EDITOR'S COMMENTS

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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.

The word balance has taken on a new dimension in recent years. With every corner of our social circle – real life or media – screaming at us to seek this nirvana state of no tension. The phrase work life balance remains in the spotlight long after the pandemic, encouraging people with flexible work arrangements and flexible life goals to try to live these out in a way that suits their unique selves.

Whilst editing this quarter’s issue, it struck me that our industry is also seeking balance. Balance between seemingly conflicting goals and objectives.

I would wager that every person reading this is affected by the two-pot retirement system in some way. Moreover, whilst we all feel anxious about what the final system will look like and whether our tech and people will be able to operate this new framework by 1 March next year, we cannot deny that at its heart the two-pot system is a step forward for the industry and our members. It’s really about balancing today’s financial needs with tomorrow’s financial goals. In this issue, you will see that South Africa is not the only country having to deal with these conflicting needs.

Another topical debate right now is the Regulation 28 offshore limits. Whilst the increased allowance to take portfolios up to 45% offshore has been around for over 18 months now, there remains much debate on whether to invest the maximum overseas or to seek inflation beating returns and opportunities in our local market. This requires deft balance.

While we’re on the subject of investments, net zero and ESG are both important imperatives on the world agenda, with transformation specifically on the South African table. These require asset owners to deliberate diverse perspectives and seemingly conflicting objectives. A delicate balancing act is needed to achieve meaningful returns today, whilst investing in the world of the future.

Even our healthcare system is not exempt from disruption and change. There remains the ongoing topic of the National Health Insurance (NHI) working in tandem with private medical care. And, as we go into the new year, medical aid providers are seeking the sweet spot between medical aid increases to pass on to their members versus the cost increases their suppliers are passing on to the schemes.

Finally, when all is said and done, households are simply trying to balance their budgets. To say that consumers are experiencing constrained finances is probably the biggest understatement of 2023. Increased interest rates, petrol prices, political conflict and, in South Africa, load shedding all put pressure on the consumer’s pocket.

Whilst all these topics seem to be distinct and separate, they do all intersect in financial wellness for all in our industry. The trick as we go into 2024 is to have the agility to balance these in a way that works.

As always, I trust the articles in this issue of Pensions World SA challenge your thinking, and we wish all our readers a happy and healthy new year.

Growth happens outside of your comfort zone is a phrase often quoted as evidence of the upside to challenges that one faces. No one can argue that we are facing an inordinately challenging time in our country. The question is: do these challenges present opportunity for growth in our industry?

Close to home, the average South African household budget remains tight given, amongst other things, the increases in interest rates over the last 18 or so months. This leaves less money for discretionary spending generally, and savings and investments specifically. In fact, many households are accessing their savings to make ends meet at the end of every month.

The two-pot system, arguably one of the biggest industry changes of our time, is specifically intended to alleviate some of this financial stress, whilst at the same time forcing preservation to build retirement savings. As I write this, we are waiting for some of the details to be ironed out, but I think it would be naïve to expect that this change is simply going to “go away”.

What the two-pot system does, I believe, is bring the realms of retirement funds and personal financial planning closer to each other. Historically, these have been two very separate fields – the retirement fund being a forced saving by virtue of an individual’s employment and any other savings and investments done voluntarily “in a separate place”. Now, the worlds collide where an individual will have access to a portion of their retirement fund every year. What they do with this option needs to be considered in the context of their unique, and possibly immediate, financial needs and overall longer term financial plan.

And so with the two-pot system we find individual financial planners and employee benefit consultants getting a glimpse into each other’s worlds. And some might say it’s about time.

Whilst we hold our collective breath in anticipation of how many retirement fund members will be accessing their retirement funds, it does present an opportunity to communicate better with our customers. Uplifting general financial literacy on the long term implications of spending this money on the “wrong” things has to be one of our key objectives.

I trust the articles in this issue of Pensions World SA challenge you to explore the end of you comfort zones and provoke your thinking.

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.