What you should know about your retirement fund

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Johannesburg - Speaking at a 10X Investments retirement fund conference in Johannesburg this week, Steven Nathan, the CEO of 10X ­Investments, said it was important to ­distinguish between saving for retirement and investing for retirement. Saving is ­delayed spending, or deferring your salary.

“The responsibility for saving usually rests with the employer who, for example, will tell you to save 15% of your salary. The employee also needs to take responsibility for saving money each month and the trustees of the retirement fund also share responsibility for ­saving,” he said.

Nathan said investing was a separate activity, which ­involved growing your savings to be as large a pot as ­possible until you need to spend the money in ­retirement.

“Investing is the responsibility of the asset management industry,” he said.

In a bid to encourage more South Africans to not only save for retirement but remain invested until they retire, Treasury is slowly introducing retirement ­reforms.

Olano Makhubela, chief director of financial investments and savings at Treasury, told the conference the latest set of draft regulations released last month were ­intended to encourage household savings and reduce ­poverty in retirement.

The draft regulations include measures to regulate ­retirement funds so that they offer members better ­default options.

“People tend to stay in the default option, so the idea is to provide them with a default option that will give them the best outcome in retirement,” he said.

Gidon Novick, head of global digital strategy at ­Discovery Holdings, agreed with this opinion.

“In Denmark, 4% of the population are registered ­organ donors, while in Sweden, the number of registered organ donors is 85%. They are both similar countries with similar economies and populations. The only difference is that in Sweden, you are an organ donor by ­default, while in Denmark you have to make a conscious choice and follow through on your decision,” he said.

Fees and disclosure

South African unit trust fund fees rank among the ­highest in the world, particularly if you invest via a broker and not directly with an asset manager. This was one of the key findings of the recent Morningstar Global Fund Investor Experience 2015 study, conducted in 25 different countries.

At the 10X conference, Anthony Serhan, the MD of ­research strategy for Morningstar’s Asia-Pacific region, said South Africa was lagging global markets when it came to fees and disclosure. Funds are expected to provide you with simplified prospect uses with basic information in each ­document. The document should be ­focused on the specific fund you are interested in investing in and should use clear, simple language to describe the fund and the risks you face as an investor in the fund.

When it comes to fees, Serhan said it was unfortunate that many unit trust funds, both here and globally, tend to talk in percentages rather than in monetary figures.

“The industry might understand the significance of the percentage figure, but a lay person does not. What the consumer needs to know is how much money or rands they are paying,” he said.

Only nine of the 25 markets in the Morningstar survey required funds to provide fee disclosures to clients in monetary terms.

Serhan said it was encouraging to note that South ­African funds disclose the name of the fund manager. However, he said this information should include how long that fund manager had been managing the fund, whether or not they were personally investing in the fund and how they were being paid for the management of the fund.

“Typically, we have found that managers who invest in their own funds are more likely to outperform the stock market than those managers who do not ­personally invest in the funds they manage,” he said.

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