Magnus Heystek, an independent financial adviser and Personal Finance columnist, told the Personal Finance/TMA Truth about Retirement seminars that there is a growing awareness of the need for retirement planning and a more sensible approach to money and investing. Life, he says, is too long to make the wrong retirement choices. Esann de Kock reports.
South Africa's retirement fund industry is changing rapidly and this has serious consequences for you, the investor, warns Magnus Heystek, an independent investment adviser and Personal Finance columnist.
It means you should re-assess your choice of retirement fund and get involved in and informed of investment decisions concerning your retirement money.
The main change in the retirement fund industry is the move from defined benefit funds to defined contribution funds.
Even the government, as the country's biggest employer, has signalled its intention to transform its funds from those that guarantee a life-long pension to those that base benefits on the defined contributions.
Heystek says this change will not happen overnight and not without some resistance from pension fund members.
The transformation will also mean the government will have to address the issue of the current tax-free nature of government and semi-government retirement funds, he says.
The trend towards defined contribution funds, which can be either pension or provident funds, has also accelerated in the private sector, as both employees and employers have started to realise the benefits, Heystek says.
Apart from the fact that employees are realising the benefits, companies are taking a more pragmatic view and looking to defined contribution funds for better protection of their interests - particularly as far as costs are concerned.
Heystek says the reason for increasing concern over costs is that companies realise South Africa has entered a period of significant change which may impact adversely on the cost of providing final salary benefits.
Other issues in the debate about costs to employers include the rate at which employers should contribute to defined contribution funds; fair transfer values when a member's interests are converted from one type of fund to another; to whom pension fund surpluses belong and whether companies can take pension contribution holidays if there is a surplus in a fund.
The shift from defined benefit to defined contribution funds means that South Africans will in future be making investment decisions for themselves - something which has huge ramifications for many players in the retirement fund industry.
For individuals it means you need to improve your knowledge of investments. Companies, on the other hand, will have to educate their employees about their responsibilities prior to and at retirement and financial advisers will have to help people maximise their investments.
Heystek says the pace and extent of change in the retirement fund industry has also not left the investment industry unchanged. Subtler, unheralded changes are taking place in the large players in the industry - the demutualisation of Sanlam and Old Mutual, for example, is symptomatic of changes taking place on a global scale.
These companies no longer want to be known as life assurers, but as financial services companies.
The changes have also affected the range of investment products available to the average investor.
Heystek says this is not only bewildering for the investing public, but also for investment advisers who have to provide objective and appropriate advice.
"Your average investment adviser now needs to be an expert on virtually every unit trust fund and assurance company, not only in South Africa but all over the world - as well as on the major currencies, stock markets and tax regimes in more than 50 countries."
Local changes have also highlighted the need to diversify portfolios to include offshore investments.
Heystek says despite the overwhelming argument for international diversification, South African investors have been slow to take up offers to invest abroad.
So far only slightly more than 5 000 South Africans have remitted some R730 million into offshore markets.
"There is still a gross misunderstanding of the issue of risk attached to offshore investing.
"Isn't it risky, is still a fairly common response from the average South African who, after 42 years of apartheid-induced propaganda, still seems to think that South Africa is the centre of the universe and the economic powerhouse of the planet."
Many people are hopelessly over-exposed to the Southern African continent, Heystek says.
* This is the last article in our series on presentations made at the Personal Finance/ TMA Truth About Retirement seminars.