Issue: September 2012 / November 2012
Expert Opinion

Moves to improve education and products

The local retirement-fund industry certainly isnít sitting still, points out Old Mutual Corporate general manager Doug Clothier.

Clothier . . . constant development
The SA retirement industry is taking heed of governmentís retirement-reform proposals aimed at reducing the complexity of the current retirement system. However, there is still a long way to go towards ensuring that fund members are able to make informed decisions about their future financial wellbeing.

Helping to ensure that fund members are able to make informed, rational decisions about their retirement involves transforming the way in which funds communicate with their members, providing meaningful educational programmes and innovative solutions that protect members.

Because many people are not receiving sufficient advice from their retirement fund or employer regarding their retirement options, there is a risk that they will make costly financial mistakes.

Itís clear from the results of the 2012 Old Mutual Retirement Monitor that, as an industry, we need to change the way in which we communicate with fund members.

According to the survey results, only about 50% of respondents actually read their benefit statements. Further, an alarming 35% of respondents said that they do not receive any benefit statement at all. It means that members have little information about the state of their retirement savings.

In spite of this lack of engagement with their funds, retirement-fund members remain very trusting of their trustees and are mostly confident of their abilities and willingness to act in their best interests. Pensioners rated highly the effectiveness of their fundís current communications. However, pre-retirement advice and counselling levels remain low. Some 44% of respondents say they received no advice or counselling before they retired.

Itís this lack of involvement, particularly when members reach retirement age, that is of primary concern to us. Members find themselves with a growing array of choices when it comes to choosing what to do with their lump-sum savings when they reach retirement. Itís often one of the most important financial decisions they will make and should not be taken lightly.

The solution

Apart from the educational and advice element, the industry needs to develop solutions for members about to retire and who may not feel confident to make an informed decision on what to do with their savings at retirement. An example is provided by the new Old Mutual Fund Select Annuity which allows retirement fund members to seamlessly transfer their savings into a pre-selected annuity option.

The Old Mutual Fund Select Annuity allows trustees and employers to make available to their members and employees an annuity that, after careful consideration of the options and implications, they believe is a good solution for many individuals. This annuity option is designed primarily for those members who are daunted by the choices they face on entering retirement. Retirees can then access that safe and cost-effective annuity through a streamlined process, with the comfort that it is supported by their trustees or employer.

Because solutions like this are available with or without personal financial advice, it provides security for those members who are intimidated by all of the choices presented to them at retirement. It also protects other members from making illinformed investment decisions. Itís a step closer to simplifying the industry and protecting the best interests of South Africansí savings.

These kinds of options also offer a good transition for members into retirement and could be a good option for members as the reform discussions continue.