2014 Sanlam benchmark survey 2

Sanlam recently published the results of its annual survey. 100 principal officers of stand-alone retirement funds were interviewed for this purpose. In our previous newsletter we presented some of the more interesting findings in respect of stand-alone funds. Here are some of the more interesting findings of this survey in respect of umbrella funds:

Larger well-established employers continue to join umbrella funds;
The average ‘sub-fund’ in an umbrella fund has 484 members and R 297 million assets;
12 out of 100 stand-alone funds surveyed in 2014 indicated their intention to transfer in the next 12 months, 55 indicated they have considered it;
Costs and reputation are the main factors influencing employers’ choice of fund;
Main reasons for the transfer are cost savings, administrative convenience and fiduciary risk;
There is an increased awareness of costs but understanding the cost complexities remains unsatisfactory;
64% of employer’s remuneration packages are based on total cost to company;
Average employee contribution rate is 5.6% of salary;
Average employer contribution rate is 8.5% of salary;
Average cost of death benefits is 1.6%;
Average cost of disability benefits is 1.2%;
Average cost of administration is 0.8% of salary;
Average allocation towards retirement is 10.5% of salary;
66% of employers provide risk benefits as part of the umbrella fund;
Average death benefit is 3.1 times salary;
47% of sub funds deduct fund expenses (FSB levies, auditing fees and trustee reimbursements) from member accounts, 14% from contingency reserve and 16% include it in the administration fees;
83% of respondents indicated that the trustees are assisted by an investment consultant;
52% of respondents indicated that their consultant was independent of the sponsor;
31% of consultants are remunerated via commission, 24% via a negotiated fee;
64% of respondents felt that remuneration was commensurate with the consulting services provided;
69% of sub funds have a formalised strategy for rendering financial advice;
74% of employers offer member directed investment choice;
98% of sub-funds indicated that an appropriate default strategy was available for members who do not want make investment choices;
53% of sub funds offer life stage mandates as default strategy;
Only 35% of employers target a pension and of these 57% target 80%+;
93% of employer are satisfied or very satisfied with the investment choice for these being a good variety;
Investment feedback is provided annually by 32% of funds, half-yearly by 13%, quarterly by 37% on investment returns (77%), returns vs benchmarks (66%), portfolio asset allocation (63%), economic overview (60%) and risk analysis (41%);
Majority of member communication is via printed material on investment performance (87%), benefit structure (87%), legislative changes (61%);
77% of funds make use of an internet facility;
42% of funds offer a net replacement ratio calculator;
34% of employers indicated that the umbrella fund has determined an appropriate default annuity product or are working on it, 15% have determined a product and 47% of these have selected the living annuity, 40% the guaranteed annuity;

It is concerning that 90% of members do not reassess their choices after making their initial decisions.