Looking out for vulnerable consumers in retirement funds

by Muvhango Lukhaimane | 28,Feb,2024 | Industry Updates, Pension Fund Adjudicator, Q1 2024

Considering the levels of financial literacy in South Africa, beyond retail products such as banking accounts and mortgage loans, it is imperative that all who encounter a financial consumer immediately satisfy themselves that the consumer understands the basic mechanics of how that product works. In our space, these products are retirement funds – specifically pension funds, provident funds, retirement annuity funds and preservation funds.

Fund consultants must make it their business to ensure that human resources professionals in charge of employee benefits management/administration in the workplace understand the benefits provided by an employer linked fund. The volume of complaints that we receive linked to a poor or limited understanding of benefits provided by these occupational funds and costs associated with other benefits is concerning in the least and shocking at the most extreme. It is also an opportunity for financial advisors to explain retirement fund benefits in relation to overall financial planning to their clients.

The following are the most common issues related to lack of basic information and knowledge:

  • Pensionable salary – this is the portion of remuneration taken into account to calculate the percentage amount payable as contributions. This may be lower than the member’s salary.
  • Pensionable date – this is the date on which a member joined the fund. This may be later that the employment date depending on the rules of the fund and the date the employer joined the fund.
  • Fund costs – these are administration costs and/or risk benefits costs. These are deducted from contributions to fund the following (where applicable):
    • Commission costs
    • Fund administration costs
    • Funeral benefits
    • Disability benefits (permanent/temporary)
    • Death benefits

It is imperative for fund consultants and human resources professionals to understand what benefits a fund provides and which benefits will only be available when contributions are up to date, for example in most instances, insured benefits or risk benefits will not be payable if contributions are not up to date.

Fund members are some of the most vulnerable consumers. Therefore, all that come into contact with them from a statutory responsibility must ensure that they understand and are kept abreast of all aspects of their fund membership. It is not acceptable for a fund to churn out standard benefit statements for all its participating employers (in case of a retail umbrella fund) without indicating to an individual member that some or other benefit is not available to their specific participation agreement. It will also go a long way to assist members if certain brief comments are provided to members on benefit statements, for example, the requirement/responsibility to notify an insurer/the fund of the existence of a condition that may lead to a disability claim and the time limits associated therewith. The number of disability claims repudiated owing to late notification are unconscionable.

Funds, insurers, employers and consultants must mitigate the financial literacy gap of financial consumers to deal with general consumer vulnerability. In the end if a member of a fund understands what benefits are provided by the fund, then where affordable they are able to augment such with additional, targeted and appropriate retail products marketed by properly accredited and knowledgeable financial advisors.

It is in the interests of all involved to act in the best interest of consumers and treat them equitably, honestly and fairly at all times. In this regard, I am heartened by the readiness of other insurers to offer a token of responsibility where they have come short of some procedural requirement where such has not resulted in the actual loss suffered by the consumer but for sheer inconvenience. It is commendable that such insurers have repeatedly demonstrated their readiness to compensate financial consumers where an administrative lapse had occurred resulting in inconvenience. This recognition of the importance of financial consumers is admirable.

From language used to processes required, it is imperative that we all play our part to ensure that consumers are knowledgeable, informed and protected as this will grow trust in the industry and more participation. To this end, the Office of the Pension Funds Adjudicator will soon share its policy on dealing with vulnerable consumers in the retirement funds space.

 

 

Muvhango Lukhaimane
Pension Fund Adjudicator at Pension Fund Adjudicator | + posts