Issue: April/June 2010

That huge NSSS challenge

David Gluckman, managing director of Sanlam Umbrella Solutions, outlines ways forward.

David Gluckman

Gluckman...confident responses

In his 2007 State of the Nation address, then President Mbeki announced government’s intention to address SA’s social security challenges by establishing a National Social Security System (NSSS) founded on principles of equity, risks pooling, mandatory participation, administration efficiency and solidarity.

Shortly afterwards, this announcement was expanded by release of a second National Treasury discussion paper entitled Social Security and Retirement Reform. A high-level document, it contains some radical proposals for the restructuring of the retirement funds, insurance and asset management industries.

The message from government is clear. It’s that the private sector has failed consumers, and government is stepping in to sort out the mess.

Implications for the private sector are stark. In a research paper, securities firm Barnard Jacobs Mellet estimated that some R15bn (equivalent to 6,2% of market capitalisation) could be wiped off the value of the JSE’s insurance sector if the draft proposals were implemented.

There are two ways for an industry player to respond. The most obvious is to engage with government, labour, business, industry associations and other key stakeholders in an attempt to influence the final solution; hopefully to contribute positively towards an enhanced solution.

Clearly, this is an important strategy. It can also be regarded as our responsibility as a concerned corporate citizen, and Sanlam is engaged at various levels in this regard.

There’s another method, applied on the ground. It’s in the products and solutions being brought to the market. Since June 2007 when Sanlam Umbrella Solutions was established, it’s had a specific mandate to develop such a practical response to challenges arising from the NSSS proposals.

Our practical solution is premised on using all Sanlam’s intellectual capital to build the best multi-employer packaged retirement savings, risk insurance and administration offering available. This is not a shortterm commitment. It’s a carefully considered, sustainable response to the many challenges facing the employee benefits shaken by such scandals as Fidentia, secret profits, high costs and lack of transparency.

The Sanlam Umbrella Fund will become our core product offering. It will combine the strengths of our various historic offerings such as the Wizard Universal Umbrella and the Reinforced Umbrella.

  • Strong governance

    The board comprises two trustees appointed by Sanlam and two independent trustees elected by member representatives. All four are industry experts, equipped to deal properly with governance requirements.

    Further, each participating employer should establish a Joint Forum comprising employer and member representatives. This would be the decision-making body at participating-employer level. In turn, each Joint Forum appoints a benefit consultant who is a specialist adviser accredited by the Financial Services Board to guide the Joint Forum as to the most appropriate benefit choices for their members.

  • Choice and flexibility

    Options range from simple and cost-effective to comprehensive and flexible. The former is designed to provide members with all the basic benefits they need for peace of mind. The latter allows members to customise the full range of benefits according to their individual needs.

    The investment menu comprises a wide range of portfolios. It includes smoothed bonus, lifestage, singlemanager and multi-manager investment options. Our range of risk-cover solutions includes death, disability, funeral costs, trauma, accident and spouse’s cover. Cost effectiveness

    investment options. Our range of risk-cover solutions includes death, disability, funeral costs, trauma, accident and spouse’s cover. Cost effectiveness

    Since costs are generally much higher in multi-employer than standalone arrangements, greater consolidation into umbrella funds is inevitable.

Our underlying philosophy is to create value-for-money offerings for the ultimate benefit of members. The core belief is that, in a definedcontribution environment, the employer determines the overall company budget available for employees’ retirement savings and group risk benefits. Provided these budgetary constraints are adhered to, and provided the administration experience is efficient and hasslefree, it is in any employer’s interests that the best possible deal is offered to employees.

Government, organised labour and business appear to agree that consolidation in the retirement funds industry is necessary and desirable. SA simply cannot afford the luxury of an industry comprising some 13 500 standalone retirement funds. It is possible to envisage a future dispensation where only the largest occupational retirement funds will continue to exist. All other formalsector employees will participate in either a multi-employer fund such as the Sanlam Umbrella Fund or the National Social Security System, or both.

We at Sanlam will be right up there, determined to lead the industry into this new age.

About SEB:
Sanlam Employee Benefits specialises in the provision of risk, investment and administration services to institutions and retirement funds. Focused on meeting the unique needs of its diverse clients, SEB assists companies create and deliver customised employee benefits solutions, including the collection of premiums and communication to fund members. For more information, please visit