Next year will be a big year for the South African retirement industry as retirement funds have until 1 March 2019 to comply with the default regulations which have been introduced in the industry. But is the industry prepared for the level of compliance that will be required of them from industry regulators? This was a topic that was recently discussed at a roundtable hosted by Sanlam EB.
A matter of confusion
While there are a lot of pension funds that are putting systems in place to comply with the new Default Regulations, there are some pension funds who are dragging their feet and will be cutting it fine when it comes to compliance.
“My feeling is that Boards of Trustees were just overwhelmed when it comes to the default options part of the Default Regulations,” said Barend la Grange, Head of Individual Member Support at Sanlam EB. “This is something new and not what they would have had to consider in the past. The Draft Criteria for Living Annuities that was issued by the Financial Sector Conduct Authority (FSCA) in November has shed even more uncertainty in the industry regarding drawdown rates which in our view might not be implementable as is,” said La Grange.
The problem seems to be related to Regulation 39 of the Draft Criteria which relates to clients who have living annuities as part of their default annuity strategy. Within the regulation there are tables that split individuals according to specific criteria such as age, gender and marital status. This individualisation will be used to calculate a sustainable income for that individual and that sustainable income will govern the drawdown rate.
“It is this confusion that needs to be clarified with the FSCA,” said La Grange.
One of the real dangers that the industry faces is that trustees may very well fall into a tick box approach when it comes to compliance with the new regulation.
“A lot of the Draft Regulation is open to interpretation and trustees have underestimated the amount of work that is involved when it comes to implementation, so there will be a rush. The industry is aware that the FSCA wants to move away from a tick box approach to compliance, but when the backs of trustees are up against the wall and there is only one meeting between now and 1 March 2019, there is the temptation to fall into the tick box approach and then rectify it later,” said David Gluckman, Head of Special Projects at Sanlam EB.