MEMBERS of retirement fund schemes and unit trust investors can expect fees to drop substantially in the wake of new reforms announced last month.
But most of them will not be affected by changes proposed by the Treasury to reduce the number of fund providers drastically.
Retirement fund trustees have already begun to interrogate charges. Unit trust costs can run as high as 5% of assets‚ and then purveyors can add on further “murky” performance fees.
Stanlib Retail managing director Bongani Mageba said the reforms challenged the entire financial services sector to put the needs of members and investors first. Unit trust costs would come down amid far more transparency over performance fees.
“It is a good story for the industry and the investor. The regulator is going through costs with a fine-tooth comb and there will definitely be a reduction in costs over time‚” Mageba said.
“It also opens up access to people who were previously not inside the net. So I expect there will be much higher usage of unit trusts.”
There are in excess of 1 000 unit trust funds and more than 50 asset managers in South Africa.
The pension reform process will usher in the use of default options to encourage saving‚ with Mageba seeing unit trusts playing a major role as underlying default funds.
But funds will have to be clear on how they charge fees.
“It will affect revenue generating models in this industry. There will be a lot more transparency and openness‚” he said.
But Mageba warned of the need to guard against destroying the industry by allowing products to be sold for almost nothing. Huge effort‚ systems and processes were needed to produce these products, he said.
The industry and the Treasury both foresee that the extensive reforms will ultimately lead to the number of funds available in the retirement sector dropping from 3 000 to as little as 100 – while potentially halving costs.
John Anderson‚ head of research at Alexander Forbes‚ said while a lot of detail was still needed‚ 80% of retirement schemes in South Africa were very small. The vast majority had fewer than 50 members and many had fewer than 10.
“The changes will impact a very small number of people and most members will be unaffected by it. It makes sense‚ as there will be more value for money.”
While the Treasury is moving quickly on its plans‚ the industry is calling for more consultation‚ worrying that not all facets of the proposed changes will work.
– Evan Pickworth