KOBUS HANEKOM. RETIREMENT REFORM PRESSURES... how should employers respond?

Transcription

1 KOBUS HANEKOM RETIREMENT REFORM PRESSURES... how should employers respond?

2 Q. HOW EFFICIENT IS MY FUND? DOES IT GIVE MEMBERS THE INSIDE TRACK TO A DIGNIFIED RETIREMENT?

3 spouse children earns R pm will change jobs 5-7 times THE AVERAGE AVERAGE JOE life expectancy 55/59 (male/female) at can live another 20 years will retire between 60-63

4 apathetic short-term thinking their decisions often destroy value MEMBER SURVEYS lack understanding suffer from inertia BEHAVIOURAL FINANCE

5 1956 develop a group retirement plan appoint a board of trustees prepare fund rules

6 TODAY benefit structure... ad hoc amendments board of lay-trustees... under pressure to comply rules all important... adjudicator / FSB

7 LEGISLATIVE FRAMEWORK to protect member - compliance with fund... rules all important whether fund is still effective as a retirement vehicle?... not required by the rules or the Act allows leakage no cost control measures

8 Q. COULD WE HAVE LOST THE PLOT OVER THE PAST 50 YEARS?

9 how should employers respond? INDUSTRY BEST PRACTICE

10 WHY A RETIREMENT FUND?

11 Professor Matthew Lester Professor of Taxation Studies, Rhodes University, Grahamstown Very few South Africans appreciate that retirement funds are now virtual tax havens. Where else can one invest with up to a 40% tax incentive and thereafter the fund grows free of Income Tax and Capital Gains Tax and Dividend Withholding Tax and is protected against Estate Duty?

12 interest income initial investment up to 40% tax TAXATION ON A NON-RETIREMENT INVESTMENT (out of taxable income) dividends flat taxation rate 15%? CGT event up to 13.3% tax DEATH CGT plus estate duty 20% over R3.5m

13 interest income TAXATION ON A RETIREMENT FUND INVESTMENT initial investment (out of pre tax) income nil exempt dividends exempt CGT exempt DEATH CGT and estate duty exempt

14 gross amount saved tax saving reinvested net available interest dividends equity growth rate tax on income / gains total time value adjustment RETIREMENT ANNUITY R R R R R R R R R UNIT TRUST R R R R R R R R R R pm invested over 25 years. Inflation - 6%, CPI plus 3%

15 COMPARISON OF TAX ADVANTAGES 35 years LUMP SUMS Retirement fund investment collective investment advantage R person 30, Income R pa,... maximizes deductible contributions 22.5% to 27.5% R R %

16 THE MOST OCCUPATIONAL RETIREMENT FUNDS TAX EFFICIENT COST EFFICIENT

17 MAXIMISE ADDITIONAL SAVINGS? DEDUCTIBLE CONTRIBUTIONS

18 ask how much pension you will get when you retire? WHAT DOES A GOOD RETIREMENT FUND LOOK LIKE?

19 DC RETIREMENT BENEFIT = MEMBER SHARE all contributions and transfers to the fund (employer and employee) net of costs and risk premiums investment return earned thereon

20 NRR NET REPLACEMENT RATIO what percentage of your final salary will your monthly pension be?

21 NRR NET REPLACEMENT RATIO CALCULATOR or SPECIAL REPORT

22 NRR NET REPLACEMENT RATIO is this number about... how bad the fund is? or short contribution history in to the fund?

23 refers only to your personal situation NRR NET REPLACEMENT RATIO is this number about... how bad the fund is? or short contribution history in to the fund? to determine the horsepower of your fund... need to make a more complex calculation

24 NRRC AND COST COMPARISON REPORT horsepower report

25 FUND MANAGEMENT FEE administration fee minimum fees / annual fees / transaction fees asset based administration fees actuarial fees CONSULTING FEES OPERATIONAL COSTS contingency reserve fee ASSET MANAGEMENT FEE

26 COMPARISON LARGE STANDALONE VS. UMBRELLA FUNDS

27 FEES PAYABLE BY MEMBERS salary p.m. fund credit fund management fee contingency reserve asset based admin fee asset management fees total monthly charges % of salary CALCULATION

28 FEES PAYABLE BY MEMBERS salary p.m. fund credit fund management fee contingency reserve asset based admin fee asset management fees total monthly charges % of salary CALCULATION salary p.m. fund credit fund management fee contingency reserve asset based admin fee asset management fees total monthly charges % of salary

29 COSTS FUND MANAGEMENT COSTS LEVIED AS % OF SALARY

30 COSTS FUND MANAGEMENT COSTS LEVIED AS % OF SALARY

31 NET REPLACEMENT RATIO Age$Band Total$Members Male Female Fund Statistics and Mean Net Replacement Ratio Replacement Ratio +2%$Sensi7vity :2%$Sensi7vity <=$ % 119.8% 53.4% 26$:$ % 102.4% 49.1% REPORT 31$:$ % 84.2% 44.1% 36$:$ % 69.6% 39.7% 41$:$ % 58.4% 36.7% 46$:$ % 45.2% 31.8% 51$:$ % 37.8% 30.0% 56$:$ % 32.1% 28.6% >=$ % 44.1% 42.3% Total$/$ Average % 62.1% 37.3%

32 NET REPLACEMENT RATIO REPORT Age$Band Total$Members Male Female Fund Statistics and Mean Net Replacement Ratio Replacement Ratio +2%$Sensi7vity :2%$Sensi7vity <=$ % 119.8% 53.4% 26$:$ % 102.4% 49.1% 31$:$ % 84.2% 44.1% 36$:$ % 69.6% 39.7% 41$:$ % 58.4% 36.7% 46$:$ % 45.2% 31.8% 51$:$ % 37.8% 30.0% 56$:$ % 32.1% 28.6% >=$ % 44.1% 42.3% Total$/$ Average Replacement Ratio 78.8% % 62.1% 37.3%

33 STAND-ALONE VERSUS UMBRELLA Fund%Sta)s)cs%and%Mean%Net%Replacement%Ra)o Age%Band Company%Pension%and% Provident%Plans Umbrella%1 Umbrella%2 Umbrella%3 Umbrella%4% COMPARISON <=% % 103.1% 110.6% 77.6% 100.3% 26%L% % 89.0% 95.0% 68.4% 86.8% 31%L% % 73.5% 77.8% 58.0% 71.9% 36%L% % 62.0% 65.3% 50.1% 60.8% 41%L% % 52.1% 54.5% 43.4% 51.2% 46%L% % 41.2% 42.8% 35.7% 40.7% 51%L% % 34.8% 36.0% 31.7% 34.5% 56%L% % 30.2% 30.9% 29.1% 30.1% >=% % 42.3% 42.5% 41.9% 42.3% Total/Ave 47.7% 55.2% 58.1% 45.6% 54.3%

34 STAND-ALONE VERSUS UMBRELLA Fund%Sta)s)cs%and%Mean%Net%Replacement%Ra)o Age%Band Company%Pension%and% Provident%Plans Umbrella%1 Umbrella%2 Umbrella%3 Umbrella%4% COMPARISON Company%Pension%and% Provident%Plans <=% % 103.1% 110.6% 77.6% 100.3% 26%L% % 89.0% 95.0% 68.4% 86.8% 31%L% % 73.5% 77.8% 58.0% 71.9% Umbrella%1 Umbrella%2 Umbrella%3 Umbrella%4% 36%L% % 62.0% 65.3% 50.1% 60.8% 41%L% % 52.1% 54.5% 43.4% 51.2% 46%L% % 41.2% 42.8% 35.7% 40.7% 78.8% 51%L% % 33.6% 34.8% 110.6% 36.0% 31.7% 77.6% 34.5% 100.3% 56%L% % 30.2% 30.9% 29.1% 30.1% >=% % 42.3% 42.5% 41.9% 42.3% Total/Ave 47.7% 55.2% 58.1% 45.6% 54.3%

35 COSTS INEFFICIENCIES identify and remove inefficiencies and costs PENSION PAYABLE introduce synergies and more money in members pension cheque

36 PRESERVATION : DISCLOSURES : ELEMENTS RELATING TO COSTS need legislative framework to facilitate these national priorities

37 stakeholders need to honour and respect this COST EFFICIENCY = KEY CRITERIA new legislation assessed - cost benefit analysis

38 stakeholders need to honour and respect this COST EFFICIENCY = KEY CRITERIA new legislation assessed R cost benefit analysis

39 Q. best fund strategy and structure? EMPLOYERS RECLAIM THEIR LEADERSHIP POSITION... UMBRELLA OR STAND-ALONE Q. savings versus insurance trade-off? Q. cross-subsidisation policy?

40 ULTIMATE QUESTION HOW EFFICIENT IS MY FUND? DOES IT GIVE MEMBERS THE INSIDE TRACK TO A DIGNIFIED RETIREMENT?

41 E RETIREMENT KH REFORM END PRESSURES... the employers response