Default portfolios are a cornerstone of retirement fund design in South Africa. For most members, the default option is applied automatically, and few actively consider or opt for the alternatives. As a result, these portfolios carry significant responsibility, as they effectively determine the retirement outcomes for the majority of members. In this context, the concept of a “defensible” default portfolio has gained prominence, particularly in light of both existing legislation, such as the default regulations under Regulation 37, and emerging conduct expectations under the Conduct of Financial Institutions (COFI) framework.
A defensible default portfolio is not simply one that meets legal limits or internal policy benchmarks. It is one where trustees and their advisors can demonstrate, with clear reasoning and evidence, that the investment strategy is appropriate for the membership, is consistently applied and is actively monitored. Achieving this standard requires careful attention across design, governance and communication.
A defensible default portfolio starts with a clear purpose. Trustees must explain why it exists and who it serves. Beyond Regulation 28 compliance, the design should reflect the membership’s risk profile, contribution patterns and demographics (for example, higher growth for younger members and more conservative positioning for those nearing retirement). The portfolio should also link directly to measurable outcomes, showing how it supports retirement adequacy while managing downside risk.
A defensible default portfolio also relies on evidence, not just benchmarks. Trustees and consultants should document how investment beliefs shape asset allocation, how data inform return and risk assumptions, how lifecycle or glidepath structures are tested against member profiles and how key trade-offs are evaluated. Clear records such as meeting minutes should reflect that decisions were deliberate and focused on member outcomes.
A defensible default portfolio is not static. Trustees are expected to monitor performance, risk and outcomes on an ongoing basis. This includes traditional metrics like quarterly performance reporting and peer benchmarking, but it should also incorporate metrics linked directly to member outcomes, such as projected replacement ratios and downside risk at key ages. Where monitoring identifies concerns, trustees should be able to show that they have taken reasonable action.
Governance underpins defensibility. Trustees must ensure that decision-making processes are transparent and robust. Delegation of responsibility to consultants or managers does not remove trustee accountability: the board must remain engaged and retain oversight of the portfolio’s design and implementation.
A defensible approach also includes regular review of governance structures themselves to ensure the right people are involved and conflicts of interest are effectively managed. Evidence of good governance is as important as the investment decisions themselves.
Finally, a defensible default portfolio must be well understood by the members it serves. Trustees should test whether communications accurately reflect the portfolio’s purpose, risk level, expected outcomes and relevant trade-offs. While not every member will engage with this information, ensuring clarity helps support the reasonableness of trustee decisions and aligns with COFI’s emphasis on fair treatment.
While defensibility does not guarantee outcomes, it shows that trustees have acted reasonably and in the best interests of members. In a world of increasing regulatory and conduct scrutiny, these elements are no longer optional – they are essential to managing risk, protecting members and maintaining trust in the retirement fund system.