On average the suspension was for a period of 4.5 months, however, two funds indicated they had suspended contributions for a year or more. In the case of union funds, 70% indicated that retirement contributions had been suspended for an average of five months.

Kanyisa Mkhize, chief executive officer at Sanlam Corporate, says the pandemic has been a setback for South African retirement fund members and retirees. “The ultimate financial effect of Covid-19 was the reduced contribution level due to contribution suspensions. The industry also recorded an increase in the number of employees cashing in a significant proportion of their withdrawal benefits. Tragically, 7% of stand-alone funds are in the process of liquidation and no less than 40% of funds and employers say their staff or members experienced a reduction in pay. 27% of stand-alone funds and 31% participating employers cited retrenchment at the workplace,” she says.

 The impact of retirement benefit counselling

Since the implementation of default regulations, funds noticed an increase in the use of retirement benefit counselling. 69% of stand-alone funds indicated that they had made greater use of retirement benefit counselling. Avishal Seeth, head of umbrella solutions at Sanlam Corporate said this was also evident in the Sanlam Umbrella fund where one of the main drivers for the increasing preservation rate was believed to have been proactive retirement benefits counselling. A positive difference was seen in the choices made by members when counselled.

However, this positive difference was not widespread. Since the introduction of the default regulations in 2019, stand-alone funds providing advice at retirement had increased by 38%. But Rigitté van Zyl, chief client officer at Sanlam Corporate noted there was a perceived lack of improvement in member behaviour regarding preservation and annuitisation since the implementation of default regulations. “57% of stand-alone funds say that they have not seen an improvement in member preservation. Some of the main reasons cited include members wanting access to their cash, inadequate communication, and the deterioration in economic conditions in South Africa,” she said.

Danie van Zyl, head of smoothed bonus centre of excellence at Sanlam Corporate Investments, says the average employer contribution, as a percentage of salary, was 10.84% — the highest figure seen since 2015. “6% of funds reported that the employer does not make any contribution to retirement funding. In all likelihood, these employers remunerate staff on a cost-to-company basis and all contributions to retirement are viewed as employee contributions. The average employee contribution rate remained steady at 6.62% of salary,” he says.

 Infrastructure investment could build diversification

Darryl Moodley, head of tailored investments at Sanlam Corporate Investments pointed out that South Africa will have an estimated R1.7-trillion infrastructure funding shortfall over the next 10 to 15 years. “This infrastructure funding gap presents a tremendous opportunity for long-term investors — such as retirement funds — to step in to fill the void. Long-term infrastructure assets could provide retirement funds with a perfect long-term hedge as well as offer attractive risk-adjusted returns if managed well,” he says.

The Sanlam Benchmark Survey 2021 shows that stand-alone retirement funds indicated they would invest on average 6,6% of their fund assets into infrastructure, with participating employers of umbrella funds indicating an allocation of around 4,7%. “While this may appear to be a fairly small allocation, considering that retirement funds consist of around R4.5-trillion in assets, it translates into almost R300-billion in direct infrastructure investments, which is fairly substantial,” Moodley says.

Malusi Ndlovu, director of large enterprises at Old Mutual, says investing in infrastructure offers members in retirement funds decent diversification, particularly in the context of the comparatively small local equity markets. “This is because infrastructure assets are less volatile than equities and show a lack of correlation with traditional assets like property. Moreover, infrastructure can deliver inflation-beating returns over the long run if properly structured and managed.”

Dr David Knox, the lead author of the Mercer CFA Institute Global Pension Index (GPI), observed at the recent Allan Gray Retirement Benefits Conference that an ideal retirement income system should not be solely focused on the provision of a lump sum at retirement; but rather on providing adequate and sustainable income and benefits throughout retirement. The GPI ranks the retirement income systems in 39 countries and South Africa came in at a poor 27, which Saleem Sonday, head of group savings and investments at Allan Gray attributes to a lack of preservation, and inability to retain retirement contributions within the system.

 Knox touched on four areas that could improve a country’s performance on the GPI:

• Broadening the retirement system coverage to include the self-employed and workers in the gig economy.
• Increasing the government pension or retirement age. He observed that there is a fine balance between pre-and post-retirement populations. Managing this system differently could mean fewer retirees and more workers, which would also increase the earning potential of the country as a whole.
• Reducing leakage from the retirement funding process.
• Reducing fees systemwide, without negatively impacting on retirement outcomes.

 These four pillars tie in with Van Zyl’s concluding observation that the foundation of a financially healthy retiree remains saving enough through adequate contribution levels, selecting the appropriate investment portfolio, preserving, considering wider needs and getting the right guidance or advice. DM/BM