Eric Visser and Andre La Grange on the South African pension system | Sentinel Retirement Fund | Video

World Finance interviews Eric Visser and Andre La Grange of the Sentinel Retirement Fund, on the South African pension system and why many people are retiring with inadequate income

February 12, 2014

With 90 percent of South African pensioners retiring with inadequate income, companies like the Sentinel Retirement Fund are more important than ever. Eric Visser and Andre La Grange comment on the challenges facing the South African pension system, and how Sentinel is helping fund members prepare for retirement.

World Finance: So Andre, let’s start with you, and research shows that only six out of 100 South Africans have money put away for retirement. Do you think this is an accurate picture?

Research shows that only six out of 100 South Africans have money put away for retirement

Andre La Grange: It is, South Africa has a two-tier system, which employed people do have pensions and do participate in pensions schemes and provident schemes, but there’s a whole lot of people who are not formally employed, who fall outside the formal savings and retirement industry network.

World Finance: So what happens if people don’t have adequate funds put away?

Andre La Grange: Well, they become destitute, and the state and the taxpayer in South African then have to look after them or cater for them, and you get an allocation of state funds to support them, and they become obviously the responsibility both in terms of health and insurance and old age and so on, of the government.

World Finance: Well how advanced would you say the pension system is then in South Africa?

Andre La Grange: You deal with a two-tiered system. The one is pretty advanced and competitive internationally, and best of breed, and the other one is obviously a concern to everybody. There’s reforms on the go at the moment, where the National Treasury in South Africa is seeking to establish a savings and retirement fund that’s compulsory for everybody and would provide that kind of cover, but I do think a part of the population, like you said, is not properly catered for.

World Finance: Well Eric, over to you now, and how does Sentinel fit into this picture then?

Eric Visser: Well Sentinel is part of the former sector, where employers, on a compulsory basis, in negotiations with the employees, provide them with a pension benefit, and Sentinel was created in 1946 specifically for the mining industry, and today we have 100 participating employers, 58,000 active members, and 43,000 pensioners, and it is a defined contribution scheme, so it’s a money accumulations scheme, where people save for their retirement.

World Finance: Well as you just illustrated, Sentinel is obviously one of the most popular retirement funds in South Africa, why do you think this is?

We use best of breed systems, and we allow members to exercise choice in where they want to invest

Eric Visser: We cater for in-house administration. It’s specifically around the mining industry it was created, and as I said, it’s a DC fund that we run, we use best of breed systems, and we allow members to exercise choice in where they want to invest. Obviously you need to create the portfolios for them, and that’s exactly what we’ve done.

World Finance: In 2013 you merged with the Mine Employees’ Pension Fund, what benefits did this bring?

Eric Visser: Obviously the benefits are economies of scale, better economies of scale, and being in-house run, there’s no profit motive or anything, all the benefits go directly to the members. I think it’s also part of what’s happening in retirement reform in South Africa; we sit with a lot of small funds, and treasuries encouraging more, bigger funds. And we had to position ourselves to be one of the players going forward.

World Finance: So what do you have in place to mitigate risk?

Eric Visser: First of all, we work on a liability driven investment approach. We do an annual asset liability modelling, and we project the cash flows that we need, not only for pensioners, but also for our active members, and from that we derive a risk budget where we can decide what are the asset classes that we need to invest in, the geographies, and the sectors and all of that. Then we create risk profile portfolios for people, where you get high exposure to, for instance, equities, and less exposure for your other portfolios, and this all hangs under this multi-manager asset management approach that we’ve got.

World Finance: So finally, what’s in the pipeline for 2014?

Eric Visser: We’ve opened the fund for other sectors beyond the mining industry, to join us as well as participants, and I think that’s a very exciting period that we go in. Especially taken that there’s no profit motive, so it’s an economies of scale game. The more members that we get on board, the less the cost for the members that are in the fund.

World Finance: Eric, Andre, thank you.

All: Thanks Jenny.