Asisa Feedback on Budget Speech Comment

From the February 2014 edition of the Asisa’s Dispatches:

A number of members and stakeholders have asked us to provide context to the announcement by Finance Minister Pravin Gordhan as part of his Budget Speech that: “Agreement has been reached with the Association of Savings and Investment of South Africa on a way forward to reduce the level of charges for retirement savings products.”

Reducing the level of charges for retirement savings products is one of several priorities of Government’s ongoing Retirement Reform process. ASISA is in agreement with the Finance Minister that the issue of charges must be addressed, but all stakeholders conceded that reduced charges cannot be achieved in isolation.

The announcement by Minister Gordhan refers to an agreement reached between ASISA and National Treasury on how to move forward on Retirement Reform, of which lower charges are just one aspect. National Treasury has undertaken to set up joint task teams with representatives from ASISA, National Treasury and the Financial Services Board (FSB), to progress the various work streams required to finalise the Retirement Reform process.

These include improved preservation of retirement savings, recognizing vested rights; wider access to retirement products for those South Africans who do not contribute to an employer-sponsored retirement plan; mandatory contributions to retirement savings; and reforming retail distribution (the Retail Distribution Review).

The implementation of these key deliverables of the Retirement Reform process will require significant structural changes to the country’s retirement industry as well as new enabling legislation, which will contribute to reduced charges.

National Treasury’s Ismail Momoniat was quoted on this topic by Business Report on Friday, 28 February, as saying that: “The Treasury and ASISA reached consensus that structural and economic factors contributed to the high administration costs of retirement products, in addition to poor market conduct. Structural factors included the fact that the more people contribute to retirement and the more members each fund has, the more the costs will go down because of economies of scale.” Momoniat also pointed out that there are too many funds and small funds that are not viable.

ASISA has a good working relationship with National Treasury, based on trust and respect, and we are confident that together we will be able to deliver a Retirement Reform framework that will serve all South Africans.

We are also pleased that the NEDLAC process on National Treasury’s 2013 Retirement Reform proposals has begun. ASISA is leading the BUSA delegation in the NEDLAC Task Team, which will focus mainly on the preservation of retirement fund benefits and the protection of vested rights.

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