The default regulations to the Pension Funds Act, which require pension funds to provide retirement benefits counselling to its members under certain circumstances, came into effect on September 1 2017, and retirement funds must comply by March 1 2019.
According to Eddie Strydom, owner at Salt Employee Benefits (Salt EB), retirement benefits counselling is the disclosure and explanation, in a clear and understandable language, including risks, costs and charges, of: the available investment portfolios, the terms of the fund’s annuity strategy, the terms and processes by which a fund handles preserved benefits in terms of regulation 38, and any other options made available to members.
Strydom welcomes the new regulations, emphasising that retirement benefit counselling is about providing members with information and explaining their options in clear and understandable language.
Stydom believes the Financial Sector Conduct Authority (FSCA) wants South Africa’s retirement funds, which hold most of the country’s employees’ savings, to play a bigger role in the financial health of its members.
“In our view, the emphasis of the retirement relationship is changing from one between retirement funds and employers to a relationship directly between retirement funds and their members.
“We believe retirement funds will play a more central role in employees’ financial wellness in the future; for example, in the case of enabling responsible financial decisions through access to better information.”
He contends that the need for retirement benefit counselling is reflected in the widely accepted notion that financial literacy is the core platform for financial inclusion and the basis for equitable and sustainable socioeconomic development.
Yet, according to a comprehensive study by the Human Sciences Research Council in 2015 on behalf of the Financial Services Board, the level of financial literacy among adult South Africans tends to be in the low to moderate range.
Strydom says financial literacy is a prerequisite for individuals to make sound financial decisions and to be in control of their retirement finances.
“We believe everyone should have access to retirement benefit counselling, because it demystifies and simplifies financial jargon and technical terms into language that the members of the fund can understand.”
However, Strydom contends that the industry has an implementation challenge with regards to retirement benefit counselling.
“The role of the benefit counsellor is not well defined, and there is significant uncertainty around the implementation. We have contacted the FSCA on the implementation and whether they will publish guidelines with more detail.
“The FSCA informed us that no more details around retirement benefit counselling will be published, and that it is up to the industry to solve the implementation problem.”
Strydom reports that the new requirements of the default regulations to the Pension Funds Act with regard to benefits counselling include:
“The spirit of the regulation is to improve the information flow from the fund to the members and assist members in improving their financial position,” says Strydom.
However, he contends that there is real uncertainty in the industry with regards to how benefit counselling will be provided.
Strydom reports that employee benefits consultants agree that the default regulations present a significant opportunity to impact members who would ordinarily not receive financial counselling.
“More than half of the consultants believe that benefit counselling can improve preservation in the funds. Yet, 66% of employee benefit consultants think that funds will do the minimum to comply.”
Strydom contends the application of the default regulations represents a real opportunity for Salt Employee Benefits to differentiate itself and take a market leading position.
“Very few members actively manage their financial positions, but the fund can be more pro-active in helping its members through retirement benefits counselling.
Salt EB’s retirement benefits counselling solution (powered by ZAQ), which makes use of technology to provide fund members with a ‘real-time’ view of their fund credits and communicate appropriate employee benefits information in real time will be operational on March 1 2019 at Salt EB.
Jaco Wasserfall, director at ZAQ, says the way the solution has been made operative. Salt EB improves members’ knowledge of their retirement savings position by taking a forward-looking approach and giving them access to an online platform that is accessible from any online device, whether it is a cellphone, tablet, laptop or desktop. This is backed up with access to a call centre, and to independent financial advice, explains Wasserfall.
“We have developed a high-tech, high human touch model by including a call centre and financial advisors. The platform is an enabler for both counsellors and members.
“We provide members with education on all their options at all stages of their retirement-saving journey, including a scenario planner that allows members to explore the future impact of different options. Members are then in a position to understand the implications of the decisions they make, and they can share this information with their spouse, family, counsellor or financial advisor,” says Wasserfall.
He contends that for most people retirement savings is a “black box”; most people don’t know how much they have saved towards their retirement or how long it will last after they retire.
“We want to break that black box open and keep people up-to-date with their retirement savings information, as well as provide them with financial education to improve their financial wellbeing.
“Our solution not only provides members with information about their retirement savings and employee benefits, but we are also building financial education into the platform. This improves communication between the fund and the member, because members engage with the fund through the platform and gain real-time information regarding their retirement fund.
“Members are able to access this information in their own time, and from anywhere.
“The platform, which also has an online chat function, gives members the ability to review their information over and over to examine figures and ask questions.
“The graphs are all interactive — when an input is changed the results show up immediately when, for example, members check how long their retirement savings will last or how much they can withdraw every month.
“We want members to take that information to their spouse, family or financial advisor and continue the conversation. This encourages members to take ownership of their retirement and financial situation,” says Wasserfall.
He explains that whatever the trustees of a fund decide around default investment strategies, preservation strategies, or default annuities will be incorporated into the counselling tool.
Ultimately, Wasserfall believes that the new default regulations are a positive development: “Anything we can do to enhance people’s understanding of financial wellness and increase their financial wellbeing is a step in the right direction,” he says.