Financial Sector Policy Document: Impact on the retirement industry

National Treasury issued a Financial Sector Policy document together with the National Budget in February 2011. The document outlines the challenges facing the financial sector and offers a blueprint to overcome them. Legislative and regulatory changes will be rolled out over the next three years, in consultation with the industry.

The “Twin Peaks” system

The document proposes a “twin peaks” model to regulate the industry:

• The South African Reserve Bank to effect prudential regulation
• The Financial Services Board to oversee market conduct and consumer protection.

Protection for retirement fund members

One of the objectives of the policy document is the protection of fund members. The following recommendations were made in this regard:

Withdrawal benefits

• National Treasury plans to consult with all relevant stakeholders on mandatory preservation at withdrawal
• Benefits to be more portable on changing jobs; it is hoped this will create additional competition in the industry and lower product costs
• Retirement savings products to be treated consistently, to preserve savings and close loopholes in the system.

Member education

The Financial Services Board is currently rolling out a consumer education strategy, which also targets schools.

Trustee education

The following is required in respect of Trustees:

• Trustees, and their conduct, must meet fit and proper standards. This may entail certain minimum qualifications, to be achieved within a fixed period from the date of appointment
• Formal procedures must be implemented to ensure trustees are properly trained
• Retirement funds to consider the use of independent professional trustees.

Code of ethics

A Code of Ethics has been proposed to ensure that the industry operates in an ethical manner. Such a Code would be binding on all persons operating in the retirement industry.

Improved choices through disclosure and transparency

It is proposed that every fund must issue statements to its members on a regular basis, eg twice a year, with certain minimum information. National Treasury and the Financial Services Board (through its Treating Customers Fairly programme) are formally engaging the industry on these issues.

Managing costs through umbrella funds and alternative products

The policy suggests minimum size criteria, for a fund to be registered by the Financial Services Board. This should encourage smaller employers to join umbrella funds.