Raazia Ganie, board director at CFA Society South Africa

 

By now it is industry knowledge that South Africa ranked 34 out of 44 countries on the collaborative 2022 Mercer and CFA Institute Global Pensions Index, an annual study based on the World Bank Model whose primary objective is to ensure older citizens maintain a decent standard of living. This ranking was marginally higher than the previous year’s ranking. In terms of the critical dimensions of the study, those of adequacy, sustainability and integrity, integrity scored highly at 78,4. This was due largely, according to CFA Society South Africa board director Raazia Ganie,  “to relatively sound regulations and sound governance,” . A round table discussion of local industry thought leaders were invited by the CFA Society of South Africa to provide input on how to raise the game.

 

Following release of the Mercer study, the CFA Society South Africa hosted its 2^nd Annual Retirement Reform workshop to explore the findings of the study and look for ways to improve the SA scores. This think tank session featured round table working groups comprised of representatives from the entire value chain across the industry including policy makers, industry bodies, asset managers (both active and passive), trustees, and investments consultants.

 

Working with the three critical dimensions several innovative solutions have been proposed.

 

On boosting the adequacy dimension

 

The adequacy of a retirement system for any country is a function of how well that country has addressed its other obligations around social capital. SA contributes more than any other African nation to education, healthcare and security- and yet all of these areas fall short (when compared to other African countries) due to corruption and incompetent administration.

 

The group tabled the following suggestions: –

 

• Proposed structural changes: The industry needs to develop solutions for those without retirement cover (i.e., low income market, informal sector). This demands government participation.
• Providing solutions to members that allow for funding for affordable housing at a much earlier stage in their life cycle.
• Review and revision of the unclaimed benefits issue. Specific legislation to govern the management of these without disadvantaging members may be required.
• Ensuring a savings culture through financial education and communication
• Lowering of costs to retirement by reducing post-retirement medical costs, upgrading of public healthcare system, providing affordable healthcare and reducing administrative fees
• Enhancing liquidity of private market investments through education and development of a credible secondary market

 

Ensuring sustainability

 

The working group noted that the three streams; adequacy, integrity and sustainability, all come together into problem management of pension funds.

 

The group concurred that there was a benefit in that formally employed people are able to contribute to retirement funds but cautioned that there are no legal requirements in South Africa for an employer to provide retirement benefits to employees and that not everyone has retirement savings.

 

The group also noted that South Africa is one of the few countries to have an established private retirement system.  A large proportion of the country’s GDP is made of these retirement fund assets.  While in comparison, most other countries provide social security benefits for all citizens.

 

Key takeouts from this session to boost this dimension were as follows:

 

• Increasing coverage: The informal traders, contracted workers, are not able to contribute to retirement funding hence a solution for the informal and formal divide needs to be found.  As a first step ensuring that employed individuals participate in a retirement system.

• Finding ways to make it affordable to contribute with regard to auto enrollment by including auto escalation of contribution for employers and/ or employees will help to improve the wellbeing of contributors; and improving cost efficiencies by building scale.

• Education on sustainable investments, developing financial acumen amongst the youth and developing skills to improve access to employment and therefore access to “social security” retirement.
• Infrastructure and community development by promoting investment into infrastructure development/ SME and promoting community upliftment by creating jobs. Access to social security retirement is also critical in this regard (more people participating in the growth of the SA economy).

• Labour participation is vital to enhancing this dimension, financial education and upskilling are important in this regard.
• Phased retirement is seen as a solution to skills transfer and mentorship.  In addition, it allows for retirees to upskill to so as to build a potential second career and income source post-retirement

• Simplification of the system by reducing costs and ensuring sustainability

 

Contributing to real economic growth by implementing a trusted system which can address issues such as liquidity concerns, unitization, due diligence demands and comprehensive and continuous governance oversight.

 

 On boosting the integrity dimension

 

This working group noted that the current B ranking on the Global Pensions Index was a good score but there was still room for improvement. It was agreed that governance played an important role in sustaining this ranking and that the retirement sector were not always proactive in providing suggestions on regulatory requirements.

Key conclusions reached and proposed by this group include:

 

• While there may be excellent laws in place, the problem in SA is that there may be minimal consequences when a problem arises. There should be a push to improve the supervisory and boost the enforcement and protection of members from fraud/mismanagement of benefits and predatory/unethical behaviour from all pension industry stakeholders who are able to take advantage of members.
• While SA is moving towards consolidation of funds, to ensure that the integrity of these funds (i.e., providing members with the best value) there needs to be more competition. We believe that South Africa should explore the model followed by Australia where they have Superannuation funds that are either provided by the financial services industry or represent Mutual Benefit Umbrella Funds.
• On the regulation and governance of private pension plans the group noted that these were being driven by current reforms (such as the Two Pot system). However, in truth, to create a viable and inclusive system demands that government comes to the party in a meaningful manner. i.e., there needs to be a government under-pin that applies to all citizens, rather a means tested methodology.
• Holistic education on financial competence is required for a complex system such as the two-pot system to work effectively.
• Timely and relevant communication with members, so as to enable informed decisions was also raised in this regard.

 

 

How South Africa has fared over the three core dimensions

 

The 2^nd Annual Reform Workshop was chaired and facilitated by CFA Society South Africa’s board director Raazia Ganie. Ganie advises both complex as well as other institutional clients on various strategy, manager selection and other investment issues. She has in excess of 25 years of experience within the consulting industry and is committed to bringing more globally contemporary approaches to southern African clients.

 

 

Download the CFA Society South Africa 2nd Annual Retirement Reform Workshop 2023 Executive Report

 

ENDS