• Shakeel Singh, CEO of Sanlam Umbrella Solutions

What you need to know about Retirement Savings Cost (RSC) Disclosure Standards

The Association of Savings and Investment in South Africa (ASISA) has developed a standardised savings cost disclosure methodology to assist potential and existing participating employers and/or boards of trustees when comparing quotations/costs from different umbrella fund providers that are members of ASISA.

From 1 March 2019, employers will find it much easier to select the most cost effective umbrella fund solution for their employees, when the new ASISA Retirement Savings Cost (RSC) Disclosure Standard comes into effect. It must however be noted that, ASISA has allowed a grace period of 6 months, in which its members need to comply. This means that by 1 September 2019 all ASISA members must comply with this standard.

The Sanlam Umbrella Fund acknowledges that there are a number of key elements that affect members’ retirement outcomes and the cost incurred is just one of these elements.

Although there is much more to choosing an umbrella fund than costs, it often ranks in the top two most important things to consider when selecting an umbrella fund. The challenge however, is that umbrella fund providers state their costs in different formats and certain costs may not be fully disclosed. This is why ASISA saw the need to introduce this new comparative standard.

The RSC Disclosure is a simplified, practical illustration of the estimated retirement savings costs at an employer level, allowing for more consistent comparison of costs across the industry. It is not a fund member level cost disclosure, and was not designed for individual fund members, as was the case with the Effective Annual Cost (EAC) measure.

The ASISA RSC template will reflect four separate components into which the charges are allocated over different investment periods:

  • Investment management charges;

  • Advice charges;

  • Administration charges; and

  • Other charges including regulatory, compliance and governance costs.

The RSC is calculated separately for each component, and these will be combined to derive the RSC for the umbrella fund as a whole. The value for each component, as well as the total RSC, is displayed as a percentage in a table at four mandatory disclosure periods: 1 year; 1 to 3 years; 1 to 5 years; and 1 to 10 years. This is to illustrate the impact that fees have over an increasing asset base over time.

The table below sets out an example of the disclosure template to be used:

Certain key standard assumptions for the cost build-up applies to all providers to ensure that comparable bases are used. For example, gross investment returns are set at 6% per annum compounded for all providers so that there is no discretion to deviate from this in order to manipulate the comparisons. Salary and price inflation are also set at 6% per annum. Gross risk premiums and related costs are also excluded from the calculation.

The new disclosure standard commits ASISA members, which include the large life companies and retirement fund administrators, to present all costs relating to umbrella funds in a standardised way, enabling employers to compare like with like when considering quotations from different providers. This will also make it easier for trustees of umbrella funds to assess their own costs relative to those of other funds. Ultimately, costs do play a key role in enabling better financial outcomes and stakeholders need to understand how much is being paid and for what they are paying for. Greater transparency will allow employers to shift their focus onto capabilities, which alongside competitive fees, collectively act to deliver financial resilience to members. Accordingly, the Sanlam Umbrella Fund welcomes the introduction of the RSC standard.