1. Retirement Fund Reform Discussion Paper Presentation to Parliamentary Portfolio Committee on Finance Bruce Cameron Editor: Personal Finance (Personal Finance is an Independent Newspapers publication published in the Saturday Star, Saturday Argus, Pretoria News Weekend and the Independent on Saturday. Personal Finance is also published as a quarterly magazine.)

2. Changes are being made Since the Rusconi Parliamentary hearing last year there has been a stop start response from the industry: Still significant resistance to change, but Two companies, Momentum and Sanlam, have launched new products that address some of the problems

3. General Comprehensive document Deals with the perplexing issues Sound analysis of current situation Achievable objectives National Savings Fund provides significant solutions

4. Areas for further consideration Compulsory membership Preservation of savings Costs of annuity (pension) purchases Section 14 transfers Perverse incentives

5. Compulsory membership Compulsory membership imperative: All employers must contribute to membership. Make employer contributions tax deductible in all cases. Start with low base of compulsory contribution eg 2% of income. Employee contributions equal to employer (ie UIF basis) Single national social security agency will make it possible (ie UIF).

6. Preservation of Retirement Savings Three big problems: Withdrawals before retirement High and unnecessary costs Mis-selling based on commission and perverse incentives (eg luxury foreign trips)

7. Preservation of Retirement Savings: Stop leakage No cash withdrawals In provable (to trustees) cases of dire need pay a taxable annuity (Cosatu recommendation)

8. Preservation of Retirement Savings: Deferred pensions Make greater use of deferred pensions with employer-sponsored funds. (Only transferable to another employer-sponsored fund) Preservation funds are a problem: - High costs - Commission driven - Poor investment advice/decisions

9. Preservation of retirement savings: Umbrella funds Zero commissions should be paid for transfer of an employer-sponsored scheme to an umbrella fund. Should allow for deferred pensions. Currently must transfer to preservation fund If transfer to preservation funds is retained should be cost free and commission free In interim a moratorium should be placed by the FSB on all conversions of employer sponsored funds to umbrella funds

10. Preservation of Retirement Savings: Purchase of annuities Switch from defined benefit to defined contribution funds has created new costs. DB funds, in most cases, move was seamless. Active member became pensioner member. DC members receive benefits from which they must purchase an annuity (pension) DB funds outsourcing pensioners

11. Preservation of Retirement Savings: Purchase of annuities: Consequences Additional costs (Up to six percent reduction in value) Commission driven mis-selling (eg living annuity debacle) Poor investment advice/decisions (thousands of living annuitants face destitution)

12. Preservation of Retirement Savings: Purchase of annuities: Challenges Individuals need advice. Financial Advisory and Intermediary Services Act not sufficient Commissions are a problem? Advisers cannot work for nothing

13. Preservation of Retirement Savings: Purchase of annuities: Solutions Onus should be placed on product providers to ensure proper advice (face fines and suspension of sales) Minimum guaranteed annuity (eg 2x Social Old Age Pension) must be purchased before living annuity. Minimum percentage of living annuity assets must be invested in interest bearing investments of cash and/or bonds (e.g. 50%)

14. Section 14 Transfers Many members of preservation funds, retirement annuities and living annuitants are held captive by product providers, who can and do treat individuals badly. Investors requested Section 14 transfers must be permitted in all cases but no new commissions/incentives be paid to adviser; or penalties. Section14 transfers should be permitted without costs if any changes to terms/costs

15. Perverse incentives All perverse incentives should be banned including: All non-cash incentives to brokers, particularly luxury foreign trips. All rebates/kickbacks paid between different companies and sectors of companies. Any incentives by outside parties/service providers to retirement fund trustees