The trustees of your retirement fund are under tremendous pressure to do their job properly, Chris Bösenberg, an independent consultant, says.
He was speaking at the recent Truth About Retirement Seminars.
Your trustees face increased demands from individuals for investment choice and are under pressure to contain costs to the fund.
They have to know where to invest the fund's money from a wide range of products that meet the challenges of volatile markets. And they cannot always rely on independent financial advice from consultants, who often push products with the highest commissions.
Your trustees also have to implement new legislation relating to retirement funds and have to factor in the impact that Aids will have on your fund.
MEMBER CHOICE
In the past decade, the retirement fund industry has moved away from defined benefit funds to defined contribution funds, led by, among other things, an increased desire by members for greater ownership.
Individual investment choices and options on assurance benefit cover have now been introduced to better meet members' needs. Bösenberg says your trustees should be providing you with at least the following:
* A minimum choice of three or more investment categories which differ in the amount of risk and reward offered. But choices should be limited to keep costs in check. And if you switch investments, you should carry the cost;
* Diversification between different risk types, plus a choice of investment manager within these types;
* Sufficient information to make informed choices; and
* Permission to change investments as often as market volatility dictates, or at least quarterly.
Bösenberg says unit trusts are valued daily and that with such volatility, nothing short of daily switches is acceptable imagine having to wait two to three months to switch.
RISK BENEFITS
Forecasts on the Aids epidemic suggest that the cost of risk benefits for the average fund will double within the next five years. Bösenberg says innovative approaches are needed by the retirement fund industry to ensure contributions to retirement benefits are not eroded.
Your need for death and disability cover depends on the amount of cover you require, as well as your share in the fund, the needs of your dependents and the costs.
A one-size-fits-all, or lowest common denominator, approach to providing death and disability cover for all members is no longer necessarily the most appropriate, although it is the most cost effective, Bösenberg says.
You should be able to reduce your cover as you grow older by providing cover based on age. Alternatively, you should have the option of death and disability cover when you join the fund. And you should be able to increase the cover when significant events take place, such as when you get married or have a child.
SURPLUS
Bösenberg says negotiation between you and your employer is the most effective way of resolving the issue of surpluses which have built up in many funds. But, he says, this avenue has been blocked by Cosatu and the Receiver of Revenue.
A committee consisting of regulators, employers, the Life Offices Association and labour had suggested that you and your employer should negotiate how a surplus should be divided up, but this was then opposed by Cosatu and later shelved.
And the taxman did not approve the use of a surplus to enhance benefits to members or pensioners, when this benefit was greater than 10 percent.
Bösenberg has called for the issue to be resolved as a matter of urgency.