The implementation of the government’s “two-pot” retirement savings regime, which came into effect in September, was extremely burdensome for retirement funds – they had to work furiously to adapt their systems in time and subsequently faced a deluge of savings-pot withdrawal claims. But the process has had some hugely positive spin-offs for retirement fund members and for the industry as a whole.
At a presentation at last week’s annual conference of the Institute of Retirement Funds Africa (IFRA), Andrew Davison, head of institutional business at Old Mutual Multi-Managers, and Michelle Acton, Old Mutual’s retirement reform executive, shared their learnings from the two-pot implementation process. They said the volume of claims had been high, as many people had predicted, but on the positive side, they had seen significant shifts in public awareness around retirement savings and in how members and funds interact.
One spin-off has been a hasty move by retirement funds to implement digital communication channels, whereby members can interact with funds digitally via apps and messaging on their smartphones. Acton said there had been a need for greater digital adoption in the retirement fund industry, and it was now happening.
“The banking industry went there a long time ago and many other industries have gone there, but our industry was lagging, and in the last few months, we have absolutely seen digital adoption. The shift has happened, which is amazing and something we really wanted to see,” she said.
Another has been greater motivation on the part of members to remain in contact with their retirement funds and keep up to date about their levels of savings.
“We are now in a world where members want to give us their correct details because without those details we cannot pay their savings-pot claims,” Acton said. She said that where previously Old Mutual would do regular drives to encourage members to update their personal details, now they have members actively calling them to provide that information.
“I think this will take us a long way going forward in terms of empowering members through communication and education,” Acton said.
She said there was now far greater awareness by members of what is in their fund. “We did a study earlier this year, which showed that only about 52% of members had any idea of what was in their fund in terms of amounts. We’re seeing that number grow incredibly now because all of a sudden people have an interest.”
There are pros and cons to this heightened awareness and communication via digital channels, Davison said. “One thing we’ve seen from the data is that many people, especially younger people, check their fund value every single day because they are now able to do this on their apps or online. There is a downside to this, but one of the benefits is that people feel a sense of attachment to their savings that they didn't have before. They want to see that amount growing, and that means they may be less likely to pull money out and make that value go down.
“The two-pot system is a game-changer in terms of giving members a sense of ownership of their savings. The downside, unfortunately, is that, because of how their savings are invested, members checking their value every day may see the amount go down as well as up,” Davison said.
The reason one’s fund value fluctuates is because a large proportion of savings is invested in listed shares or equities. Although equities promise higher returns over the long term than interest-bearing investments, they are prone to short-term volatility that reflects the ups and downs in the financial markets.
Davison said that the fact that people were keeping a closer eye on their funds, and their savings pot in particular, may have implications for how those savings are invested. At present, funds do not have different investment strategies for the different pots (the retirement pot and the savings pot), but a greater focus on the savings pot amount by members and anxiety about fluctuations may require funds to adapt their investment approach accordingly.
He also warned that, because an app now lets you see the amount in the savings pot that is available immediately, this may cause the money “to burn a hole in your pocket”.
PERSONAL FINANCE