As one of the largest umbrella funds in South Africa, with over 1 478 participating employers and over 316 291 members, it was a critical step towards embracing the RFotF when the AFRF published its inaugural integrated report.
The AFRF board of trustees (board) comprises a balance of independent and Alexforbes nominated trustees and hence Alexforbes cannot merely implement its solutions or products within the AFRF: emphasising the significance of the formal endorsement of the RFotF by the AFRF.

The AFRF report has not only set the gold standard for retirement fund integrated annual reporting, but already in its first iteration enabled greater insights into the fund by trustees, for the benefit of members.

The trustees, inter alia:
• Gained a deeper understanding of members, their behaviours and the impact on their actual and projected retirement outcomes, providing valuable insight to prioritise further interventions to drive improvement in member outcomes.
• Identified year-on-year deterioration in some metrics, like retention, indicating the need for a deep dive and remedial steps, which may otherwise have been missed or only addressed much later.
• Realised that AFRF members have pensions that provide four additional years of income in retirement compared to the average living annuity.
• Identified that the average replacement ratio for retirees had improved year-on-year.
• Realised that more than 95% of members had better access to relevant financial advice, through the initiatives put in place by the fund, as well as the material quantum of fee and tax savings due to the default annuity.
• Gained greater understanding of how the fund creates value and of its longer-term impact, through the lens of the Sustainable Development Goals – adding additional insight to guide trustees in the future.

Nomonde Zwane Principal Officer, AFRF: “The AFRF is a large umbrella fund able to provide unique solutions to a diverse membership. The fund’s unwavering commitment to serving members and making an impact is what sets it apart. With this in mind, we support and endorse the recently launched Retirement Fund of the Future initiative by Alexforbes and we intend to engage further with its future-fit solutions suite during 2024 with a view to making certain the AFRF sets the industry standard for a best-in-class, future-fit retirement fund, which is resilient through multiple time horizons. It is an honour to be part of the governance structure of the fund to bring tangible and sustainable solutions. I am confident that with the ongoing support of our members, employer groups, regulators and service providers, the fund will continue to deliver on its vision of being the fund of the future.”

Supporting Documentation >