On 27 July the Retirement Matters Committee of the Actuarial Society of South Africa (ASSA) had its annual pensions seminar where pensions actuaries from across South Africa gather in Johannesburg. The aim of the annual seminar is to share with pensions actuaries information about relevant developments, but also to encourage actuaries to be a force for change for good in the world of pensions. Below are my reflections on the topics covered at the seminar.
Developments in South Africa
The COFI (Conduct Of Financial Institution) bill loomed large and the new requirements for Section 13B fund administrators were covered too. Challenges in SA pensions were also discussed, specifically arrear contributions and unclaimed benefits, both of which have become signs to the public that our pension model is flawed.
Actuaries, as part of the value chain, must strive to do what we can to ensure that our pension system is actually fit for purpose, whether
by highlighting issues to trustees or by getting directly involved in these issues in some other way.
Developments elsewhere in Africa
Several themes in African pensions were discussed:
The first was national pension schemes. Neighbouring countries are planning to make significant changes to their national schemes or (in the case of Namibia) to launch a national fund. In South Africa the debate about national fund ideas has died down.
The second theme is how other African countries are strengthening their formal sector contributory models. Meanwhile South Africa is not currently considering the previously discussed options of either an auto-enrolment or a compulsory contribution model.
The third theme is one of balancing access versus preservation/annuitisation. As ASSA we still expect further discussions about improving the two-pot pension model in future.
The fourth theme is that of designing suitable contributory schemes for informal sector workers, with particular focus on Rwanda where an efficient and trusted national scheme with limited matching of contributions by government has achieved a coverage rate of 75% of the labour force. National Treasury has expressed interest in such a model but we need further research to make the case for this.
Value for Money (VFM) – an international perspective
Our international speaker shared that achieving good pension outcomes is ultimately about the interaction between inputs, processes and outcomes, but that regulators cannot wait decades to assess whether members actually achieve adequate retirement incomes. As a result, VFM frameworks focus on the factors that drive outcomes: investment performance, costs, governance, administration and communication. Fiduciaries have only limited influence over key inputs such as membership and contribution rates, which are increasingly determined by legislation and public policy. While investment returns remain critical, member engagement, trust, transparency, service quality and retirement income design are also significant contributors to long-term outcomes and should not be ignored in any assessment of value for money.
The Australian and UK case studies illustrated different approaches to VFM regulation. Australia adopted a highly quantitative performance-testing regime in which funds are benchmarked against asset-allocation-based indices, with poor performers facing disclosure requirements and potential restrictions on attracting new members. This has driven increased consolidation and reduced active management. The UK initially focused on charges and transaction costs, introducing fee caps and disclosure requirements, but has since shifted towards a broader VFM framework that seeks to consider performance, scale and investment capability, including access to private markets. However, both approaches face risks such as benchmark-hugging, gaming of measures and an overemphasis on easily measured factors.
In considering its applicability for South Africa, a panel discussion focused on how VFM is not a single metric but a combination of concerns including charges, investment performance, member decision making, administration quality, choice and scale. Decision makers on VFM design should therefore be clear about the specific problems they are trying to solve and avoid equating value for money solely with easily measured indicators.
Climate change committee update
ASSA’s climate change committee shared how climate change has moved from being a distant risk to an immediate financial reality for retirement funds, with global warming already exceeding 1.5°C over recent rolling periods and a fragmented “hot-house world” is now viewed as the most likely scenario. Presenters highlighted the implications for retirement funds through lower expected future investment returns, potential market shocks, reduced defined contribution replacement ratios and weaker defined benefit funding levels. While South African retirement funds have made progress in embedding climate considerations into governance and policy frameworks, significant gaps remain in areas such as impact measurement, scenario analysis and stress testing.
The presentation also expanded the discussion beyond climate change to cover broader nature and biodiversity risks, noting that ecosystem degradation, water scarcity, soil loss and food system pressures represent material financial risks that can affect investment performance, inflation, employer covenant strength and pension outcomes. The presentation concluded that trustees, actuaries and investment professionals should integrate climate and nature-related risks into investment policy, risk management, scenario modelling and stewardship activities to improve the long-term resilience of retirement funds.
