LIBERTY CORPORATE: Expert Opinions: Edition: April / June 2019


Behaviour, conversations and relationships

Default regulations highlight their importance. Louis Theron, head of investments
and annuity products at Liberty Corporate, explains why.

The default regulations under the Pension Funds Act, now effective, aim to lower charges and improve outcomes for members of retirement funds. All funds must ensure a minimum level of compliance even though the design, detail, extent and execution of the default strategies will differ between funds.

Still to become certain are whether discussions are taking place at the appropriate levels and whether behaviours, conversations and relationships are being considered. These are crucial for a retirement fund to achieve success and advance members’ financial freedom. Investment strategies, product selection and financial-services providers are important, but must be considered against the right context related to each retirement fund.

Doubt and scepticism around the regulations will persist due to recent negative investment and market sentiment. Within the SA retirement industry, shorter-term changes and successes will arise with fundamental (appropriate) shifts requiring more time to settle.


Theron . . . clear objectives

Trustees generally have a good idea of the member behaviour in their funds. At Liberty we believe that the default regulations afford the opportunity to clearly articulate the ideal member behaviours that trustees would like to encourage. Identifying initiatives to change members’ current behaviours accordingly can then be implemented to facilitate this.

As we are dealing with members, we need to remind ourselves that a one-size-fits-all approach is not possible and not something that the default regulations are trying to drive. Rather, they’re about putting into place strategies that are suitable for the average member of the fund. In turn, these represent the main characteristics and preferences of the fund’s membership.

They encapsulate the DNA of the fund – what it stands for and to which all intended behaviours should revert. The strategies should be regularly reviewed, monitored and adjusted to accommodate fundamental environmental shifts such as changes in regulations and the fund’s membership profile.

Stakeholder conversations across the value chain will promote the successful delivery of any strategy promoted and enabled by the default regulations. One example relates to discussions between trustees and their consultants. Another example is member communication around the default strategies.

Regardless of specific conversations, they should be seen as the delivery and support of mechanisms built around the default strategies. These are as important as the actual solutions themselves.

Liberty research has found that pensioners’ needs and wants can broadly be grouped mainly into functional and emotional categories. The research also revealed an overarching need for communication and information. The specific communication-related needs of pensioners and those close to retirement are:

  • Early career education and engagement opportunities;
  • Regular access to knowledgeable advisors;
  • Conclusive information that is simple and concise;
  • Detailed breakdown of processes and procedures;
  • Information in addition to product information, e.g. alternatives ways to save for retirement;
  • Stories and testimonials from others.

Communication around a default strategy alone will not achieve the desired outcomes, whereas a conversational approach can be expected more successfully to deliver this.

The definition of a partnership, within a business context, is appropriate for the default-regulations context. As with conversations, different partnerships exist in the delivery of a fund’s default strategies. Most obvious would be the partnership between trustees, the product provider and consultants.

If appropriately addressed, the default regulations can introduce a new partnership in the delivery of the default strategies i.e. the partnership between benefits counselling and advice. According to the default regulations, benefits counselling is “the disclosure and explanation, in a clear and understandable language, including risks, costs and charges, of available investment portfolio and annuity options”. Most importantly, it is limited to the provision of factual information around the default strategies.

The default regulations have created opportunities for product providers, consultants and advisers to deliver better outcomes for fund members. These enhanced toolkits will not succeed by themselves. They’re intentionally associated with setting targeted member behaviours, the strategic enablement offered by member conversations and shared ownership focus from partnerships.