It's also very encouraging to see the extent to which the Treasury has taken into account the feedback received from the industry. The new reform proposals have shown some positive changes compared to those made in discussion papers last year.
The proposals to enforce default annuity and compulsory preservation options in retirement funds - which also require trustees to give consideration to this - are also extremely positive and will help to reduce the income gap during retirement. Furthermore, the allowance of one withdrawal per year from preservation funds shows that the government is encouraging the move towards compulsory preservation, but at the same time recognising that some people are in need and require access to these benefits.
The move towards compulsory preservation and default preservation funds will have huge administrative and cost advantages.
The fact that the means test is to be phased out is in line with previous proposals of the Department of Social Development (DSD) and shows some progress.
This is probably one of the most affordable parts of the DSD proposals and should also stop people using up their pensions to qualify for state support. It also means that there is a large number of very low income people who will qualify and will then retire on a reasonable replacement ratio.
Pension and provident funds are becoming increasingly similar and it is not surprising to see these fund separations disappearing; however the Treasury will need to be clear on transition arrangements.
The message from the government is clear and in line with Old Mutual's drive to improve savings in South Africa. Old Mutual Corporate has already made significant enhancements to its retirement fund offerings to support the anticipated retirement reforms.
Our Old Mutual SuperFund, which pools the retirement investments of multiple employers, is already well positioned around the annuitisation and preservation defaults in that we have implemented a default annuity offering for members to use and providing assistance via phone and access to advice if required. Additionally, there is a default preservation offering that will be expanded in the near future to allow members to remain in the funds and defer some of their decisions until later.
Furthermore, in terms of the trustee training, we already ensure that trustees meet qualification hurdles and they are required to complete a certain level of education and training every year.
