The growing trend towards defined contribution retirement funds and away from defined benefit funds is putting a greater burden of risk on members, who are expected to make important investment decisions although they may lack the expertise to do so.
According to Johan Roux, chief consultant at Sanlam Group Benefits, it is particularly the older members of retirement funds who run the greatest risk of exposing themselves to the negative side of market fluctuations.
"Younger people at least have the benefit of time to recover from market fluctuations, but they also need expert advice," he said.
An increasing number of retirement funds are offering different investment options to members. These could be purely market-related portfolios, with potentially high returns but increased risk; capital-guaranteed portfolios, with average returns and moderate risk; and cash portfolios, with lower return and no risk.
Hannes Victor, Pretoria regional manager at Old Mutual Employee Benefits, says since members in a defined contribution fund carry the risk, they should consider spreading risk by investing offshore.
"Economic growth, diversified risk alongside increased returns, and investing in markets and industries otherwise inaccessible to South African investors, are a few of the arguments for entering the international investment arena."
One of the options in a defined contribution fund is for the trustees of the fund to select a number of different investment vehicles and allow the members of the fund to select the different portfolios that meet their particular investment needs. This will enable some members to invest offshore, if they wish.