Issue: December 08/February 09
Old Mutual Corporate

Old Mutual moves to encourage preservation of retirement assets

Seelan Gobalsamy... fees cut for clients

It is often said that fewer than 6% of South Africans can afford to retire comfortably. This is at least partly due to people taking their retirement fund assets in cash when changing jobs.

Research done by Old Mutual into its umbrella funds show that more than two-thirds of members resigning from their jobs prior to normal retirement age take their retirement benefits in cash, rather than transferring them to a retirement annuity fund, preservation fund or new employer’s retirement fund where it can continue to grow until retirement.

As part of efforts to encourage people to preserve their retirement savings, Old Mutual Corporate has completely eliminated upfront administration fees for people who are currently clients of Old Mutual or who are employed by organisations which are invested in Old Mutual and wish to preserve their investments in its corporate Protektor Preservation Fund.

Seelan Gobalsamy, Managing Director of Old Mutual Corporate, says that while the proposed retirement reform proposals are likely to include compulsory preservation of retirement benefits, there is much the industry can do around this issue in the interim.

“We have a responsibility to encourage people to keep their retirement fund savings invested for as long as possible and not cash them in when exiting their jobs prior to retirement age,” says Gobalsamy. “The removal of the Old Mutual Corporate Protektor Preservation Fund’s upfront administration charge makes it one of the most economical preservation funds in the South African market. Lower fees mean higher fund values at retirement, which we hope will encourage more people, when they change jobs, to preserve their benefits.”

Gobalsamy believes that a lot more also needs to be done in the way of improving member communication and advice when it comes to encouraging preservation of retirement fund savings.

According to the 2008 Old Mutual Retirement Fund Survey released recently, while 93% of all funds indicate a sense of responsibility to encourage exiting members to preserve their retirement fund benefits, only 50% actually provide advice and counselling to members who exit the fund for reasons other than retirement.

“While it is encouraging that most boards of trustees believe members should be encouraged to preserve, it is concerning that the implementation is lacking. Education about important issues like preservation should be provided on an ongoing basis, and not only when a member leaves a fund,” adds Gobalsamy.

The savings and investment company’s survey also reveals a similar trend in pre-retirement counselling.

While 76% of all funds interviewed provide members with pre-retirement counselling or financial advice, 50% offer such advice only one year before retirement, and only 2% offer regular annual input. However, 91% of funds interviewed consider the counselling to be effective.

“The majority of funds are providing some form of retirement counselling to members,” says Gobalsamy. “However, counselling is undoubtedly more effective when offered to members earlier in their careers and on an ongoing basis, rather than one year before retirement. It is interesting to note that, while most boards of trustees believe the communication and counselling being offered are effective, the responses from members show they feel there is lack of communication and, where it exists, it is not effective. Trustees may need to explore alternative methods of communication to bridge this gap.”

Recent market volatility makes preserving retirement savings an even more pressing issue for members and trustees, Gobalsamy points out: “Members exiting funds and taking their benefits in cash risk locking in the dramatic investment losses of the past few months. However, by transferring their benefit into a retirement annuity fund or preservation fund with a similar investment strategy, they give themselves the opportunity to participate in future investment market recoveries.”

To find out more about the Old Mutual Protektor Preservation Fund, visit our website on www. or speak to your financial adviser.