OLD MUTUAL CORPORATE: Expert Opinions: Edition July / September 2019


New evaluation tool to transform and

strengthen retirement fund benefits

Launched by Old Mutual, Andrew Davison
(Head of Advice at Old Mutual Corporate Consultants) explains
the intent to transform and strengthen retirement-fund benefits.

Not all employees are fortunate enough to have a retirement fund as part of their employment package. Membership of a well-managed retirement fund is undoubtedly a valuable employment perk, but it does not guarantee a comfortable retirement. Yet the mistaken belief amongst many employees is that mere membership of a retirement fund will ensure that they will be looked after in retirement.

There are many reasons why people fail to accumulate sufficient assets to be able to continue to enjoy the same standard of living in retirement. Some of these reasons relate to poor decisions on the part of the members themselves – decisions about the level of contributions to make, the choice of investment strategy, whether to preserve savings when changing jobs or how to convert accumulated savings to a sustainable, inflation-adjusted income in retirement are all important decisions.

A crucial factor, difficult to assess, is whether the particular retirement fund to which a member belongs is actually delivering for the member while he or she is a member of the fund.

In order to assist decision-makers in retirement funds (trustees or management committees within umbrella funds) Old Mutual Corporate Consultants (OMCC) has developed an evaluation tool that takes the pulse of a retirement fund and provides a report on its effectiveness in delivering sound retirement benefits for its members.

This consulting tool, called OnTrackTM, is delivered in the form of a detailed report containing valuable insights for the decision-makers in relation to the benefit design of the fund, the expected level of pension that can be expected from a fund and the impact of decisions being made by both trustees and members.

Andrew Davison . . . delivery tests

All of this culminates in an OnTrackTM rating where a score of five is an excellent fund, and a score of one is a poor fund. This provides a stamp of quality (or lack thereof) for the fund. In addition, OnTrackTM benchmarks the fund against other funds providing the employer and the fund’s decision-makers with valuable information about how they measure up to their competitors.

OnTrackTM is a consulting tool. So, in the hands of a skilled consultant, it has the ability to transform the conversation to be much more focused on delivering better outcomes for members. OnTrackTM provides a health check but this is only the beginning. It then assists fund boards to put measures in place to ‘improve their fund’s effective delivery of superior retirement benefits and hence their OnTrackTM rating.

In this context, ‘delivering for members’ is about more than just investment returns. Simply put, OnTrackTM assesses each member’s actual accumulated assets against a target based on their length of membership of the fund. This is used to determine the percentage of members who are on track to achieve the required level of savings at retirement age to be able to provide a pension that is about 70% of the salary they were earning in the year before retirement.

This assessment encompasses the benefit design, contribution rates as a percentage of salary, choices offered to members, default investment strategy, fees and costs as well as member communication. It is about knowing where the members of a fund are going, monitoring progress against clear targets and making informed decisions that drive better outcomes.

A fund’s OnTrackTM rating will compare it with other funds in the OMCC database. This will include funds in a similar broad industry as well as funds of a similar size in terms of membership.

In so doing, funds (and the employers backing them) will be able to see how their employee benefits stack up against other employers. We expect that this will motivate boards to improve their rating by revising their fund’s benefit design, enhancing communication with members and increasing the support and education provided to members.

The OnTrackTM analysis will be completed on an annual basis and will be shared with clients in an annual fund health report. OnTrackTM is not aimed at individual members so it is not about projecting replacement ratios for individuals.

Rather, it is a fund report aimed at the board and equipping its trustees to understand their fund and its ability to deliver sound retirement benefits to members. It aims to empower them with the necessary insights to make better decisions for the benefit of their members.

By providing retirement funds with a clear measure of their effectiveness and enabling decision-makers to focus on the impact of their decisions and the actions they can take to improve outcomes for their members, OnTrackTM has the potential to drive improvements in South Africans’ retirement wellbeing.

For truly member-centric retirement funds we believe that OnTrackTM isn’t merely a nice-to-have. It’s an imperative.

For more information, please contact Andrew on adavison@oldmutual.com or visit  www.oldmutual.co.za/omcc