World Finance speaks with The Public Wealth of Nations co-author Dag Detter on what public assets can do for the economy.
Author: World Finance
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Is Turkey stuffed?
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Solving the problem of retirement in South Africa
South Africa’s retirement reform initiative has been postponed, but the country must still address its unemployment problem. Sentinel Retirement Fund CEO Eric Visser tells World Finance how the industry is addressing these challenges.
World Finance: The South African retirement industry is still in its infancy: with low economic growth and the high inflation environment hindering development. However, new innovative policies are starting to drive growth. With me is Eric Visser from Sentinel Retirement Fund to talk about how they are shaping the industry.
So Eric, the South African retirement industry: how is it structured exactly?
Eric Visser: Well currently we’ve got quite a few dispensations. You’ve got your commercial umbrella funds. Secondly you’ve got commercially administered stand-alone funds. You’ve also got large private funds, which are normally the outflow of bargaining councils, and they’re industry specific.
And those three dispensations are obviously for the employed, and they’re compelled to belong to those funds that are offered by their employer. And they’re normally defined-contribution based.
And then you’ve got the other one, which is commercial retirement annuity funds, which are for the self-employed, the informally employed, and for small businesses. But that’s on a voluntary basis.
Obviously the unemployed, they’re got no retirement dispensation. And then you’ve got the state old grants, which is a social pension. The state pays for them, and it’s about $80 a month. So, you know: the majority of people in South Africa are actually dependent on that.
World Finance: And how developed would you say it is in terms of transparency?
Eric Visser: South Africa rates among the top in the world when it gets to financial discipline, governance, compliance, and obviously transparency. And the retirement industry is no different. It’s well-regulated, but it’s got a small net. It’s only the employed, and because of our unemployment rate, those people aren’t participating in it.
World Finance: Well as you mentioned, South Africa is plagued by a high rate of unemployment, and many people are in debt. So what sort of impact does this have on the industry?
Eric Visser: First of all, obviously the unemployed don’t provide for retirement. And secondly, because people are indebted to such a large extent, they tend to withdraw their retirement savings just to keep alive. That’s the basis of it.
World Finance: So does the sector face any other challenges, maybe in terms of social security?
Eric Visser: The big challenge is to solve the unemployment problem. Obviously, once we’ve solved that, we need to get to preservation. You know: get people out of their debt, let them preserve for their retirement, for old age.
World Finance: Well let’s look at the retirement reform initiative now; and there are obviously high hopes for this, but then it’s been postponed a year, and possibly two years. Why is this? And what impact has this had?
Eric Visser: People argue, ‘Why should I make provision for retirement, but before I get to retirement I might starve of hunger?’ That is the main issue that sits behind it.
And people are saying, you know, it has been postponed, but I think we have to overcome that problem.
World Finance: So how would you say the industry is developing, and what is Sentinel doing to address the challenges?
Eric Visser: We have transformed our fund. Where we were industry-specific, we’ve actually taken our scope beyond the mining industry, and we’ve converted to a fund where other employers, other industries, can also participate in the fund.
And the way that we manage the fund is basically on a mutual society basis. We are actually in competition with the commercial umbrella funds, and if one looks at investment performance, and secondly costs, we are rated as one of the lowest-cost funds actually in the world.
You know, as a fund we also don’t just cater to individuals from birth to retirement, but from cradle to grave. So we take people right through, into retirement as well. And we save them costs in that transition from being an active member to becoming a pensioner.
World Finance: Well of course, no one can predict the future, but how do you see the industry developing over the coming years?
Eric Visser: I think we need to get the annuitisation. Get people to preserve. So we have to push through with the current legislation that’s on the table. I don’t think it’s going to be easy, but we have to carry on with that. It’s obvious that we need to cut down on unemployment, you know: get more people into the net.
And then obviously education: that’s what we at Sentinel also do. We spend a lot of time educating our members and our pensioners.
Yuan as a reserve? “IMF won’t want to be Asia development banked”
World Finance speaks with economist Louis Gave from GaveKal Dragonomics on the deciding factors.