The launch of a consumer education programme focused on umbrella funds comes at a time when there are now 639 umbrella funds, representing 37 700 employers across the country.
Worryingly however is the news that there are at least 500 more small pension funds that don’t have any trustee boards, with benefits that are paid up and unclaimed.
These so-called orphan funds are currently the focus of a concerted effort by the Financial Services Board (FSB). According to Wilma Mokupo, head of retirement funds at the FSB, the registrar is appointing interim boards to these 500 funds.
Added to which there are some 1500 funds that are in the process of being liquidated, or consolidated into other funds.
According to David Gluckman, MD of Sanlam Umbrella Solutions, there are good and bad umbrella funds, but essentially the good funds will play an increasingly important role in the retirement fund sector, specifically with the move towards a national social security system (NSSS) that will include a mega fund, aimed at stimulating a culture of saving in South Africa.
The NSSS is still in early development stages but the retirement fund industry has a rather large challenge. There are just under 12.8m people employed formally and informally in South Africa, while there are only 9.8m members in more than 13 000 pension and retirement funds.
Of this total 9 000 funds have less than 50 members, and according to Gluckman the costs or running and maintaining the funds is exorbitant. The FSBs Mokupo says that those funds with less than 50 members spend in the region of 7% of assets on fees, while the bigger funds, due to their size have generally managed their fees down to 1%.
Mokupo says that the ‘biggest attrocities’ in terms of fraud occur in the small to medium sized funds although this is being tightened up as more and more funds are reporting audited financial results, despite this Mokupo warned fund owners that the FSB is looking at all funds.
In terms of legislation, the timeframe for pension fund legislation is three years. In the mean time the pension fund consolidation will continue, and umbrella funds are being touted as a viable option for small employers to consider when looking for economies of scale that the big pension funds can negotiate.