EDITOR'S COMMENTS

There’s no shortage of things to talk about as we wrap up the last quarter of 2024. From two-pot implementation, to market volatility and geopolitics, there’s a lot to cover.

The two-pot system: a game changer

One of the biggest events this quarter was the rollout of the two-pot retirement system on 1 September. We held our collective breath as Monday, 2 September rolled around, and we weren’t disappointed. Claims came flooding in. Whilst some administrators were caught slightly off guard initially, I think we can say that overall Day 1 implementation was a resounding success – a testimony to what the industry can achieve with collaboration.

One issue that the two-pot system has certainly spotlighted is the poor levels of financial literacy amongst South Africans. As an industry we’ve recognised this challenge and, from what I’ve seen in efforts around improving member outcomes, there are some exciting developments leveraging technology. I think this conversation will carry on through 2025.

Economic climate: cautiously optimistic?

On the economic front, South Africa is looking at a growth rate of around 1.0% for 2024, boosted by investor confidence after the May elections. It’s nice to see the rand showing some strength against major currencies as well! Inflation seems to be settling in the government’s targeted range, and we all let out a sigh of relief when the Monetary Policy Committee cut interest rates by 0.25% at their last meeting.

Investment trends: shifting strategies

When it comes to investment strategies, there’s been a noticeable shift towards passive investing. With many active managers struggling to outperform their benchmarks, trustees are increasingly leaning towards diversified portfolios that mix both active and passive investments.

Infrastructure investments are also gaining traction. Fund managers are realising that these projects can deliver not only solid returns but also meaningful social impact – especially given South Africa’s ongoing energy challenges. It’s encouraging to see this recognition that sustainable investments can benefit both investors and society as a whole.

As we look forward into 2025, our industry is in an exciting phase and navigating this evolving landscape will require agility and creativity from all involved.

After one of the most busy years I’ve experienced in this industry, I wish you a blessed holiday season.

This quarter’s news and events seem to have been dominated by two-pot. And rightly so, as this is a fundamental change to the way we’ve done things in retirement funds in the past. But I can’t help feeling that we’re addressing a symptom of the problem rather than the root cause.

The Sanlam Benchmark 2024 survey released in July made me think about the savings crisis in the uniquely South African context. Particularly when I reflect that:

• 61% of people feel a sense of insecurity or lack of control over their financial future,
• 83% of people feel some or a lot of financial stress right now, and
• 22% have no savings other than their company retirement fund.

If I consider the many evolutions of our industry, each one more flexible and more personalised than the last, I can’t help but suggest that we need a more holistic approach to savings. One that finally breaks down the barrier between institutional (retirement) savings and retail (individual) savings. A difference that, I will challenge, exists only in our minds and business models. The average South African does not distinguish between their institutional and their retail savings! Two pots or not, their financial reality is one pot of money that needs to cover daily living expenses, education of children, medical care, support of family and, if they’re really lucky, savings for a rainy day (never mind a far-off retirement one day).

Whether that money comes in the form of a salary, a savings pot withdrawal, a stokvel or a fixed deposit account, the individual is simply happy to have the funds available to take care of themselves and their family in that moment of need.

Whilst I applaud the developments in our retirement industry to cater for these financial realities, it seems that there is still an enormous amount of work to do in improving financial literacy overall and working closer together with our colleagues across the gaping institutional/individual chasm.

But then I look at the alarming fact that 13% of people consult YouTube for financial advice, and 6% use ChatGPT, and wonder, is the problem really where we think it is? Or is there simply a growing lack of trust in our services and products?

At least summer is on the way.

I hope you find this issue of Pensions World as stimulating as always.

2024 is in full swing and Quarter 2 feels extraordinarily busy. In all my years in the industry, I can’t recall a time when I’ve felt hit from all angles like this. I guess this is the evidence that the retirement funds industry in South Africa is a dynamic one, with this year particularly being one of many changes.

The countdown to day 1 of the two-pot system is ramping up efforts in the retirement funds industry. This issue of Pensions World SA has been put together for you with this in mind. We have a section specifically dedicated to insights from industry experts on all things two-pot. In addition, our issue of Trustee Tutor sheds light on the different perspectives and practicalities of two-pot and will hopefully give you some guidance on what you can be doing now to prepare funds for this major change coming into effect on 1 September.

The upcoming changes bring into focus two very important key imperatives. The first is trustee education. This has been supported by the FSCA recently releasing the second half of the online Trustees’ Toolkit and again stressing the importance of ongoing education to support confident and appropriate decision making. Trustees and manco’s need to continually upskill themselves to stay relevant with the laws, their responsibilities and the solutions they implement in their funds guided by their consultants. Manco’s, although taking less liability, do still need to remain abreast of technical developments and the provisions of the umbrella fund they participate in, as well as the benefits provided by other umbrella funds.

The second key focus point is member communication and education – and financial literacy in general. Two-pot brings with it a greater degree of flexibility for members of retirement funds. They need to be counselled on these changes, and the financial and tax consequences of accessing their savings pot before reaching retirement. I remain skeptical that a newsletter and a text message is sufficient.

And while we all toil away to ensure a smooth implementation of the two-pot system, we need to appreciate what is happening in the broader environment. The May elections and global political tensions, and how these impact our investment markets and our world, are other topics covered by thought leaders in this issue.

And as a final word, EBnet welcomes Nathalie Burrows as an Editor from 1 March 2024. Nathalie’s expertise and experience in the retirements industry will enrich our efforts in providing the industry with updated news, meaningful collaboration and continuous professional development. Nathalie has nearly 30 years’ experience in retirement funds and investments, having served as an employee benefits consultant, individual financial planner, Principal Officer and Information Officer, giving her a deep appreciation for each role player’s perspective. We look forward to her contributions in the coming months.

Welcome to the first issue of Pensions World SA for 2024. Whilst the promise of a new year brings with it hope and renewed energy, it’s becoming increasingly difficult to ignore the social and economic difficulties our country is facing.

It’s hard to be a South African right now. Potholes, load shedding, water shedding and insufficient schools to meet growing demand are some of the broader infrastructure issues that have, in some cases impacted the man in the street. Add to this the pressure on our personal household budget as interest rates remain stubbornly high and general prices keep going up, without commensurate wage increases. This leaves many of us buying less of everything while prioritising the most urgent needs.

Outside our garden walls, the Johannesburg Stock Exchange has shrunk by half over the last 30 or so years, making it difficult for trustees and investment managers to find opportunities to deliver real growth to retirement fund members.

Beyond our beautiful shores, the temperature is getting hotter and water is becoming scarcer. Globally, wars (and fires) are raging and it just feels like things are getting more and more difficult.

Can we solve any of these problems by doing things the same way we always have done them?

The industry thinks not. The Regulators through the two-pot system, have introduced a brand new way of looking at retirement savings. Soon it will be retirement savings, with an element of emergency savings. This two-pot system is structured in a way to enable members of retirement funds to meet real and unforeseen financial emergencies that arise in their daily lives, but also to encourage savings in the long term. If you take a moment to think about it, the retirement fund of today is very different to the pension fund of 40 years ago. 40 years is the average person’s career-span.

In addition, the updates to Regulation 28 that increase investment limits in private market investments send out a resounding message that we need to put different lenses in our glasses when attending trustee meetings. Whilst the updated limits have been in place for some time, the real investments taking place don’t seem to be following. Yes, trustees have updated their governance policies (tick ) but are investments flowing in a different direction? Not really.

Thinking differently takes courage – from all role players. Asset managers need to interrogate portfolio constructs, advisors and consultants need to understand the types of investments out there that can solve the two seemingly opposite problems of real returns and economic upliftment and trustees need to start asking the right questions in their meetings.

In this issue of Pensions World SA we have a special feature on private markets – with some focused articles and the Trustee Tutor to grow your understanding of the benefits these present to the sustainability of retirement funds.

As always, I trust these articles challenge your thinking and grow your confidence to play your part in the evolution of our retirement industry.