PHILLIP BRADFORD A pension system for all workers should comprise a minimum level of funding, with contributions by employers, employees and the self-employed
The Chartered Financial Analyst Society of South Africa (CFA SA) released ten principles for the investment management profession to deliver adequate benefits that can be sustained and trusted by the community, says CFA SA president Phillip Bradford.
In the yearly CFA Institute Global Market Sentiment Survey, nearly 35% of responding members expressed concern about retirement issues, such as the impact of ageing populations, pension plan shortfalls and low levels of retirement savings.
Sustainable retirement investment management requires that professionals in the industry and consumers be aware of basic retirement-investment principles. Therefore, the society set out ten ideal retirement system principles to guide industry professionals and consumers.
Clear objectives for the whole retirement system, including the complementary roles that each pillar of income or financial support will play, are required. This includes cost-effective and attractive default arrangements before and after retirement.
Further, a pension system for all workers should comprise a minimum level of funding, with contributions by employers, employees and the self-employed.
“The administration and investment costs should be disclosed . . . Further, there must be flexibility, as individuals’ personal and financial circumstances vary, and retirement will occur at different ages and in different ways,” says Bradford.
Accrued Benefits“Benefits provided during retirement should have an income focus, but permit some capital payments without adversely affecting overall adequacy. Contributions or accrued benefits at the required minimum level must have immediate vesting. These benefits should be accessible only under certain conditions, such as retirement, death, or permanent disability.”
Taxation support from government in an equitable and sustainable way will provide incentives for voluntary savings and compensate individuals for the lack of access to their pension savings.
Meanwhile, the governance of pension plans should be independent of government and any employer control, while appropriate regulation, including prudential regulation of pension plans and some protection for pension scheme members, is also required.
“The cycle of dependence is a [major] socio- economic concern. Only 6% of South Africans can maintain their current lifestyle at retirement,” says Chartered Financial Planner professional and 2015 Financial Planning Institute Financial Planner of the Year winner Wouter Fourie.
“As challenging as one’s financial circumstances might be, there are ways through which every person can put him- or herself in a better financial position for retirement.”
“Early planning for retirement is critical because it typically takes many years to accumulate the necessary funds to live comfortably when you no longer enjoy the advantages of a salary. If you begin your investing early in your working life, it will allow funds to accumulate and grow over the subsequent decades so that you have substantial resources with which to navigate your retirement years,” explains Bradford.
Unfortunately, most South Africans are not aware of the different retirement options.