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.