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OLD MUTUAL RETIREMENT FUNDS SURVEY 2010
OLD MUTUAL RETIREMENT MONITOR 2010
RETIREMENT FUNDS SURVEY 2010
Agenda: Old Mutual Retirement Funds Survey 2010
Survey objectives
Research method
Key highlights
Key trends Key trends & factors shaping the Retirement Fund industry
How will Service Providers have to change in the future?
Response of the industry to environmental changes
Key findings Umbrella Funds
Member Communication
Shifting Investment Strategies
Preservation in a changing environment
Adequacy of retirement benefits
Member perception of Trustees
Impact of legislation and views on Retirement Fund Reform
Panel Q&A
4
Survey Objectives
Understand changes in the retirement fund industry
Evaluate retirement fund investment
Gauge attitudes and needs with regard to preservation
Assess adequacy of benefits
Establish levels of confidence and trust in trustees
Evaluate Fund Governance
Establish industry views on Umbrella funds
Examine communication to members
5
Sample Structure and Research Methodology
Data Collection
Data collected via structured
questionnaire
1 hour face-to-face interviews
Representatives of 71 retirement
funds, 35 participating employers in umbrella funds, 17 Intermediaries
and 7 Media, Government and Regulatory Bodies
Company, umbrella and union
funds were split:
45 Pension funds and 54 Provident
funds
12 DB funds with pensioners:
11 company and 1 union fund
Sector # of RespondentsStandalone Company Funds 57 (1 response qualitative only)
Standalone Union Funds 8
Participating Employers in Umbrella Funds 35
Preservation Funds 6
Intermediaries 17
Media and Industry Bodies 7
Total 130
Asset Value # of Responses Less than 10 million 11
10 – 30 million 18
30.1 to 50 million 10
50.1 to 100 million 11
100.1 to 200 million 11
200.1 to 300 million 7
300.1 to 500 million 6
500.1 to 1 billion 8
More than 1 billion 7
Unsure / Refused 10
No. of Members # of Responses 1 000+ members 32
200 to 999 members 31
100 to 199 members 18
20 to 99 members 18
6
Key Trends & Factors Shaping the Industry
Continued / increasing need for member
communication & education
More member investment choice
CONTINUING TRENDS NEW TRENDS EMERGING TRENDS
Continued growth in Umbrella Funds
Retirement Fund Reform, particularly
NSSS
A decrease in the
number of company funds
Stronger governance –
especially for company sponsored funds
Impact of global
recession & current economic climate
A move to a later
retirement age
• Umbrella funds continue to grow in importance• Governance, communication and member education remains a
key industry issue• Retirement Fund Reform and the global recession likely to
further shape the industry7
How will Service Providers have to Change in the Future?
25% 20% 17%
THE INDUSTRY WILL
REMAIN AS IS
CONSOLIDATION OF
SERVICE PROVIDERS
STATE’S ROLE WILL BE
MORE SIGNIFICANT
8
How the Industry Will Need to Change
Governance To become a priority
Trustees must become more accountable and knowledgeable
Move towards Umbrella Funds
Communication and Education Focus on member knowledge and understanding
Greater education needed on preservation, investments & value of retiring later
Service Providers Consolidation
Improved service
More value
Greater innovation
Greater knowledge & qualification of investment managers
9
Views on Retirement Reform
National Social Security Scheme [NSSS]
Number of respondents aware of the issues tabled:
Company funds: 52%
Umbrella Fund participating employers: 34%
Mixed feelings around NSSS
Exception of Unions: where 63% are positive
50% of Union funds think their funds will shrink/disappear with NSSS
Perceived benefits of NSSS:
All South Africans will be covered
Higher levels of saving
Compulsory preservation continues to receive strong support
Low levels of awareness and mixed feelings about the NSSS
11
Feelings about NSSS
All Fund Types Intermediaries Preservation Funds Media / Government / Regulatory Bodies
15
71
2
83
29
53
6
12
17
67
17
29
43
14 14
- -- -
0
20
40
60
80
100
Compulsory forpeople earningbelow a certain
threshold
Should be able toopt out of NSSS
Compulsory ifearning above acertain threshold
Compulsory foreveryone
Don‟t know
% R
esp
on
ses
Most agree the NSSS should allow opt out
12
Major concerns raised about the NSSS
Concerns about ability to
Implement
Manage effectively
Fear of
Low returns
Possible corruption
13
Shifting Investment Strategies
-20
to
-2
4
-15
to
-1
9
-10
to
-1
4
20
to
29
31
74
2
10 96 9
11 1 2 35 4
2419
75
1
28
-
18
1
27
9
3122
813
105
0
20
40
60
-5 t
o -
9
-1 t
o -
4 0
1 t
o 4
5 t
o 9
10
to
14
15
to
19
30
+
Do
n’t
kn
ow
% R
esp
on
ses
2008
Perceptions about Investment Returns2009 2007
Mean % Investment Returns
2009 8.4
2008 10.27
2007 18.13
2006 23.7
2005 24.6
Average returns perceived to be below 10%for the 1st time in 2009
15
Typical Fund Investment Portfolio Breakdown
Union and parastatal funds generally have more conservative strategies
Union and Parastatal Funds
Most company and umbrella funds follow a balanced strategy
Local
Equity
55%
Local
Fixed
Interest 28%
Offshore
12%
Other
5%
Local
Equity
44%
Local
Fixed
Interest 36%
Offshore
11%
Other
9%
Local
Equity
55%Local
Fixed
Interest 23%
Offshore
11%
Other
11%
Employer Sponsored Funds Umbrella Funds
16
Changing Investment Strategies
3132
0
20
40
60
80
100
Have Changed Will Change
% R
esp
on
ses
1) Use of more options
2) Different asset / fund manager
3) Preference for lower risk
investments4) Move away from totally
guaranteed funds5) Move to umbrella funds
How investment strategies likely to change (in order
of preference)
Funds Overall
Market volatility top of mind and driving changes
to investment strategies
17
IntermediariesCompanies Umbrella Unions Media/Government/Regulatory Bodies Preservation
Volatility Protection Strategies
15
25
17
21
43
43
18
7
21
29
75
50
25
41
35
12
18
41
29
43
29
71
17
33
33
-
-
-
-
-
Smoothed bonus and
absolute return
favoured by funds
0 20 40 60 80 100
Smoothed bonus products
Absolute return funds
Hedge with derivatives
Maintain reserves withinlimits
Diversification
% Responses
Regulators
and media favour
diversification
18
Criteria for Selecting Asset Managers
Brokers/Intermediaries agree track record,
performance, investment philosophy and reputationare the most important
criteria.
For Media/Government/Regulatory Bodies track record and fees charged
are thought to be the most important.
For Preservation Funds its track record and
investment philosophy.
>>
>>
>>
19
1
2
2
2
8
13
9
19
38
9
6
6
6
8
14
12
17
10
2
7
9
17
12
4
10
16
10
0 10 20 30 40 50 60 70
Management team
Range / choice of investment
Advice / recommendation of consultant
Fees charged
Investment philosophy
Reputation
Financial stability
Performance
Track record
1st Criteria
2nd Criteria
3rd Criteria
% Responses
Preservation in a Changing Environment
Preservation
Factors increasing likelihood to preserve:
Advice (from advisers, family and friends)
Knowledge (own through education)
Awareness of consequences
HR departments have significant influence
Most important factors increasing likelihood NOT to preserve:
Strength of desire to access cash
High awareness of cash withdrawal option with lower awareness of other options
Lack of understanding of consequences of decision
Improving preservation:
Increase education on importance of preservation & options available
Redesign withdrawal form so that cash option is not the 1st option
Preservation seen as very important by most
respondents
21
Factors Influencing Likelihood to Preserve Funds
% Distribution of Responses
Motivator not to
preserve(1-4)
No impact(5)
Motivator to preserve
(6-10)
A lack of awareness of options
Desire to access cash
Fear of decision making
Withdrawal benefits is too small
Lack of advice
Lack of understanding of consequences of the decision
Cost of transferring
3939 32 30
70 5 24
36 42 22
53 26 21
53 23 23
62 23 15
24 57 20
Strong motivators not to preserve
22
Preservation in 2009
Despite economic downturn & financial pressure on consumers, 71% believe preservation behaviour remained fairly consistent with previous years.
Exception among Union Fund respondents: 43% said preservation decreased.
By Type of Fund and Other Stakeholders
Increased
% Responses
CompanyFund
UmbrellaFund
UnionFund
Brokers PreservationFund
Media/Government/
Regulatory Bodies
Remained constant
Decreased
13 11 14 29 17 14
75 69 43 35 50 -
13 20 43 35 33 86
Most funds report preservation levels remaining constant
23
Compulsory Preservation
36
12
35
4750 50
14
57
29
7 6
48
36
0
20
40
60
80
100
Not in favour of
compulsory
preservation
Somewhat in
favour of
compulsory
preservation
Strongly in favour
but with a choice of
Service Provider
Strongly in favour
of compulsory
preservation
Don‟t know
% R
esponses
Preservation FundsBrokersAll Fund Types Media/Government/Regulatory Bodies
Strong support for compulsory preservation
24
11
33
18
26
11
18
47
18 18
33 33
17 17
86
14
0
20
40
60
80
100
% R
esponses
Compulsory Annuitisation
Preservation FundsBrokersAll Fund Types Media/Government/Regulatory Bodies
Not in favour of
compulsory
annuitisation
Only in favour if
members can
access a portion of
funds for
emergency
Somewhat in
favour of
compulsory
annuitisation
Strongly in favour
of compulsory
annuitisation
Don‟t know
Compulsory annuitisation only supported
if emergency access25
Adequacy of Retirement Benefits
Providing Members with a Measurement of Adequacy
Company funds more likely than umbrella and union funds to measure adequacy
Media / Government / Regulatory Bodies believe 57% of funds have a measure of adequacy
Two thirds of the Preservation Funds (67%) and 71% of Brokers/Intermediaries included in the study have a measure of adequacy
Do not measure adequacy
52%
46%Don’t know
2%
Do measure adequacy
Fairly low levels of measuring the adequacy of benefits
27
Adequacy of Benefits
43% of respondents believe members think they have enough money to retire
Respondents believe benefits are actually enough only 26% of the time
% of salary at retirement most common measure of adequacy
70 – 79% of final salary (73% average) seen asadequate benefit
Companies & unions seeing more members retiring before 65 –main reasons given relate to needing a slower lifestyle & starting their own business
Generally low levels of adequacy of benefits
Discrepancy between members‟ perception of benefits and reality
28
Perception of Trustees
Perception of Trustees
Fund trustees/principal officers strongly believe members have confidence in the knowledge & abilities of trustees
Intermediaries, the Media, Industry bodies and Umbrella Funds less positive regarding member perceptions of trustees
76% of fund respondents agree the additional costs to ensure good governance are beneficial (55% in 2008)
30
Governance remains in important topic
Member Level Investment Choice
Member Level Investment Choice [MLIC]
MLIC becoming more popular: More Company funds introduced MLIC in 2009 (12% on 2008)
1/3 of respondents introduced choice in last year
Another 10% intend to introduce choice in next year
But number of different choices offered to members not seen to increase significantly in the next 3-5 years
Default option remains the most popular option: 68% of members in all types of funds
% Umbrella fund members using default option has decreased from 80% to 66%
Most popular choices: Company funds - Balanced, multi-manager and life-stage mandates
Umbrella funds - Fully guaranteed, money market and life-stage mandates
Life stage mandates look to become more popular investment choice in Company funds in next 12 months
Rising levels of MLIC despite most members
choosing the default 32
% of Members Choosing the Default Option
Choose default
2009 Mean: 68%
2008 Mean:
80% Umbrella
72% Company
73
1013
3
33
103
7
0
10
0
20
40
60
0-9
%
10-1
9%
20-2
9%
30-3
9%
40-4
9%
50-5
9%
60-6
9%
70-7
9%
80-8
9%
90-9
9%
100%
% R
esp
on
ses
Most members choose the default option
33
Umbrella Funds
Umbrella Funds
97% of respondents who moved to Umbrella Funds felt that their expectations had been met
Respondents generally agree that Umbrella Funds will continue to grow & that this is a positive trend
Loss of control
Potential to lose personal touch / disconnect from members & pensioners
Perceived Advantages Perceived Disadvantages
Expertise
Safe & better returns
Better administration
Better governance
Reduced costs
Loss of control
Majority are positive about Umbrella funds
35
Umbrella Funds
Respondents see continued growth:
Company funds predict 32% growth
Participating employers in umbrella funds predict 23% growth
Reasons given for expected growth:
Specialist expertise
Reduced risk & cost
Impact of proposed NSSS
Better returns
Amalgamation of company funds
36
Umbrella funds growing in importance
Member Communication
Member Communication
Despite continued emphasis on communication, low levels of understanding and action persist
17% believe members have a good understanding of the communication they receive
13% believe that members act on the information they receive
Printed material remains the dominant communication medium
Members desire more personal communication via workshops & one-on-one sessions
Company funds provide more communication both pre, during and post members being part of a fund
Definite need for Umbrella and preservation funds to become more proactive in effective communication
Importance placed on member communication decreases once the member becomes a pensioner. Many funds see their responsibility ending at this point
Low levels of understanding of communication
38
Member Communication
More member communication and education is needed around:
Tax issues: What does the member need to do
How much will it be
How it is calculated
How underlying investments work What is it made up of
What is guaranteed and what is not
What benefits the member is entitled to on retirement, resignation and death
How and where to invest on retirement/what to choose
How funds work and the differences between different retirement vehicles e.g. provident, pension, RA‟s Living annuities, Preservation etc.
Focus on education needed
39
RETIREMENT
MONITOR 2010
MAKING IT COUNT
Agenda:
Old Mutual Retirement Monitor 2010
Survey Purpose
Sample & Methodology
Retirement Fund Membership
Key Survey Findings Retirement Planning Confidence
Attitudes to Retirement
Anticipated Source of Retirement Funding
Attitudes to Trustees & Fund Administration
Member Level Investment Choice
Member Communication
Contribution Levels & Adequacy
Preservation
Panel Q&A
42
Survey Purpose and Methodology
Examine pre-retirement perceptions amongst working South Africans, in particular their confidence levels regarding their financial provision for retirement
1051 interviews conducted
57% are members of a pension / provident fund
43% are not members of any retirement fund
Full-time employed metropolitan dwellers
Various races & genders
LSM 6 – LSM 10
43
Retirement Fund Membership
Of whom:
42% also have a Private RA7% also have funds in a Preservation
Fund from a previous employer
Member of a pension / provident fund?
YES57%
NO43%
44
Of whom: 47% Provident Fund
45% Pension Fund4% Both / hybrid
4% don‟t know
Of whom:
25% have Personal RA‟s
1% have fundsin a Preservation
Fund from a
previous employer
Of whom:
Only 10% work for an employer who
does in fact offer a retirement fund
Of those (90%) whose employers does
not offer a retirement fund option,50% would definitely participate if it was on offer
Retirement Planning Confidence
Question:
“How satisfied are you with your financial readiness/provision for retirement at this point in time, given your age & the number of years that you have to go until retirement?”
Responses indicated the following average levels of confidence:
Confidence of members and non-members close
45
1 2 3 4 5 6 7 8 9 10
Total sample5.6
Fundmembers
6.3
1 =Totally
dissatisfied
10 =Extremely
satisfiedNon-
members
4.8
Attitudes to Retirement
Majority of respondents across all groupings were concerned as to whether they have done enough to prepare for retirement
32
34
29
44
68
70
75
24
24
26
50
57
58
77
0 20 40 60 80 100
The government will look after me
Saving for the future is not a priority right now
My children should look after me when I am old
I am looking forward to retirement
I fear I won't cope financially when I retire
I plan to work for as long as I can after retirement
I wonder if I have done enough to secure my retirement
%
Fund Member
Non-Member
46
Anticipated Source of Retirement
Funding
“Thinking about the savings, investments and other sources that you will draw on in retirement, what % do you think will come from….”
Non-members see cash savings as the
primary source of funds47
35%
60%
29%
15%
48%
12%
10%
15%
6%
5%
7%
5%
10%
13% 9%
20%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Total Fund Members Non-Members
Other
State pension
Endowment policies
Retirement annuities
Cash savings
Pension or provident fund
1%
Low Levels of Engagement Among
Fund Members
Trustees
Investments
45% know whomanages the investment
55% don‟t know or are unsure who manages the investment of their retirement fund
18% vague
58% don‟t know wherethe assets are invested
24% claim good knowledge of where the assets of their retirement fund are invested
20% know trustees by name
50% don‟t know who the trustees of their retirement fund are
30% know the company they are from
85% did not vote
15% voted in the most recent election
48
High Level Of Trust And Confidence
In Trustees (Despite lack of engagement)
“How much do you trust that the trustees are making decisions in the best interests you, the member?”
Base = 583 Fund Members, weighted data
1 2 3 4 5 6 7 8 9 10
Trust 7.3
Confidence7.3
1 =Extremely
confident
1 =Absolutely
no trust
10 =Trust
completely
10 =Extremely
confident
“How confident are you in the knowledge and abilities of the trustees of your fund?”
49
Member Level Investment Choice
Of whom: 58% very confident exercising that choice
35% fairly confident6% not very confident1% not at all confident
Of whom: 66% selected the default option
(41% because they really thought it wasthe right option and 25% because did not
know what else to choose)11% made a different choice
22% can’t remember
• Amongst ALL Fund Members (not only those offered investment choice):
• 57% do not feel that they can make better investment decisions than their trustees
• 43% feel that they could definitely (15%) or probably (28%) make better choices
32% not offered
18% have member level investment choice
50% don‟t know or are unsure whether their fund offers member level choice investment
50
Effectiveness of Retirement Fund
Communication
Base = 583 Fund Members, weighted data
1 2 3 4 5 6 7 8 9 10
Fund
Members
6.84
1 =Does not meet
my needs at all
10 =Extremely
effective
51
Contribution Levels & Perceived
Adequacy
Of the fund members surveyed, 65% know what percentage of salary they contribute to their retirement fund
8% contribute more than 20% of salary
9% contribute 16% - 20%
53% contribute 6% to 10%
14% contribute up to 5%
62% of respondents feel that their contributions are „about right‟ in terms of preparing themselves financially for retirement
90% of fund members have never made additional contributions into their retirement fund
They probably won’t have sufficient retirement savings
They should have sufficient retirement savings if
contributed for 40 years
52
Preservation
Base = 91 Fund Members who have changed jobs in
the past 10 years and who were a member of a pension or provident fund at their previous place of
employment.
4
3
19
25
52
0 20 40 60 80 100
Withdrew all or some of their proceeds in cash
%
Transferred proceeds to new employer‟s fund
Left the proceeds in my old employer‟s fund
Used proceeds to buy an RA
Put the proceeds in apreservation fund/plan
Most members take cash on withdrawal
53
Retirement Fund Reform
Awareness:
79% don‟t really know what the key issues are
Attitude to proposed reforms:
14% positive
6% negative
18% mixed feelings
62% don‟t know
Compulsory National Fund:
17% should be compulsory for private sector fund members to join
27% should be able to opt out
56% don‟t know
Low levels of awareness of the issues in
Retirement Fund Reform 54
Pensioner Sample
MAKING IT COUNT
Background to Pensioner Sample
Sample of pensioners included to give a glimpse of post retirement life
200 interviews conducted with amongst pensioners being screened as follows:
Retired from a retirement fund and derive income from that fund (but could continue to work)
Only derive income from a privately funded retirement annuity excluded
Minimum pension income of R2 000 per month (could have other income)
Aged 55+ years
None worked in advertising, media, life assurance or retirement funding related industries
All living in major metropolitan areas
56
Retirement Fund Profile
Fund retired from: Receive pension from: Fund structure:
6% Provident
94% Pension 95% Pension from the Fund
5% Insured Pension
45% Defined Benefit
14% Defined Contribution
41% Don‟t know/Not sure
57
Contribution Patterns
Fund contributions: Contribution to Private RA:
7% made an additional
contribution at some point
93% made no additional
contributions
78% have not
22% have contributed to
a private RA
97% have contributed to a Pension fund at some stage in their working life and 11%
to a Provident fund.
Average total number of years contributed:
Pension Fund = 26 Years
Provident Fund = 16 years
Total Average = 27 ½ years
Average number of years contributed to private RA = 20 ½ years58
Adequacy of Pensions
53% of pensioners felt a drop in their standard of living when they retired. For 33% the drop was slight, 25% reported a big drop
As time has moved on, the proportions of pensioners seeing a drop in their standard of living jumps to 75%
Only 17% feel that their pension has kept up with inflation, 51%feel it is a bit behind and a third feel that it is far behind
On average, their pension meets 77%of their retirement needs
23% currently receive financial assistance from their children or other family members, and for these pensioners, this assistance is almost a quarter of their income
Most pensioners see a drop in their
standard of living when they retire59
OMAC MeRCI
MAKING IT COUNT
Introducing the OMAC Member
Retirement Confidence Indicator –
OMAC MeRCI
A number between 1 and 10 indicates the level of confidence that members of occupational retirement funds have in their fund‟s ability to provide for their retirement.
Calculated from 15 lead (pre-retirement) and 1 lag (pensioner) questions.
OMAC MeRCI Score 2010 = 6.1
61
Seelan Gobalsamy
MD, Old Mutual Corporate
Hugh Hacking
Umbrella Fund Product Manager,
Old Mutual
De Wet van der Spuy
Head: Consultant Relationships,
Old Mutual Corporate
Craig Aitchison
MD, Old Mutual Actuaries &
Consultants
Panel Q & A
