The cheapest fee on a retirement-fund quotation can be the easiest number to choose. It may also be the wrong number on which to focus.
A retirement fund can have dozens of costs, from administration and investment management to platforms, custody, and governance. Some are obvious. Others are buried in the way services are bundled or charged.
Those costs, and how trustees assess them, were discussed at an EBnet webinar on 23 September 2026 featuring Sanchia Petrie, specialist analyst: fund governance and trustee conduct at the Financial Sector Conduct Authority, Subedra Reddy, executive head: actuarial services and chief actuary at NBC Holdings, and Henry Dull, an independent trustee at Independent Trustee Services.
“You need to secure value, not the cheapest line item,” Dull said.
That can mean paying more for one service and less for another. It can also mean looking at whether two providers are doing much the same job, and what a fee that looks reasonable today could cost as the fund grows.
The fee today is not necessarily the fee tomorrow
Reddy had explored the mechanics of different fee structures at the Institute for Retirement Funds Africa conference earlier this month.
Read: Are trustees looking at the real cost of retirement-fund fees?
His example was a hypothetical fund with about R1.4 billion in assets and 5 000 members. A rand-per-member fee, a percentage of salaries, and a percentage of assets could produce an annual bill of about R6.2 million at the starting point.
They do not stay there.
A rand-based fee generally rises with inflation. A salary-based fee follows salary growth. An asset-based fee rises as the value of the fund increases through contributions and investment returns.
Reddy returned to that point during the webinar.
“So, it’s important to see where were my fees five years ago, where they are now, and where do I expect those fees to be in the next 5, 10, 15 years,” he said.
He used an asset-based fee to illustrate the effect in a rising market.
If a fund’s assets increase by 20%, the fee increases by 20% too, even if the investment manager has returned 20% against a benchmark of 25%.
“The market went up by 25%, you only gave me 20%, but because my assets went up by 20%, I’m going to pay you 20% more,” Reddy said. “So even though you didn’t perform as well as the market, you’re getting the benefit of the market increasing.”
A cheap administration fee can hide a bigger bill
Dull’s experience as a trustee has made him wary of judging a provider on price alone.
He described a fund that moved away from an administrator charging substantially less after trustees identified repeated errors and operational risks. The replacement administrator cost roughly twice as much, but the trustees considered the additional cost justified by the quality of the service and the reduction in risk.
“You need to secure value, not the cheapest line item,” Dull said.
A fund might negotiate a competitive administration fee and still be paying more elsewhere, including for governance or through its default investment arrangements. Dull also raised the possibility of paying two providers for services that overlap.
“Do you need a custodian if you have a platform?” he asked. “Do they provide the same kind of service? Do you pay maybe two people to provide the same kind of service?”
That makes the description of each service just as important as the price attached to it.
The price of independence
Dull also raised the governance issues that come with commercial umbrella funds.
There can be economies of scale in putting several services under one roof, he said. But trustees need to understand who is making money from the arrangement and whether they can challenge the sponsor.
“Commercial umbrellas are there to make a profit,” Dull said. “The sponsor wants to make a profit.”
He recalled meeting trustees at an umbrella fund where the chairman had previously worked for the sponsoring company and had subsequently become an “independent” trustee.
“My client said, ‘But you’re not independent,’” Dull recalled.
For Dull, the value of an independent trustee is the ability to challenge the sponsor when necessary, rather than simply accepting the arrangements put in front of the board.
And yes, that independence also comes at a cost but, according to Dull, “sometimes independence is worth paying for”.
A benchmark is a starting point
Fee surveys can tell trustees where their fund sits against others. Reddy described benchmarking as “a very important starting point”.
But funds differ in size, membership, services, and fee structures. A provider charging less for administration may be earning more elsewhere.
Reddy referred to arrangements in which administration is advertised at 0% while the provider also manages the fund’s investments. The administration may appear free, but the provider can recover its costs through the investment-management charge.
“The little footnote can actually be very important,” he said.
Who is responsible for making the call?
Petrie put the responsibility with trustees.
“The primary duty to advocate for members rests with the trustees,” she said.
She said the fiduciary duty when considering costs and fees is not simply to secure the lowest fee. Trustees need to understand what they are buying and whether members are receiving value. That includes understanding the services provided, considering potential conflicts, and being able to account for the decisions made on behalf of members.
The FSCA’s role is supervisory. It promotes transparency and good governance and applies its Treating Customers Fairly principles. Members who believe trustees have failed in their fiduciary duties or prejudiced them can approach the Pension Funds Adjudicator.
The FSCA is also exploring a value-for-money framework for retirement funds.
Read: FSCA explores value-for-money framework for retirement funds
The detailed framework is still being developed, including the metrics and disclosure requirements that could eventually form part of it.
Petrie said the FSCA has been considering approaches used in other jurisdictions, including work by the International Organisation of Pension Supervisors and frameworks in countries such as the United Kingdom, Australia, and Hong Kong.
The assessment is not simply about whether one fund charges more or less than another. Petrie said it considers costs alongside benefits such as investment performance and service quality.
South Africa has a different investment problem
Reddy cautioned against taking a framework developed in another market and applying it wholesale to South Africa.
He pointed to Australia, where measures aimed at addressing persistent underperformance had encouraged funds to remain closer to benchmarks and contributed to greater use of passive investment. He also pointed to the UK’s emphasis on publishing and reducing fees, which he said had similarly encouraged passive investment.
South Africa’s market is less efficient and more concentrated, Reddy said, leaving scope for active managers to outperform benchmarks over the long term.
There is also the question of where retirement capital is needed.
“In South Africa we don’t only need investment in listed stocks,” Reddy said.
Infrastructure does not necessarily come with the same low-cost investment structures or established benchmarks available in listed markets.
“What you do by going with the value-for-money framework and focusing too much on costs, is you move money away from infrastructure. You move money away from private markets.”
Two-pot puts fees under the microscope
The two-pot retirement system provided a more immediate example of what fee transparency can do.
The FSCA published the fees administrators charge for two-pot withdrawals, giving members and funds a way to see what different administrators were charging for the same type of transaction.
Read: Two-pot’s billion-rand bill: future fund members could carry the cost
The disclosure also prompted discussion about what was happening to other charges.
Some administrators indicated that they had introduced a fee when members accessed their savings while also increasing ongoing administration fees. Capital expenditure was cited as one reason, with administrators indicating that they expected to recover those costs over two to three years.
Dull described another case his fund had encountered. An additional charge was being applied when a member accessed the two-pot savings, on top of the ordinary administration fee.
The issue was not simply that a fee existed. It was that the fund had to identify what the charge was for and whether it was justified.
The publication of the FSCA’s two-pot fee information gave trustees and members something against which they could compare those charges.
It also gave consumers something to ask about.
As the discussion put it, publishing the fees had made it possible to have a conversation about why administrators were charging different amounts and what members were receiving in return.
Should fees be regulated?
About 60% of webinar participants supported regulating fees.
Dull argued that setting a maximum fee could create its own problem. If trustees know that a fee falls within a regulatory ceiling, they could end up treating that as the end of the discussion rather than asking what sits behind the charge, what services are being provided and whether the fund is getting value.
His preference was for trustees to take responsibility for understanding and negotiating the arrangements they approve.
“Don’t legislate the fees that you can charge,” he said.
Petrie said the FSCA’s approach is broader than setting a limit on fees. It will consider costs alongside investment performance and service quality.
Reddy’s concern was what happens if cost becomes too dominant in that calculation. In South Africa, he argued, the investment consequences need to be considered alongside the desire to reduce costs.
The framework is still being developed. Its final metrics, disclosure requirements, and regulatory consequences have not been settled.
For trustees, however, the fee conversation is already here.
