managing change in retirement funds presentation: 3 rd annual retirement reforms southern africa...
TRANSCRIPT
Managing Change in Retirement Funds
Presentation: 3rd Annual Retirement Reforms Southern Africa 2011
Speaker: Jonathan Mort
Company: Jonathan Mort Incorporated, Cape Town
Date: 27 October 2011
Change
“It is not the strongest of the species that survive, nor the most intelligent, but
the one most responsive to change”.
(Attributed to Charles Darwin)
“When we are no longer able to change a situation, we are challenged to
change ourselves”.
(Victor Frankl)
Change Cannot be Avoided
Change is constant, and comes -
•From different sources
•Is either embraced or imposed
The three dangers –
• Resisting change which is inevitable
• Having to cope with an avoidable change related risk
• Responding incorrectly (including an over-response) to change
The Best Solution
To be open to change
To maximise the opportunities which arise from change
To manage the risks associated with change
Change usually –
• Is painful
• Takes longer to manage than planned
• Has some measure of unintended consequences
What causes Change for Retirement Funds
Change in the law affecting retirement funds
Change in regulatory approach
Change in the employment environment (for occupational funds)
Change in the business environment affecting –
• Employers
• Service providers
Change in the economic and political environment
Example of Change in SA Retirement Fund Environment Over the last 10 Years
Surplus legislation -
•Minimum benefits
•Valuation methodology
New types of retirement funds –
•Unclaimed benefit funds
•Beneficiary funds
Changes in tax law
SA Retirement Funds Changes (cont)
Changes in investment laws –
•FAIS Act
•Security Services Act
•Collective Investment Schemes Act
•Nominee company requirements
•Regulation 28
Consolidation of retirement funds: reducing number of single occupational
funds and increase in multi-employer funds
Closure of DB funds
Where do we find Change? (cont)
Change in regulatory approach -
• Greater powers of intervention by Regulator
• Establishment of FSB Enforcement Committee
• Move to risk based supervision: compliance visits, forensic inspections
• Development of Twin Peaks model: separation of market conduct
function from policy development and solvency supervision
• Greater supervision, stricter licensing, of administrators and investment
managers
• Prospect of National Savings Plan
• Increase in informal sector (no planning for retirement savings in this
sector)
Change in Laws Affecting Retirement Funds
Trustees need to know
Assurance of awareness and implications by service providers
Changes to fund rules?
Changes to fund policy documents?
Changes to contracts?
What consequential changes are necessary?
Communication :
• With members?
• Employer?
Tax Consequences?
Change in Regulatory Approach
Ensure compliance with spirit of approach
Ensure co-operation
Engage with Regulator in respect of grey area / ambiguity / unintended
consequences
Change in Employment Environment
Will the employer’s business grow or decline?
Will the fund membership in consequence increase or decrease?
What changes will affect the fund’s membership profile?
Will there be an increase in turnover of members?
What changes to the employment arrangements will affect the fund (eg.
Flexibility of retirement date / full time employment / amount that can be
contributed to the fund)?
Will the fund be able to accept non-resident members?
Importance of open line of communication between fund and employer
Change in Economic Environment
2006 2007 2008 2009 2010 (e) 2011 (p) 2012 (p)
Angola 18,6 22,6 13,8 2,4 3,4 7,5 11,1
Botswana 5,1 4,8 3,1 -3,7 6,4 6,9 7,0
Kenya 6,3 7,1 1,7 2,6 5,0 5,3 5,5
Mozambique 8,7 7,3 6,8 6,4 8,1 7,7 7,9
Nigeria 6,0 6,4 6,0 7,0 8,1 6,9 6,7
South Africa 5,6 5,5 3,7 -1.7 2,8 3,6 4,3
Tanzania 6,7 7,1 7,4 6,0 6,8 6,9 7,3
Uganda 7,1 8,1 10,4 5,3 5,1 5,6 6,9
Zambia 6,2 6,2 5,7 6,4 6,6 6,5 6,7
Africa 6,2 6,5 5,5 3,1 4,9 3,7 5,8
Change in Economic Environment (cont)
Will there be a convergence of policy development in Africa?
Will there be a common market in Africa, similar to Eurozone?
Will this result in Pan African Pension Funds?
Where will the new sources of capital for economic growth come from?
• Tax payers
• Bank loans (local and international)
• Foreign state loans (eg. China)
• Institutional funds?
How will institutional funded growth be managed, and how will this affect the
investment arrangements within the fund?
Change in Fund Business
Change in the law / regulatory approach / economic and business environment usually
results in a change in the fund business at different levels
International emphasis on risk based supervision likely to result in greater emphasis on
proper governance.
Thus –
•will there be minimum fit and proper requirements for boards of trustees?
•will there be mandatory trustee training?
•will there be increased accountability?
•will there be higher trustees fees paid?
What impact will this have on having trustees elected from membership?
Focus on administration and investment risks – how will this develop, what will the
implications be for fund costs?
Change in Fund Business (cont)
Investment issues -
• Will pension funds be seen as alternate sources of capital for economic
growth
• Prescribed investments?
• Direct investing
• New regulatory requirements (ESG, new product issues)
• Investment Costs
Change in Fund Business (cont)
With increased costs, economies of scale become essential - growth of multi-
employer funds, with associated challenges
Benefit administration challenges -
• administrative platform issues
•skill challenges
• splintering / delegation of services
Risk Management in Change
Important to assess risks with every change
Use classic high/ medium /low assessment of –
• probability of identified risk
• impact of identified risk
Important to manage medium and high impact risks, whether low probability
or not
Have plan in place for the risk which materialises and which was not
foreseen or foreseeable
Engage with the Regulator about risks which are apparent from any
unavoidable change, whether as a result of any change in law, regulatory
approach or otherwise
Change is Good
Change is a part of life – there is an increasing rate of change in the world
Change is an opportunity to discard what is unnecessary, unhelpful or a
hindrance
But: unnecessary change is not helpful
Importantly - Values should not change, even though the environment does
Thank You.