Treating Customers Fairly

Transcription

1 Treating Customers Fairly and good retirement outcomes Batseta, Cape Town 16 July 2015 Kobus Hanekom

2 What is TCF? Treating Members Fairly TCF is an outcomes based regulatory approach that seeks to ensure that specific, clearly articulated fairness outcomes for financial services consumers are demonstrably delivered by financial institutions. Why TCF? Information asymmetry between retail financial consumers and financial boards, insurers, administrators and consultants Unique consumer risks of financial products and services Holistic, co-ordinated and consistent financial consumer protection regulatory framework needed with a mix of principles-based and rules-based regulation 2

3 Treating Members Fairly The 6 TCF outcomes for trustees to consider 1. Members can be confident they are dealing with boards, insurers, administrators and consultants where TCF is central to the corporate culture 2. Products & services marketed and sold to funds and members are designed to meet the needs of identified members and funds and are targeted accordingly 3. Members are provided with clear information and kept appropriately informed before joining the fund, during active membership and post retirement as pensioners within the fund

4 Treating Members Fairly The 6 TCF outcomes for trustees to consider 4. Where advice is given, it is suitable and takes account of the member s circumstances 5. Products perform as boards, insurers, administrators and consultants have led members to expect, and service is of an acceptable standard and as they have been led to expect 6. Members do not face unreasonable (post-sale) barriers imposed by boards, insurers, administrators and consultants to change product, switch providers, submit a claim or make a complaint

5 Treating Members Fairly The 6 TCF outcomes for trustees to consider These outcomes are to be demonstrably delivered throughout the product life cycle, from product design and promotion, through advice and servicing, to complaints and claims handling and throughout the product value chain. 5

6 Treating Members Fairly TCF culture framework applies to all parts of the value chain Leadership Board (and management, where applicable) to take ownership, provide direction and monitor delivery Strategy TCF built into strategy not just in vision & value statements or glossed over as a standing item Decision-making All decisions impacting on members must be subject to TCF scrutiny and challenge

7 Treating Members Fairly TCF culture framework applies to all parts of the value chain Governance and Controls TCF to be embedded in governance structures. Management information to be identified, collected, evaluated and acted on to monitor success of TCF outcomes Performance management Appropriate recruitment, training and evaluation against TCF competence and expectations also applies to outsourced services Reward Remuneration and incentive schemes to take cognisance of fair customer outcomes.

8 TCF GAP ANALYSIS from FSB Baseline study RESULTS: Outcome 1: Culture & governance 54% lowest TCF readiness across all sectors incl. banks Strategy 58% Governance controls 55% Decision making 57% Leadership 61% MI management information on member satisfaction, data collection, corrective action etc. 51% Performance management 50% Reward 43% Outcome 2: Products & Services 64% Outcome 3: Clear appropriate Information 72% highest TCF readiness for RFs sector Outcome 4:Customer Advice 70% Outcome 5: Expectations 65% Product performance expectations 68% Third parties 56% Outcome 6: Complaints & switching & barriers 71% Complaints handling 72% Changing products 71% Switching providers 71% Claims disbursements handling 71% Total score for RF sector 62% lowest after FAIS 8

9 Treating Members Fairly The retirement fund value chain The regulatory framework will hold all regulated entities in this value chain accountable to deliver TCF outcomes relevant to their role. Sponsor / Employer Fund & Trustees (Rules, Benefits, Eligibility) Administrator (Benefit & Investments) Insurer / other product provider Fund advisers / other service providers Member adviser

10 Why is it necessary to adopt a good retirement outcomes strategy? Why should the employer take action? What does the research say? How would the two approaches complement each other?

11 Although in many respects our retirement fund system is financially sound and well regulated, too many people reach retirement age without adequate accumulated savings National Treasury project team

12 2006 Benchmark survey member surveys... Apathetic lack understanding suffer from inertia short-term thinking their decisions often destroy value... behavioural finance

13 Benchmark 2013 Q. Do members revisit the decisions they made on joining? 90% do not 50% happy with decisions 14% not interested in detail

14 Benchmark 2013 Q. How do members make decisions? 60% 50% trust Trustee decisions stick to the default 41% not interested!

15 Benchmark 2013 Q. How do members get advice? 43% have not made use of financial adviser

16 Benchmark 2013 Q. How do members get advice? 63% not prepared to pay for financial advice

17 Benchmark 2013 Q. How do you feel about member communication? 54% have access to internet 47% ticked I understand most of the benefit statement 25% never visit online communication

18 Benchmark 2013 Q. what is all of this telling us? members are oblivious? employers / trustees do not consider themselves responsible for a good outcome?

19 good retirement outcomes for members

20 2015: Biggest shift of the 2010 s The duty of the employer / the board of trustees - to review and manage the entire retirement fund offering to their members and - to ensure a good retirement outcome It is no longer appropriate to merely - comply with the law and the fund rules - refer members to speak to a legal adviser

21 From 28 February 2014 Trustees have a fiduciary duty iro o o the fund, and the members and beneficiaries Section 7C

22 Retail Distribution Review (RDR) Firms = trustees They have to look at outcomes for members Wholesale advice / indirect advice impact on the end user Concerns - Investment portfolio may not be appropriate for individual members, but the cost of the advice is borne by them - Is the member getting good value Co-liability for trustees - to what extent do they ensue that the advice is appropriate for their members, or - engage with advisor to ensure they do a good job consider incentive structures Jonathan Dixon: FSB

23 Our Benefit Structure Approach A fit for purpose benefit structure Default benefits Member guidance and support Cost effective Efficient Serving members needs Contributions Investment Annuitisation Preservation Day One Strategy Projected Pension Ratio (PPR) calculator

24 What do we wish for our country and people J o b s P e a c e P r o s p e r i t y R u l e o f L a w

25 Defined by 2800 lifetimes living in caves Tools Agricultural age 200 lifetimes tilling the land Machines Industrial age 5 creating the wonders of Technology Information age 1 living in the information age Consciousness Shift age David Houle, Entering the Shift Age

26 Intellectual Property Wealth of the shift age connectivity power will increasingly be measured more by influence than control the individual has more power that he has ever had

27 The retirement definition of the past 50 years is dead. It will be replaced by people always connected but at levels that decline through time in the final decades of life. There is no longer any place to retire to when we are all connected. - David Houle, Entering the Shift Age

28 Retirement more aligned 40 years of work 20 years of retirement but you still have to save for it

29 How can we give South Africans the inside track?

30 Why Nations Fail - Acemoglu and Robinson Of all the conditions and factors that make countries richer or poorer, the one that researchers discuss most is - Good Institutions.. the laws and practices that motivate people to work hard, become economically productive, and thereby enrich both themselves and their countries.

31 Authors argue that People need incentives to invest and prosper, they need to know that if they work hard, they can make money and actually keep that money

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33 SA given months to avoid junk status by Ntsakisi Mswanganyi, 03 March 2015, 05:47`BusinessDay S&P keeps eye on state wage bill, while Fitch said last week weak economic growth and a failure to boost potential growth a negative rating trigger

34 Percentage of learners South Africa s education system Source: The State of Youth in South Africa Trends in Education Attainment (2009) Attainment Levels 100% 98% 50% OECD Average (40%) 30% 10% 3% Enrolment at Grade 1 Secondary Enrolment Matric Matriculate Tertiary Enrolment Graduation

35 Melbourne Mercer Global Pension Index

36 Our strongest performance integrity an above average score, 25% weighting in the final score

37 We are below average on sustainability and adequacy, where we score poorly on: net replacement rates for median-income earners

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39 Institutions that will drive the change in SA - Retirement funds - Employers

40 Our Benefit Structure Approach A fit for purpose benefit structure Default benefits Member guidance and support Cost effective Efficient Serving members needs Contributions Investment Annuitisation Preservation Day One Strategy Projected Pension Ratio (PPR) calculator

41 The young member focus group (23 to 35) Benchmark 2015 o It all seems so overwhelming when people start to talk to me about stuff like that. I don t know what it means so I always just think OK I ll get it one day. I think like I ve got lots of time before I retire.

42 The young member focus group (23 to 35) Benchmark 2015 I think if they can simplify it, especially for the younger person, it all seems like gibberish sometimes. If they can find a way to simplify it and find a way to stress the importance of it. As a 19 or 20 year old you don t grasp the importance of it until you re maybe a bit older.

43 International developments Shift DB in the direction of DC But DC is not considered a compelling solution

44 De-risking DB funds Risk transfer: Longevity risk - the most prevalent approach is to provide for lump sum benefits at retirement not a pension. Risk sharing: Risk is shared through plan redesign (mostly by introducing DC benefits in respect of future service). The way in which these arrangements are introduced reminds of the position in SA. These include the sharing of surplus on conversion to DC as well as an even more extraordinary cash out option Risk mitigation: Investment risks are mitigated by Liability Driven Investments. \

45 International developments Canada Targeted pensions / Shared Risk Plan Netherlands Collective DC schemes United Kingdom Defined ambition schemes (being developed) United States Cash balance plans

46 What initiative do we have in South Africa? good retirement outcomes for members A DC foundation with an aspirational / targeted retirement outcome

47 Treating Customers Fairly and good retirement outcomes

48 The best way to ensure decent outcomes for members of retirement funds is through the effective governance, management and administration of these funds, Rosemary Hunter deputy registrar for pension funds, FSB

49 when the student is ready... the teacher will appear

50 Thank You

51 Treating Customers Fairly and good retirement outcomes Batseta, Cape Town 16 July 2015 Kobus Hanekom