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Default regulations will simplify investment options

The implementation of the default regulations to the Pension Funds Act on March 1 2019 will impact on three aspects of an investor’s retirement journey, namely the provision of: default investment portfolios for accumulating savings; default preservation and portability; and an annuity strategy upon retirement, according to Tamryn Lamb, head of retail distribution at Allan Gray.

She says if you are a member of a retirement fund as a condition of employment, the trustees of your fund are now required to approve default investment portfolios into which your savings will be invested, on the basis that these default portfolios will result in a good long-term outcome.

“You will no longer be required to select your own investment portfolio unless you feel equipped to do so, in which case you will be able to opt out of your fund’s trustee default,” says Lamb.

The second requirement is an important one as it relates to preservation of retirement savings.

“I think most of us are aware of the very low rate of preservation among members of retirement funds across the country,” says Lamb.

“However, the more savings people keep in their retirement investments, the better chance they have of retiring comfortably.

“The default regulations require all funds to automatically preserve accumulated retirement savings, rather than pay these out. In other words, a member’s savings will automatically stay in the retirement fund unless they opt otherwise,” says Lamb.

She contends that the default preservation regulation is a good step towards encouraging retirement savers to keep those saving invested.

The third change that will be effective on March 1 is the annuity strategy that relates to the final stage of members’ retirement journey.

“The default regulations require retirement fund trustees to determine a suitable default annuity strategy for members who are unsure of what to do with regards to investing their accumulated retirement savings at retirement.

“Importantly, members will not automatically be defaulted into the fund’s annuity strategy; rather it is something they will be required to opt into. Retirement funds are required to make a default annuity strategy available as well as help members understand what benefits they will receive from those options by providing retirement benefits counselling.

“Retirement benefit counselling is an important step, to equip retiring members with information to facilitate their decisions at this important junction in their lives. However, retirees should continue to consider using the services of a good, independent financial adviser who can help tailor their post retirement savings investments to their personal circumstances.

“We see independent financial advice as being just as important as it has been prior to the default regulations to the Pension Funds Act coming into operation,” says Lamb.

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Alf James
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