Retirement funds play an important role in social protection.
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e research and benchmarking process commenced by the Institute of Retirement Funds Africa (IRFA) in 2016 has been welcomed by the local retirement industry and is an area on which strong focus will be placed in future.
Last year saw IRFA release the results of its first two major research studies at its annual conference in Durban, and the launch of the next research initiative will be announced and workshopped at the next conference, to be held at the ICC from September 10 to 12.
IRFA president Wayne Hiller van Rensburg said that the provision of information and knowledge critical to sound business outcomes and the betterment of societal variables are key strategic objectives in service delivery to the industry: “Rigorous and focused research is the perfect platform to provide the retirement industry with the right information to make educated decisions.”
Hiller van Rensburg says the subject of the next IRFA research study will be a logical follow-through on the comprehensive research undertaken last year, and will focus on the members of the retirement fund itself, as well as the general public.
“Our first two studies focussed on retirement markets in South Africa in the area of social protection, and then the perceived compliance with local and international best practices in terms of fund governance, stakeholder engagement, investment practices, trustee development and financial reporting.”
The next logical step, according to the IRFA, is to track the perceptions and requirements of the employee and general public in terms of retirement provision and financial product needs, and check for synergy and inconsistencies.
Topline findings from the two studies to date certainly make for interesting reading.
The first study undertaken in 2016 summarised the published policies of four prominent bodies, issued between 2002 and 2015, in the area of social protection, with a focus on retirement provision. According to external researchers Rob Rusconi and Jonathan Mort, authors of Retirement Markets in South Africa’s Social Protection System Part 1: Developing Agreement on the Big Picture, there is a high degree of consistency across the views expressed by these bodies, summarised into these seven key themes:
The constitutional mandate
A holistic approach
The private sector role
Regulatory strengths and weaknesses
System efficiencies and inefficiencies
Adequacy of outcomes
Potential for progressive implementation
They say starting with the 2002 report of the Committee of Inquiry into a Comprehensive System of Social Security for South Africa and including the 2012 National Development Plan of the National Planning Commission, and policy papers or financial reviews issued by the department of social development and national treasury, this consistency relates to: the constitutional mandate to provide access to social protection and the obligation on government to meet this mandate; the requirement to consider social protection holistically; the role of the private sector, within the framework of government’s responsibility to contribute to the delivery of social protection; the regulatory weakness of the supervisory authority responsible for overseeing private provision of retirement saving; the inefficiency and/or wastefulness of the structure or vehicles through which private sector retirement saving is achieved; the broad, deep inadequacy of outcomes for participants in private sector retirement provision; and the potential for objectives to be achieved through the progressive implementation of appropriate policies.
The second study undertaken by the IRFA research arm — co-sponsored by the SABC Pension Fund, facilitated by the Financial Services Board and undertaken in consultation with research partner Stephanie Griffiths of Cohesion Communication, Research and Development — quantifies the industry’s rating of itself against core dimensions and variables, determined after an extensive literature search, both locally and internationally, into pension and governance best practices.
Hiller van Rensburg emphasises that “the research model for our best practices study was developed following an extensive literature search to determine best practices both locally and on an international scale”. He goes on to note, “Critical measurement dimensions of the research model are fully compliant with the FSB Circular PF130 as well as the recently released King IV report on corporate governance, notably in the areas of ethical and responsible leadership, performance appraisal and risk management as well as addressing reasonable stakeholder needs, expectations and rights.”
He goes on to say that the Best Practices Study has been expanded into a measurement tool, which will be used in ongoing evaluation of both the nature of best practices as well as perceived compliance with these in the African landscape. “We will again conduct the study early in 2018 to keep the industry informed in an increasingly dynamic landscape.”
Topline findings from the 2016 study indicate that while good governance is the primary goal of any responsible retirement fund or responsible corporate citizen, the definition of governance itself extends beyond the traditional definition, and in terms of global and local best practice and measurable dimensions of governance, should include the subsets of:
Stakeholder communication (including surfacing and addressing reasonable expectations and needs);
Financial reporting and full disclosure (to include policy and strategy for accountable and understandable reporting on fund performance to all stakeholders);
Investment practice (to include policy and benchmarks against which investment performance will be measured and the management and alleviation of risk);
Executive and trustee development (to include appraisal of both behavioural as well as professional/technical competencies, structured and regular induction and training processes and ongoing learning opportunities); and
Social responsibility and contribution.
“This is right on track with King IV,” he remarks, “Namely, that the governing body should lead the value creation process by appreciating that strategy, risk and opportunity, performance and sustainable development are inseparable elements.
Further findings from the IRFA study indicate that the practice of sound governance is recognised as being both facilitated and bound by the catalyst of effective stakeholder engagement, and that this engagement should include all stakeholders and include full disclosure, ongoing assessment of stakeholder needs and expectations and ways to communicate and meet these needs.
“In terms of overall ranking of perceived compliance with the six critical dimensions of the research model, current Investment Practices are rated the highest by the local retirement industry, followed by Governance Practices, Financial Reporting, Stakeholder Engagement and finally, Trustee Development Practices.”
Hiller van Rensburg concludes that the study also provides a roadmap for IRFA itself in terms of industry needs. “Results from the Best Practices Study are also being used extensively by IRFA in developing targeted service programmes to its membership base, for example specific trustee development initiatives, as well as content for the annual conference and workshops and seminars.”