I am speaking in my capacity as chairperson of the Financial Sector Campaign Coalition. The changes in the financial sector, to which the retirement funds industry is now adapting, a re at the heart of our Campaign.
The FSCC is a Coalition of 55 organisations, many of which are large membership-based organisation in their own right –
When we started to build this powerful Coalition in 2000, we set ourselves a single but very ambitious goal: transforming the financial sector in our country so that it would better serve the needs of ALL our people.
And the reason we did this was because we saw evidence - in workplaces, in urban townships, in rural villages - that the banks, the insurance companies, the retirement industry, were not providing the goods and services that our people, and our country, needed.
These industries developed in an era and in a regulatory environment where they were not required to serve the needs of all our people; by 2000 we started a campaign that said: now is the time for change.
As most of you know, our campaign resulted in the Nedlac Financial Sector Summit of 2002, which reached a historic agreement to bring about changes in two main spheres:
These Summit agreements recognised the importance of the retirement funds industry in the economy and of the need for comprehensive policy and legislative reform.
We are now seeing the fruits of that labour in a number of initiatives:
retirement fundS reform
We welcome the government’s proposals for comprehensive and systematic reform. We support the broad objectives of the process that seek to improve the efficiency, equity and fairness of the system. We support provisions to enable individuals to adequately provide for their retirement, while at the same time introducing mechanisms to protect pensions against erosion by containing costs.
Proposals such as improving standards of fund governance and trustee participation, increasing regulatory capacity and oversight, encouraging shareholder activism and improving disclosure requirements are welcomed.
However, we believe that if the policy is to be appropriate for South Africa as we enter our second decade of democracy, the process by which it is designed must be inclusive and balanced; and geared towards attaining our national developmental goals of eradicating poverty and creating jobs.
Challenges
Historically, worker control of retirement funds has been bitterly contested in our society. Paternalism, racism and various other prejudices have ensured that workers have had to fight for the current status quo of sharing control of their funds. We believe that transformation means putting these assets in the hands of those to whom they belong, the producers of wealth in our economy, the working class.
The massive resources managed in this industry – over R900 billion rands according to the FSB - clearly have a substantial impact on our developmental trajectory.
Retirement fund contributions from 80 per cent of the formally employed amount to R65 billion a year – 14 % of total personal remuneration in South Africa. As a result, South Africa ranks 4th in the world for retirement fund assets, after the UK, Switzerland and the Netherlands. In terms of private pension fund assets to GDP, South Africa is first in the world.
At present, there is limited regulation over how these funds are invested. As a result, large amounts of domestic resources are either invested overseas or in building shopping malls in Sandton rather than into developmental investment.
We have heard much talk of Charters in the recent past. But it is not the latest trend in Black Economic Empowerment Charters that we look to for guidance in our thinking about retirement funds policy. We turn to two important documents: the Freedom Charter and the R econstruction and Development Programme.
The Freedom Charter says: “ The People Shall Share in the Country's Wealth! The national wealth of our country, the heritage of South Africans, shall be restored to the people.”
The RDP recognises the importance of pension funds to South Africa’s development. According to the RDP, if financial institutions do not voluntarily adopt “socially desirable and economically targeted investments”, then laws should be passed to stipulate that a certain part of all pension and provident funds must go into certain government-endorsed projects.
Guided by these wisdoms, we must ensure that the new laws we are fashioning, ensure that assets being managed by the financial sector on behalf of workers are invested in developmental projects and programmes.
Role of trustees
In achieving this, one of our biggest challenges is building capacity among worker trustees. Their decisions should not mimic those of fund managers, but should promote the interests of the working class and their communities.
Even where this might mean accepting short term reductions in pension benefits for the long term gains in job creating and developmental goals, we are confident that South African workers are mature, far-sighted and responsible enough to make such decisions.
Fund managers are driven by different imperatives – most want the best return, irrespective of the nature of the investment. This short-term, blinkered view can be tempered only by an informed, capable cadre of worker trustees ensuring that funds are invested in long-term, sustainable, developmental projects that fight poverty and create work.
New policies must send a clearly define the role of retirement funds in promoting socio-economic developmental goals.
FINANCIAL SECTOR CHARTER
The participation of retirement funds in Financial Sector Charter process is a case in point. The Charter was signed in 2003 by the Institute of Retirement Funds, a body which purported to represent the retirement funds industry. This commitment would see the industry investing about one third of the total of R122 billion required in terms of the Charter targets.
Now the IRF claims it cannot be held to the commitments - the R42 billion target for low cost housing or the R25 billion for infrastructure in communities neglected by apartheid.
Do trustees know these decisions are being taken in their name? I believe worker trustees would be fully committed to these goals to channel investment to their communities. If their views are properly canvassed they will support the Charter’s transformation goals. It is high time we heard the views of the trustees and not funds managers or unrepresentative industry associations in this matter.
We urgently need to establish, within the coming weeks, not months, a national forum through which we will hear the voice of retirement fund trustees. Trustees must drive transformation in the industry.
SAVINGS FUND
We welcome proposals around a savings fund for those who currently have no access to retirement fund benefits, such as self-employed people with irregular incomes. The fund should provide an accessible and affordable savings vehicle. The recent experience of the Mzansi national bank account, which has attracted nearly 700 000 new account holders, and R200 million rands in savings into the formal banking system in the four months since its launch, proves that where affordable and accessibly services are made available, South Africans are ready to use them.
However, we must guard against requiring, or compelling, already impoverished people to save for retirement in ways they cannot afford and which they could perceive as unjust.
Millions of our people cannot afford basic necessities such as electricity, water, transport, telecommunications or school fees. Households affected by HIV/AIDS would find contributions to a savings fund an unbearable burden.
We would like to see further research to determine the feasibility of the proposed savings scheme in the present economic climate of high unemployment, widespread poverty and massive HIV/AIDS infection rates.
In particular, the supposed beneficiaries of such an initiative - poor women heads of households in both urban and rural areas; members of organised community groups such as church and women’s associations, informal sector employees, should be widely surveyed to establish whether such a scheme would alleviate their poverty and improve their lives, and make their retirement easier.
If further research indicates that such a scheme would benefit citizens, the question of its administration and management should be carefully considered. Anecdotal evidence shows that the pension funds industry is already lobbying to administer this proposed fund, presumably to generate profits for shareholders. We would propose any such fund should be administered by a non-profit or co-operative organisation.
Unclaimed benefits
I want to turn now to the vexed question of unclaimed benefits and the proposals in the draft policy. The billions of rands lying unclaimed in funds is a national disgrace. The beneficiaries are in many cases living in dire poverty and desperate need. The new law must require funds to trace and pay out beneficiaries timeously. Private companies are proving that they can trace, and pay out, tens of thousands of beneficiaries with unclaimed benefits worth hundreds of millions, every year.
Why then can the industry not do the same? Why can it not run media campaigns in appropriate newspapers and radio stations explaining to people how to claim unclaimed benefits? Why can the industry not partner with the networks of organised Labour and Community groups to trace members and beneficiaries?
The proposal to create a central unclaimed benefits fund, and to put in place measures for relinquishing unclaimed benefits to the state, is not acceptable in its present form. We cannot condone a situation where, in the year 2005, when the industry has access to sophisticated technology and communications networks – that it is allowed NOT to trace beneficiaries and deprive them of even the little to which they are entitled. All that is lacking is the will to solve the problem.
Financial literacy
We believe large pools of unclaimed benefits would not be a problem if workers and beneficiaries were better informed and educated about their rights.
I heard a story the other day that should leave no-one in any doubt about the absolutely dire need for financial literacy training. It was from a representative of one of the new crop of companies that are making millions doing the job that pension funds should be doing – tracing beneficiaries. He traced a pensioner who had thousands of rands lying unclaimed in a pension fund. Records showed a cheque had been issued but never cashed.
When the consultant got to the pensioner’s house in a poor, urban township, he found the cheque proudly displayed in a frame on the wall.
Financial literacy programmes must enable people to make better choices. But we must guard against these programmes being used by service providers to promote their own products and services. Financial literacy programmes are not to be confused with marketing. Independent, credible channels must provide independent, credible financial literacy materials and training.
There is not time today to detail all we would like to see in retirement funds reform, but we must indicate that we cannot support proposals such as the conversion and transfers of funds being unilaterally decided by employers. Workers, not bosses must decide what kind of fund to join.
CONSULTATION PROCESS
Finally, we want to see an inclusive and comprehensive process of consultation around the retirement funds reform process. We realise that extensive consultation must take place with industry, and want to see a similar effort being made to consult beneficiaries.
We have made submissions to the National Treasury to suggest that their intended roadshows will disadvantage the very people this law reform is designed to protect: beneficiaries.
The design of a process dictates its outcomes: If consultative meetings take place in venues such as the Cape Town Waterfront or a Sandton conference centre during the middle of the working day, they will inevitably draw submissions mainly from the retirement funds industry. If they are held in dusty township church halls on Saturdays and in rural villages on Sundays, they will hear the voices of the workers and the people. We hope that our pleas for inclusivity and balance will be heard.
We look forward to a new retirement funds regime – one where the resources and skills that have made the industry a success are harnessed to achieve our potential as a complex and evolving society, one where our national development goals are promoted and nurtured.
I thank you and wish you well in your deliberations over the next two days.
Blade Nzimande
Chairperson