How trustees can help to improve retirement outcomes for members

Investment performance, governance and communication are the key challenges trustees face in their efforts to ensure members of retirement funds get what they need from retirement.

This is according to Richard Carter, trustee of the Allan Gray retirement funds, while moderating the “Governance and regulation” panel at the inaugural Allan Gray Retirement Benefits Conference.

The panellists noted that communication is often too complex, and members don’t understand the steps they need to take in the run up to retirement to make sure they have enough. Employers and trustees need to do more to help members to engage with the end picture, and what is a likely scenario for retirement, to enable them to prioritise their retirement savings, or to think about supplementing their savings outside of their retirement funds.

“People often only wake up when it is too late to change the picture,” said Ayanda Gaqa, head of risk and compliance at the Eskom Pension and Provident Fund, noting that technology can help members engage with projections and understand the bigger picture.

“A simple rule of thumb is that you need 14 to 16 times your annual salary at 65; you don’t need a complicated actuarial formula. If members have this at the back of their mind, they’ll realise they need to have a plan from the time they start earning,” noted Jonathan Mort, founder of Jonathan Mort Inc, adding that trustees can help with reinforcing this message, but it shouldn’t only be their responsibility. Employers can also play a role in helping employees get a sense of what is enough.

The importance of sound trustee oversight really comes to the fore in crucial matters like selecting the right investment managers and other service providers. The track records of the administrator and the investment managers matter. Trustees must take these into account when they make their appointments and must make sure that their decisions are sound, fair and transparent and focused on the long term. Trustees then need to monitor how the service providers are performing on an ongoing basis: many things can go wrong.

When it comes to investment performance, what ultimately matters to members is having as much money as possible at the end. But sustainability in investing is becoming increasingly important and environmental, social and governance factors need to be considered. Trustees must manage the trade-off of risk-adjusted returns versus the impact of those investments.

“Returns are crucial because these are retirement savings; but it is no good achieving returns at the expense of terrible labour practices or living in a ruined environment,” said Mort. Gaqa agreed, noting that these issues have become a reality and there is a need to focus on long-term sustainability.

However, according to Muvhango Lukhaimane, the Pension Funds Adjudicator, this must be managed within the boundaries of a fund’s investment policy. “A fund can’t take members’ money and not deliver; it must deliver the agreed return,” she stressed.

Another issue is infrastructure investing and proposed changes to Regulation 28 of the Pension Funds Act. According to Mort, infrastructure projects give funds the ability to invest locally and benefit the local community, but Gaqa emphasised that, again, the member has to be put at the centre of the investment decision. “Is the investment going to benefit the member and is it in line with the fund’s investment policy? On a risk-adjusted basis, is the investment worth considering?”

The panellists all agreed that governance of the projects must be sound and there must be confidence in the valuation methodology. This applies to all investment decisions.

“At the end of the day, trustees need to be focused on improving outcomes for members. Only 6% of South Africans can afford to retire. We need to develop a culture of saving and encourage people to save. This is a challenge for the entire industry,” concluded Carter.

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