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27 Jul 2018 00:00
Kirshni Totaram, global head of institutional business at Coronation Fund Managers
All stakeholders agree that the glaring gender inequalities that persist in South Africa require urgent attention. However, there is less agreement on how to resolve these inequalities, that have serious ramifications for the country’s socioeconomic development.
“Despite pressure from governments, popular movements such as #MeToo and even investors, we have not seen meaningful change for women in the workplace,” says Kirshni Totaram, global head of institutional business at Coronation Fund Managers.
“Women are still scarce in senior management positions and the average take-home salaries and bonuses of women employees still fall below those of their male counterparts.
“While these trends are of serious concern and remain a big obstacle to having an economy that is more inclusive, some of their consequential effects are long-term societal problems, which are often hidden.
“One of the issues I refer to here is the pensions gap — the pay gap that women experience has long-term implications, particularly for their retirement. Because they receive lower salaries and may contribute smaller proportions to their pension pots, their pension pay-outs are far less than those of men, a fact which is especially worrying, as women generally live longer.
“Gaps in a woman’s career, which they take to have children, as well as a larger percentage of their income spent on the household and broader family, also take a toll on final pension amounts. There have been calls to address this material issue in many countries, but as yet we [South Africa] have not seen any corrective action,” says Totaram.
The results of the UK government’s gender pay gap reporting procedure, which requires all employers in the UK with over 250 staff to report on the pay difference between men and women, shed more light on the on-going problem.
More than 75% of UK companies pay male staff more than their female counterparts, and nine out of 10 women work for companies that pay them less. Only 11% of men work for a company where women earn more than they do. In addition, a common feature of the disclosure is the absence of women at senior management level, with women representing only 16% of executive committees in the top 350 companies in the UK, while some of them have none at all.
“While we acknowledge the current pay gap and inequality issues, the worrying part is the lack of a pipeline of women being skilled and trained to assume these roles in years to come, and that organisations have not been vocal about their plans to address this,” says Totaram.
“This is despite the fact that women have outpaced men academically for more than 30 years. But not only companies remain under-represented; the same can be said for political leaders, government officials and even pension fund boards of trustees, where the number of women represented remains low,” she adds.
Totaram contends that efforts to achieve equality in the workplace are of benefit to everyone, as diversity leads to stronger business results and stronger businesses.
Preparing for a better tomorrow
Retirement funds have had to navigate a particularly challenging three years, as macroeconomic and political factors have driven markets more than stock specifics have, according to Natalie Phillips, SA head of Institutional, Investec Asset Management.
“Against this backdrop of disappointing returns, we expect an increased focus on outcomes rather than peer relative performance. We believe that active management can play an important role in this regard, given how concentrated South Africa’s direct, listed bond and equity markets are.”
Phillips says with most South African retirement funds now defined contribution (DC) schemes, the onus is squarely on the employee to navigate the investment fortunes and health of the fund. One of the biggest risks in a DC scheme is that the member’s returns are below average over the period until retirement, which would directly translate into a lower retirement income. Ultimately, members have to outperform inflation.
“In preparing for a better tomorrow, employee-elected trustees have to carry the fiduciary responsibility of ensuring they are sufficiently trained and knowledgeable on local and offshore investment markets.
“This responsibility is huge as it requires technical and specialist skill, particularly as the investment industry has become increasingly more sophisticated and complex. We need only to reflect on the past decade and the growth of credit markets, the growth in the listed property market in South Africa and the development of the alternatives space, such as private equity and hedge funds.
“Industry bodies such as the Institute of Retirement Funds Africa, along with the asset management and life insurance industries as well as financial advisers, have an important role to play in engaging with members to help educate them so that they understand what they are buying and the implications of the level of risk they are assuming.”
Phillips believes that as the industry evolves there is likely to be a more holistic approach in meeting member needs pre- and post-retirement. Trustees will have a far greater role and responsibility in helping aid members in tracking their savings up to retirement. For example, funds can use a liability index to illustrate how their returns are measuring up against a stated replacement ratio target.
Using technology to improve fund’s operations
As a multi-award-winning retirement fund, the Natal Joint Municipal Pension/KwaZulu-Natal Joint Municipal Provident Funds (NJMPF) is constantly looking for ways to improve the lives of its members, pensioners and stakeholders through enhancing efficiencies and ensuring sustainable investment returns at an acceptable level of risk, according to Sam Camilleri, chief executive and principal officer.
“Our objective is to improve benefits and retirement outcomes for members by offering a retirement funding service that not only provides sustainable fund incomes and pension increases, but develops the financial acumen of members.”
Camilleri says over the past decade, the shift from defined benefit funds to defined contribution funds has placed an emphasis on good investment returns and the member taking more responsibility for risk, which has increased the need for better financial literacy education, improved operational systems, reduced costs, improved communication, superior investment strategies and practices, more efficient administration, increased social responsibility including trustee development, and improved employment of technology and IT solutions.
“At NJMPF we believe that responsible investment is essential to our goal of pursuing long-term sustainable returns for our members, while aligning with the broader interests of society.
“Making responsible investment decisions requires thorough analysis of potential investments considering environmental, social and governance factors to improve evaluation of the investment and mitigate these risks.
“We support the Code for Responsible Investment in South Africa and the United Nations-supported Principles for Responsible Investment. We recognise that applying these principles may better align our investments with the broader socioeconomic development objectives of the country.
‘It is paramount that our investment managers monitor the business operations of the companies we invest in both domestically and internationally, including the impact on the environment of their business operations, exposure to risk, and credit rating.
“We rely on our investment managers to provide a high level of expertise and hands-on asset monitoring and management.
“Furthermore, we regard good governance as an organisational imperative within NJMPF and integral to our day-to-day operational decision-making processes,” says Camilleri.
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