The announcement of the broad outline of the new defined contribution pension fund for all municipal employees is hopefully a sign of where the government intends taking the entire retirement fund industry.
The details of how the government wants to structure retirement funding are likely to be unveiled at a national conference for retirement fund trustees in Johannesburg on September 9 and 10. The proposals will affect your retirement planning, no matter how you are saving for retirement.
The conference, which was initiated by Finance Minister Trevor Manuel, will be held under the auspices of the National Economic Development and Labour Council (Nedlac), the forum where the government, organised labour and business try to find solutions to the country's economic problems.
The interesting aspects of the new Local Government Pension Fund for municipal workers are:
- There is no provident fund option. This is to ensure that members purchase a monthly pension with at least two-thirds of their retirement savings. Members of a provident fund can do what they like with their lump-sum payout.
- Members who move from one municipality to another will not be able to cash in their retirement savings when they change jobs, and spend the money on anything from a new car to an overseas holiday.
The way the government has structured the Local Government Pension Fund reflects its concern about retirement funding in general. Two areas of particular concern are fund members cashing in their retirement savings when they leave an employer, and members of provident funds often failing to purchase a monthly pension with their retirement savings.
The result is that more people than is necessary become dependent on a state-funded government social old-age pension (currently, R740 a month).
At next month's conference, it is expected the government will announce that it wants to scrap provident funds, and that at least a minimum amount of your retirement savings must be preserved when you quit or switch jobs.
This means the government will seek to change the current retirement funding structures, including the way in which retirement funds are taxed, to encourage, or force, you to preserve your retirement savings and to ensure that you purchase a pension at retirement.
These are sound objectives, because few South Africans reach retirement with sufficient savings.
I believe the Local Government Pension Fund is a good move, even though it may result in some members receiving lower benefits (at the cost to punch-drunk ratepayers) than they do now.
For one thing, the new fund will put service providers on their collective toes. Some service providers have proven more adept at sending trustees on free trips to the World Cup and dishing out perverse incentives than at looking after members' interests. The new fund will outsource services, from administration to asset management, to the private sector, and the providers will have to concentrate on giving members real value.
The service providers will have to report to a board of trustees that will have a fairly high public profile. The trustees can be expected to adhere to far higher standards of governance than the trustees of the existing municipal funds, which have lost millions of rands in members' retirement savings.
xxxx
My congratulations to First National Bank (FNB) for again emerging as the winner in the customer satisfaction index for the banking industry. The index is endorsed by the Department of Trade and Industry. Over the past three years, FNB has pushed its winning score from 74 percent to 83 percent.
Some years ago, when Personal Finance reported that we were being inundated with complaints from readers about poor service from the banks (including FNB), we were accused of bank bashing.
Some of FNB's competitors withdrew their advertising from Personal Finance, and one major bank still refuses to advertise in this publication. By withdrawing their advertising, the banks were not thumbing their noses at Personal Finance, but at you, their clients.
Most banks have since changed their attitude, and the number of complaints from readers about service has declined dramatically. The complaints we do receive are usually about high charges rather than shoddy service.
FNB was one of the worst offenders in the bad old days. On one occasion, it sent out an email announcing new transaction fees and appended a note stating that you should not bother to respond as the mail box was unattended.
It is pleasing to note that Wendy Lucas-Bull, the chief executive of FNB Retail, has no intention of letting FNB rest on its laurels. Lucas-Bull says FNB will continue its drive to improve customer service.
She says the bank's customer- focused campaign of "How can we help you" is one of FNB's core values. She is determined that FNB will retain the top spot in the index and improve its score even further.
Now, it is the life assurance industry that needs to work at improving its customer service.
Last week, Personal Finance staff met with the Ombudsman for Long Term Assurance, Judge Peet Nienaber, and his senior staff. We agreed that poor service is the single biggest cause of complaints to both his office and to Personal Finance.
Often, it is not the initial problem that gives rise to the complaint, but the inadequate way in which the company handles the complaint.
Personal Finance has noticed an improvement in the way life companies respond to complaints, but things are still far from satisfactory. All too often, policyholders are given misleading explanations along the lines of "your returns are bad because the markets are down", when the life company has under-performed the market.
One life company that is focusing its attention on improving its service to policyholders is Liberty Life. I am not surprised that it is gaining market share.