In the world of pension and provident fund products, changes and updates to regulations are part of a continual process to help South Africans enjoy a comfortable retirement.
Recent updates to the Pension Funds Act—aimed to ensure access to more cost-effective products and to enable members to make better investment decisions—have been in the works since 2012. These new regulations, referred to as default regulations, have taken effect on 1 March 2019.
What does this mean?
The default regulations are all about the fees.
Living up to its name, the regulations require funds to offer its members a default retirement investment option. Although many funds already have this option available to members who do not actively select their own portfolio, they might not meet the regulations’ criteria, which includes more competitive and reasonable pricing.
Another mandate is for employer funds to offer a default option for preserving savings when employees change jobs. This means the employee can simply become a paid-up member and leave their benefit in the fund if they want to. If not, the fund should allow for a transfer to a new fund. An important update here is a requirement for funds to provide counselling to members during this stage.
The third update in the regulation is providing members with an annuity strategy when entering retirement. This means that funds should provide advice to help individuals make an informed decision when having to choose between a living or life annuity.
This mandate extends to providing counselling to members on how to best preserve and invest retirement savings when changing jobs, as financial advice from advisors in the retail market is an undesirable option for many individuals due to the high price tag.
The default investment options also feature a full and transparent disclosure on all the associated fees tied to the product, helping individuals to make more informed decisions.
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Saving for retirement is the biggest investment most of us will ever make. Sadly, it can also be very complicated. In this monthly blog, we try to answer some of the retirement questions we hear most often, ranging from which products are best suited to different circumstances to efficient tax treatments. Words by Carina Jooste.