Author: World Finance

Solving the problem of retirement in South Africa

Posted on by World Finance

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.

Mauritius: A gateway financial centre for the Indian Ocean

Posted on by World Finance

James Benoit, CEO of AfrAsia Bank, tells World Finance about the latest trends in wealth management for the bank’s diverse client base.

World Finance: The Asian growth story is continuing – unlike sluggish economic performance in neighbouring regions. With this growth has also come burgeoning optimism in the wealth management sector. Here to share insight: James Benoit. James, thank you so much for joining me today, now tell me about how this sector of wealth management is evolving?

James Benoit: Wealth is not really ever destroyed, it just kind of moves, or changes shape. So total global wealth is in excess of $50tr, that’s up 14 percent year over year. Even in the markets that we’re close to in Africa, it’s up seven percent: there’s still 150,000 high-net-worth individuals in Africa, with an excess of $1.3tr of worth. So you know: wealth is still growing, no matter what’s happening in the global economy.

World Finance: You talk about sort of, this first generation that’s really had access to funds that perhaps never has existed before; tell me: how do you place your bank in this growth story?

Well, we’re a niche provider, so people expect us to have insights into Asia, into India, into Africa. Whether it’s linked to gold, or commodities, or linked to those stock markets. So we provide a lot of asset classes, funds, structured products that take advantage of what’s happening in those economies. Those are the insights that we bring: being AfrAsia Bank, sitting in the middle of Mauritius, between all those Indian Ocean economies.

So people come to us for insights in those markets, and that’s what we try to deliver.

World Finance: African-Asian consumers; they’re going to be asking for something different. What asset classes really appeal to them the most?

James Benoit: They still like gold, even though gold has been beaten down, and it’s been very volatile; but there’s a passion for gold.

They also like real estate; real estate is always very popular, so we have opportunities linked to real estate as well.

And then commodities, and also just emerging equity market stories. They’re very keen to invest in their region.

World Finance: Now Mauritius has a reputation, like some of the other islands nearby, that it could potentially be a tax haven. How does the government restore faith that they’re really taking a get-tough approach on regulation?

James Benoit: Well Mauritius always ranks among the most compliant countries in the world, whether it’s the OECD or FATF. So we have state-of-the-art legislation. Recently there’ve been some high-profile cases, where they have cracked down: quite determinedly so.

It’s never had any major convictions or offences linked to, whether it’s Indian or the markets. So it’s taken very seriously, because we don’t want to have that reputation as a tax haven, per se.

And you know: Mauritius is 1.3 million people, so it’s a real economy. It’s a financial services centre built on top of a real economy, which is linked to Asia and Africa. So we’re really serving those people who are doing business in that part of the world, rather than just the wealthy from anywhere.

So that’s our speciality, and that’s what Mauritius is doing.

World Finance: If you could advise the government tomorrow on how it could go that one step further to instil confidence in local clientele and those internationally, what would you say that the government should do?

James Benoit: Global standards are global standards now, so there really is no way to avoid that. And the faster any jurisdiction gets up to that speed is better. So Mauritius has done a good job of that, but still… probably to tailor it to our core markets: Asia, Europe, Africa. I mean, the US is the US, but we’re probably more likely to do better by tailoring our legislation to those key markets, and make sure that we’re aligned. Because really there is no way to avoid what is now a very complex and increasing global regulatory framework.

World Finance: So as you look at those particular regions, where do you place your bank in the growth story, moving in the next few years?

James Benoit: Well, I spent most of my career growing up in south-east Asia, and south-east Asia is still booming. I’m now based in Mauritius, capitalising a lot on eastern Africa. For many of us that market reminds us of Asia 20 years ago. So I’d say India, Africa, still very much in the early stages of growth. We’ve positioned AfrAsia Bank in Mauritius to be right in between Asia capital, Africa’s need for capital, and also Europeans and other people doing business in the region. So we’re really becoming a gateway financial centre for the Indian Ocean.