The number of retirement funds applying for liquidation increased by 21.5% between 2019 and 2020 because of financial distress as members’ contributions fell when employers cut salaries or laid-off staff and businesses closed during the lockdown, according to the FSCA’s 2022 Financial Sector Outlook Study.
Liquidation applications by regulated retirement funds steadily decreased between 2015 and 2018, from 692 to 431. There was a slight increase to 433 in 2019. However, 526 funds applied to the FSCA to be liquidated in 2020.
Most of the funds affected by the lockdown had small businesses as members, participated in umbrella funds and were predominantly in the manufacturing and service sectors. Employers contributing to these funds had to ask for relief from paying contributions.
Consolidation in the retirement industry has seen the number of registered funds decline from more than 16 000 in the 1990s to 5 158 in 2020, and of these, only about 1 580 funds (31%) are active. The Study said consolidation is driven by cost-saving as employers move away from stand-alone funds to umbrella funds.
R42bn pot of unclaimed benefits
About five million members were owed unclaimed benefits of more than R42 billion in 2020. The bulk (80%) of the unclaimed benefits are with trade union-affiliated funds, and most of the unpaid members are low-income miners, the FSCA said.
The Study said asset managers and fund administrators continue to earn fees from unclaimed benefits.
The FSCA said its unclaimed benefits search engine has helped more than 14 000 individuals to receive payments worth about R1.2 billion.
National Treasury announced in 2020 that legislation will be introduced to consolidate unclaimed benefits and establish a single registry.
Membership growing at 2% a year
Membership of regulated retirement funds has been growing at 2% a year since 2015, and there are about 16.4 million members in 2021. However, this does not mean there are 16.4 million individual fund members, as this figure double counts individuals with more than one retirement product.
It is estimated that between seven and 10 million individuals have retirement savings products out of an employed labour force of about 15 million. Retirement cover was particularly low among individuals earning below R14 000 a month.
Whereas 92% of public sector employees have a retirement product, 50% or less have a retirement product in the private sector.
The Study drew attention to the poor outcomes at retirement experienced by many South Africans. It said under-saving for retirement was a problem. Since 2017, the average contribution has remained relatively stable at about R900 a month in real terms.
However, the Study did not mention non-preservation as reason for poor outcomes, nor did it comment on National Treasury’s proposals for a two-pot retirement system and making it mandatory for employees to join a retirement fund.