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Retirement Planning
Monday, December 1, 2008
Preservation essential

It is often said that less than 6% of South Africans can afford to retire comfortably. This is at least partly due to people taking their retirement fund assets in cash when changing jobs, and why legislation for pension preservation is regularly talked about.
Seelan Gobalsamy, Managing Director of Old Mutual Corporate, says that while the retirement reform proposals are likely to include compulsory preservation of retirement benefits, there is much the industry can do around this issue in the interim.  For its part, Old Mutual says it has decided to eliminate upfront administration fees for its existing clients, or for those who are employed by organisations that are invested in old Mutual, and wish to preserve their investments in its corporate Protektor Preservation Fund.
"We have a responsibility to encourage people to keep their retirement fund savings invested for as long as possible and not cash them in when exiting their jobs prior to retirement age," says Gobalsamy. "The removal of the Protektor upfront administration charge makes it one of the most economical preservation funds in the South African market. Lower fees mean higher fund values at retirement, of course, which we hope will encourage more people, when they change jobs, to preserve their benefits."
As it is, as much as two thirds of members resigning from their jobs prior to normal retirement age take their retirement benefits in cash. So clearly there is a lot more to be done in the way of improving member communication and advice when it comes to encouraging preservation of retirement fund savings, says Gobalsamy.
According to company’s 2008 Retirement Fund Survey only 50% of funds provided advice and counselling to members when leaving their fund for reasons other than retirement.
"While it is encouraging that most boards of trustees believe members should be encouraged to preserve, it is disconcerting that implementation is lacking.”
While 76% of all funds interviewed provide members with pre-retirement counselling or financial advice, 50% offer such advice only one year before retirement, and only 2% offer regular annual input. "Counselling is undoubtedly more effective when offered to members earlier in their careers and on an ongoing basis,” he points out, “rather than one year before retirement.”
In any event the recent market volatility makes preserving retirement savings even more essential. Members exiting funds and taking their benefits in cash risk locking in the dramatic investment losses of the last few months. “However, by transferring their benefit into a retirement annuity fund or preservation fund with a similar investment strategy, they give themselves the opportunity to participate in future investment market recoveries.”

Copyright © Insurance Times and Investments® Vol:21.11 1st December, 2008
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