Umbrella funds could be solution

Evan Pickworth

UMBRELLA funds could provide a solution for companies needing to automatically enrol all employees in a retirement fund‚ and even obviate the need for creating one universal fund run by the government‚ industry experts said last week.

Though talk of a national social security system in South Africa has faded from the agenda‚ the government remains desperate to bring the six million formally employed South Africans not covered by employer-based retirement arrangements into the system to improve savings rates. A major push towards fewer and larger funds‚ with better governance and administration structures‚ is firmly on the Treasury's radar.

Outgoing finance minister Pravin Gordhan announced the savings and retirement reform process in the 2012 budget‚ and in March this year plans were firmed up via a new reform paper‚ with a system to protect vulnerable workers mooted for early next year and improved fund governance rules for multi-employer funds expected later this year.

Sanlam employee benefits research head David Gluckman said last week a dramatic shift was already taking place towards multi-employer funds‚ which allow pooling of assets and sharing of costs. "This will continue and bigger multi-employer funds may even obviate the need for a national system‚" he said.

The possibility of a centralised fund remained for vulnerable workers without funds‚ but it was unlikely those in current funds would be moved to a central fund.

Five providers already account for 80% of the umbrella fund market‚ which covers more than 20000 participating employers‚ with R117-billion of assets across more than a million members.

Gluckman said any move to a central fund‚ even if just for the millions not in any fund‚ remained difficult to resolve.

His concern is that the regulatory environment for the boom in umbrella funds is not covered in the reform process.