SPELLING OUT A STRATEGY FOR OBSERVING GOOD GOVERNANCE IN MANAGING RETIREMENT FUNDS Kobus Hanekom August 2013

6 principles the UK experience the UK experience designed to deliver good outcomes governance framework fit and proper management effective monitoring administration, processes and records member communication The UK Government recently introduced auto enrolment which makes it compulsory for employers to provide pension provision for their employees. In an attempt to guide employers to identify a good retirement fund they laid down six principles, Here they are. What I find interesting is the angle that the UK authorities are taking. I like to go through them one by one, reflect on the position in South Africa and see if we can learn something from them

designed to deliver good outcomes Simeka approach the UK experience schemes are designed to be durable, fair and deliver good outcomes for members targeted benefits horsepower Consumption default strategies contribution rate preservation investment portfolio annuitisation General industry: In our legislation we use terms such as permanent, bona fide, fiduciary duties – and they probably amount to much the same thing. What we do not have is a focus on benefit outcomes (investment returns yes) and we do not have a generally accepted measure with which to do comparisons. We ensure good outcomes with the following strategies.   Targeted benefit strategies – Every retirement fund should have a vision and a mission relating to the level of retirement benefits it aims to provide for its members. This is typically expressed as a net replacement ratio (NRR) or a percentage of final salary. An NRR capacity report will tell trustees what their current benefit structure is capable of producing over a period of 35 years based on the fund defaults. It determines the horsepower of the benefit structure. It also determines its fuel consumption or the cost of running it so that you can compare it with efficient funds. Default strategies designed to take advantage of what we have learned from behavioural finance The four most important default strategies are contribution flexibility, investment choice, preservation and annuitisation.

Simeka approach the UK experience governance framework a comprehensive scheme governance framework is established at set-up, with clear accountabilities and responsibilities agreed and made transparent fund governance and risk management plan (FGRMP) duties and accountabilities when and by whom

fit and proper management Simeka approach the UK experience those who are accountable for scheme decisions activity understand their duties and are fit and proper to carry them out enhanced PF130 documentation minimum training done FGRMP actively managed by principal officer (PO) enhanced PO duties

Simeka approach the UK experience effective monitoring schemes benefit from effective governance and monitoring through their full lifecycle governance assurance FGRMP risk schedule assessments of all officers, subcommittees and service providers King III, CRISA, TCF assessment of complaints and general fund activities

administration, processes and records Simeka approach administration, processes and records the UK experience schemes are well administered with timely, accurate and comprehensive processes and records comply with SLA fees competitive

Simeka approach the UK experience member communication communication to members is designed and delivered to encourage member engagement so that they are able to make informed decisions about their retirement savings. Information Guidance and support member information sessions and tools Advice financial advice to members on joining, termination and 5- 7 years before retirement facilitated / offered by fund

Good governance is about process and structure … Should we not be more prescriptive about The outcomes we require from funds, How these are monitored and managed, and By whom? A set of standard templates could also be developed by the Financial Services Board (FSB) to assist funds in understanding and applying best practice.

Thank You