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The pension fund environment is constantly changing. In recent years stakeholders have had to accommodate the shift from defined benefit to defined contribution, deal with the tricky issue of pension funds surplus apportionment, rewrite the mortality book to reflect the impact of HIV/Aids and engage with government and National Treasury around retirement fund reform. What challenges will the industry face in the future?
To find out I attended Sanlam’s 2009 Employee Benefits Benchmark Survey held at Vodaworld, Midrand on 22 July 2009. The annual survey, now in its seventeenth year, was compiled with the assistance of BDRC, an independent market research company. BDRC questioned 200 principal officers at stand-alone defined contribution funds and 100 employer representatives of umbrella funds. The presentation was spiced up with film clips of interviews with ordinary pension fund members.
Contribution trends
Dawie de Villiers, survey co-author and chief executive of Sanlam Structured Solutions was on hand to present the survey findings. The first of four major themes covered by De Villiers was that of retirement fund contributions. The survey confirmed an improvement in employee/employer pension fund contributions since 2002. The average employer contribution climbed to 9.9% in the current period, from 9.5% in 2008 while average employee contributions also crept up marginally, from 5.5% to 5.9%. “Despite a sluggish economy, more money is being set aside for retirement,” said De Villiers.
But to get to the actual portion applied to retirement provisions one has to strip out the cost of death and disability cover and fund administration. Sanlam’s survey shows a slight increase over 2008, with 1.9% of monthly gross salaries going to death benefit premiums, 1.3% to disability benefit premiums and 1.3% to administration expenses. De Villiers also warned that “an increase in disability claims through recession might lead to an increase in premiums in coming years.” De Villiers introduced administration costs as the second theme in his presentation. He said that it remained difficult to break the 1.3% administration charge (levied on gross monthly salaries) into component parts. He estimates pure administration costs account for approximately 0.35% of this charge. Another way to unpack the charge is to consider the average annual cost as a percentage of assets. The 0.9% total comprises 0.25% in pure administration expenses, 0.3% in investment advisor fees and the balance for remunerating actuaries, auditors, fidelity cover, levies, SARB reporting and the likes.
Once fees are striped out, the net amount allocated to retirement savings in 2009 reduces to just 11.3%. This is some way off the 2002 suggested target of 15%. The consensus is you should be able to retire comfortably provided you save 15% of your gross salary over a 35-year period and preserve your retirement funds throughout. “We hope that the increase in contributions is a continuing trend and the result of government and industry’s efforts to communicate the importance of savings,” said De Villiers.
Editor’s comment: Clear that Retirement Planning has become increasingly important to each and everyone – do not fall in the trap of believing that being part of a company pension and/or provident scheme would be sufficient to ensure a secure old age! Consult your advisor as a matter of urgency.
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