• Myra Knoesen - FAnews Journalist

Coming to terms with the new regulation

The past two decades have seen a large migration of stand-alone employer retirement funds into umbrella funds.

According to the Financial Sector Conduct Authority (FSCA), the total number of stand-alone funds registered in terms of the Pension Funds Act in South Africa has declined from more than 15 000 in the 1990s to under 1 000 at the start of 2019. Given this growth in popularity of umbrella funds, it’s not surprising that there are many umbrella funds from which to choose.

“While this is good news for employers and members, it has added a layer of complexity to the decision-making process around which umbrella fund to choose. One of these complexities relates to doing effective cost comparisons. Given that each umbrella fund calculates and currently presents its costs differently, comparing these costs accurately has been challenging,” said John Kotze, Head of Group Retirement Solutions at Old Mutual.

Standardised cost disclosure

“Accurate retirement fund cost comparisons have been challenging. The way in which these fees and costs were calculated and shown to clients differed from fund to fund, making a simple cost comparison close to impossible without committing time to converting everything to a standardised base. For example, one quote can have a cost as a % of salary, and another can have the same cost applied as a Rand amount or a % of assets,” added Kotze.

“As of 1 September 2019, the process of comparing fund costs should become significantly easier and less complicated, thanks to the introduction of the new Retirement Savings Cost (RSC) disclosure standard by the Association for Savings and Investment South Africa (ASISA),” emphasised Kotze.

“The RSC is a cost comparison tool, developed by ASISA, for use in commercial umbrella fund quotes. In a nutshell, it is a standardised way of disclosing all retirement savings costs as a % of assets under four charge categories. This will help employers and intermediaries to compare umbrella fund costs more easily when considering quotations from different ASISA members. RSC effectively requires all commercial umbrella funds, that are sponsored by ASISA members to present all costs relating to their umbrella retirement fund solutions as a percentage of assets, using prescribed assumptions and disclosure tables,” continued Kotze.

Costs will need to be reflected under the following categories:

  • Investment management costs

  • Advice costs

  • Administration costs

  • Other costs

RSC disclosure components

“The investment management charge includes all costs for all underlying investments, including investment performance driven charges and trading costs. Capital charges, where applicable, are reflected under the heading of other costs, and are not included with investment management costs,” said Andrew Davison, Head of Advice for Old Mutual Corporate Consultants.

“The advice/consultant charge component includes all charges for the provision of advice by intermediaries/consultants, commissions payable to intermediaries/consultants (excluding commission on risk premiums) and investment consulting fees not included within the investment management charge. The administration charge component includes all retirement fund administration fees/charges, investment administration fees/charges not included within the investment management charge,” continued Davison.

“The costs included under “other costs” in the charges table includes guarantee premiums/charges, regulatory, compliance and governance costs like contingency reserve account levies, FSCA levies, fidelity insurance and professional indemnity premiums, actuarial fees, audit fees, trustee and fund official’s remuneration and expenses, communication expenses and all other charges flowing via the fund that do not fit into the other categories,” added Davison.

Coming to terms with the regulation

“The new RSC disclosure standard aims to make it easier for employers to compare apples with apples and choose the best umbrella fund for their employees’ needs. However, as with most new legislation, teething problems are to be expected as Financial Services Providers (FSPs) come to terms with the new regulation,” said Michelle Acton, Principal Consultant at Old Mutual Corporate Consultants.

“Until now, comparing umbrella fund costs has been difficult because fees can be charged and disclosed in many different ways. The RSC disclosure standard will compel providers to disclose and break down the costs in the same format. We believe all industry participants will comply, even if they are not ASISA members, as