Argon Asset Management on the future of South Africa’s retirement industry

World Finance interviews Dr Manas Bapela and Mothobi Seseli from Argon Asset Management to find out about the future of South Africa's retirement industry

July 30, 2014

A revitalised national security system is high priority for the South African government, but what opportunities and challenges will this pose in the retirement industry? World Finance speaks to Dr Manas Bapela and Mothobi Seseli from Argon Asset Management to find out what they may be.

World Finance: Well Manas, if I might start with you, how is the retirement industry in South Africa structured?

Dr Manas Bapela: The retirement industry has moved from having approximately 18,000 funds in the 1980s to just about 3,000 funds, those being largely industry funds, or multi-employer funds. The number of members accounted for in the system is currently sitting at about 15m. The value of the assets being managed as of the end of 2012 is sitting at 2.75trn R, with the split being about 40 percent the government employee pension fund, and the rest of the privately administered funds accounting for about 50 percent, and the rest being underwritten funds or those funds that follow it in the insurance space.

Asset management is quite critical a service in the retirement fund industry

World Finance: Well Mothobi, how is Argon Asset Management Company involved in this industry?

Mothobi Seseli: Asset management is quite critical a service in the retirement fund industry. The reason why retirement funds exist is so when people get to retirement there’s many for them to retire off. We play an important part there in that we try and grow wealth on behalf of pension fund members. We offer strategies across the asset class spectrum, so equities, fixed income, as well as multi-asset class strategies.

World Finance: Over the past months, the South African National Treasury has released a number of papers proposing changes to the retirement industry in South Africa. So what are the main proposals?

Mothobi Seseli: The proposals are numerous, but the key objectives are how do you increase coverage and participation in the system, number one. Number two, the issue of savings. Savings are very important in an economy, if you are going to grow an economy. So how do you increase the rate of savings out of that system? There are a number of things that you could do, so giving incentives from a tax point of view to get more contributions into the system. Giving more incentives for non-retirement savings, that’s very important. How to better income at retirement, that’s also very important. Those are some of the objectives, including of course the issue of preservation, how to get funds working a lot better from a governance point of view. We’re starting to move towards individual retirement accounts, as well as the issue of portability, which also becomes quite critical.

World Finance: Manas, what do you see as being impact of these changes?

Dr Manas Bapela: The impact will be quite broad. If you focus on the one hand on consolidation of funds, I mentioned earlier on that we have seen the number of funds changing from in the 1980s, where it was in the region of 18,000, to a point where it’s about 3,000, and we’ll continue to see this changing over time. I think one of the important benefits is that the economies of scale, the improved governance budget, you no longer have for instance the likes of small employer funds, where affordability of having to handle issues of governance is an issue. You’ve got the likes of umbrella funds where you have the economies of scale. Therefore, when dealing with issues of governance, where we are operating in an increasingly highly regulated environment, seeing those benefits coming through of economies of scale.

Savings are very important in an economy, if you are going to grow an economy

World Finance: And Mothobi,what will be the challenges they will pose?

Mothobi Seseli: There are a number of challenges. The low level of financial literacy in our society. Quite a big challenges. That’s one. Two, the one policy proposal for mandated preservation is potentially difficult in an environment where people don’t have income security. You need to be providing a broad social security net if you are going to mandate preservation, in effect they can’t touch that money, but it’s their money. To trust in the system is three. Quite critical, because of entrenched and vested interests, but largely the issue of attaining the country’s transformational objectives. How do you, alongside changing the system, also change or achieve the transformational objectives of the country, black economic empowerment.

World Finance: Manas, why is improving fund disclosure so important?

Dr Manas Bapela: We all know that globally there’s a move towards improving adherence to affect treatment of customers. At TCF, we know that in our country that something that has been making rounds are guidelines being distributed to trustees of funds that we manage. So it’s important. Now one of the key things to be disclosed is obviously our costs, we know that costs do play a big role in the value that we tried to build for the members, and hence it’s important for them to know what’s going on so that they can make informed decisions.

World Finance: Well finally, Mothobi, with these reforms will come opportunities. What do you see these to be and how are you set to capitalise on them?

Mothobi Seseli: I think the reforms are looking to protect the customer and get the system working better, but importantly there’s an opportunity to put the client at the centre again, so anybody that is will to play along that dimension, I think they’ll find the space open. Increasingly there’s harmonisation across geographies of regulation. Manas spoke about TCF, it’s a global guideline. So firms that are interested in playing, or firms that are capable of raising their level of service provision to talk to that global environment, firms that are able to raise the level of service to a global standard, I think are firms that will take advantage of those opportunities.

World Finance: Mothobi, Manas, thank you.

Both: Thank you.