EDITOR'S COMMENTS

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This issue of Pensions World SA has been an exciting one to put together. We believe that the two-pot system requires us to evolve from being either focused on retirement funds OR individual financial planning. Rather, we need to support the industry in bringing these two advisory capabilities much closer together. With this in mind, we approached a number of individual financial advisors with this issue’s theme of “inclusive financial planning”.

Their different interpretations of this phrase was thought provoking in itself. Some viewed this as financial planning being much closer to, and really part of, the institutional consulting advice given to trustees and employers (and consequently, members). Others interpreted this as financial advice being for everyone – not only the well-to-do few who have significant assets in retirement funds. And still others took it to mean that financial planning is not a solo endeavour and should take the whole family into account – including spouses and other family members.

None of these approaches are wrong! And reflecting on them, opens an unlimited number of avenues and opportunities of helping fund members achieve better retirement outcomes.

You will thus see in this issue not necessarily the customary “special feature” section, but rather a renaming of our usual financial planning section, to “Inclusive financial planning” – reflecting the focus of this issue. It is an idea that is carried through many of the other sections and articles as well.

Two-pot also spotlighted the need for financial literacy and education as a national imperative. This was the focus of the FSCA’s Financial Education inaugural summit in August last year, where the theme was “Creating accessible financial education for all South Africans”. I believe that there is a lot that the traditionally distinct retail and institutional advisors can learn from each other, to meet this need, in a very impactful way.

It is in this light that I particularly enjoyed the comment made by Bryan Nicol, CFP®, CEO of Freedom Financial Planning, one of this issue’s contributing authors:

We need to dispel the misconception that employee benefits and financial planning are two separate entities – the client wins when we bring the two together. 

And so, as we start 2025, I hope, as always, that you find this issue as thought provoking and interesting as we did putting it together for you.

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.

David Weil

EDITOR

David Weil, CEO ICTS Group of Companies

David is Chairman and CEO of the ICTS Group of Companies. A stalwart of the retirement funds industry, having started his own business in 1995 called Investment Consulting and Training which he sold to the Alexander Forbes Group in 1999 where he occupied a Senior Director position for just over 3 years, before restarting ICTS in 2002. ICTS has the mission statement “to support retirement funds and their members, in collaboration with the fund’s mainstream service providers, by specializing in niche services that complement and enhance the overall retirement funding experience.” David and his team have achieved this in the fields of tracing, death benefit services, training, legal services, EBnet, Pensions World SA, and Motswedi Economic Transformation Specialists. David holds a BA in Economics and Law from Wits, and serves as an independent trustee on a number of retirement fund trustee boards.