The South African retirement fund industry has been influenced by a racially divided past, as well as the parallel existence of developed and emerging economic components within the country. Research has revealed that the majority of the population reach retirement age unable to sustain their lifestyles. It’s an issue that shapes the approach of leading South African retirement administrator, the KwaZulu-Natal Joint Municipal Pension/Provident Funds (NJMPF). The organisation does not operate in isolation but within communities, and according to Sam Camilleri, CEO and Principal Officer, “it is crucial that the NJMPF plays its part in community development whether social, environmental, or governance”.
There are various legislative frameworks, codes of ethics and circulars by the Financial Sector Conduct Authority (FSCA) which govern the retirement fund industry. These set a platform for compliance and due diligence. The Pension Funds Act (PFA) is the overarching legislative framework governing retirement funds in South Africa. It sets out the manner of administration and the powers vested with the Board of Trustees and its objectives include, among others, to ensure accountability from retirement fund administrators.
With retirement fund savings being typically their largest financial asset, members want clarity about their retirement benefits. For example: how much is it, how is it invested, who controls it and what return has it earned. A degree of faith is required to believe that all is well with their savings and retirement plans, and negative media reports regarding certain retirement funds and financial institutions in South Africa recently, does not instil confidence. However, NJMPF has been instilling trust through good governance and transparency for years. It has a culture of zero-tolerance for anything that doesn’t enhance good governance and places members and pensioners at the forefront of decision-making. There is a high level of awareness and a managed and controlled environment that makes it as difficult as possible to deviate from this focus. For more than a decade NJMPF has received AAA score ratings from the Association of Directors and the Auditor General of South Africa (AGSA), which conducts regulatory audits of national and provincial departments, identified public entities, municipalities and municipal entities. AGSA continues to award a status of “clean audit” to the NJMPF.
Through its audit activities, AGSA plays an important role in enabling accountability and thus promoting sound financial governance practices in South Africa. Clean audits are an indication of the good corporate governance practices of the Trustees, management and staff. This achievement is further evidence that the Fund continues to uphold its compliance requirements, positioning the Fund among only a handful of municipal entities to achieve this. Having a comprehensive set of policies regulating critical aspects of the Fund’s activities indicates that the trustees and management have been thoughtful about the business and have pro-actively developed those interventions that support good corporate governance. Through this process ‘governance awareness’ has been created across the entire organisation.
Financial literacy for members and pensioners is one of the most important communication projects at NJMPF, with a focus on continuously allowing members to learn about simple and complex financial matters. The Fund has created a range of initiatives to illustrate to its members what governance involves. This is done to enhance awareness and build trust between members and the Fund, so members are assured that their investment is financially secure and well governed. The Fund aims to advance financial literacy education and address the specific challenges of its membership whilst aiming to change the members’ attitudes and behaviour. Information to keep stakeholders well informed and educated not only about the Fund, but also about how their money is invested, is all part of the offering, along with how to obtain a credit score rating, tax free investments and other topics relating to financial education and empowering stakeholders towards financial freedom.
The NJMPF has recently introduced the ‘playing cards’ project – an initiative to keep stakeholders engaged and educated in a fun and interactive manner. Each pack of cards has an educational message in English or isiZulu, the two most dominant languages in KwaZulu-Natal. Most of the NJMPF’s membership are Zulu-speaking members and having financial information simplified in their language makes it easier to understand. The cards challenge you to ask the right questions when it comes to financial health in the hopes that their members will use the opportunity to educate their family and friends about saving and retirement.
Leading by example
Trustees and management have set the tone for good governance and have led by example. In doing so, a culture of good governance has begun to define the organisation, as illustrated by people operating in an ethical and honest manner in congruence with good governance principles. Members of staff and Trustees have an understanding that the organisation to which they are associated is one that is honest, ethical and upholds a high standard of integrity when dealing with all stakeholders. This is a positive attribute, and one that continues to attract the brightest talent to the organisation. NJMPF is proud of the many awards it has won, especially in the areas of governance, financial reporting, transformation and innovation.
New legislation in the form of the Default Regulations came into effect on 1 March 2019. Reflecting on its implementation Mr Camilleri says: “The trustees and staff at NJMPF have enthusiastically embraced the opportunity to improve the financial lives of our members.” The Fund has used the in-house capabilities of the NJMPF to offer products at reduced fees and provide quality counselling for resigning and retiring members.
This legislation had the National Treasury of South Africa call on Boards of Trustees to provide products that are easy to understand, members are counselled so that fees charged are as inexpensive as possible. An example of what the NJMPF have managed to achieve is reflected in the graph below, which compares a traditional living annuity with the NJMPF in-house living annuity. The following applies:
• The member retires at age 65 with a fund value of R1.5m (approx. $103,950).
• A net return rate of 9.5% after asset manager fees is obtained.
• An inflation rate of 6% applies.
• An initial income-withdrawal of 5% per year is made, which increases annually with inflation.
NJMPF has proven to be forward-thinking in implementing policies and procedures which seek to protect and place the members’ best outcomes at heart. The Fund aims to exceed expectations and set new trends within the industry. Two prime examples of this are its readiness for the Default Regulations and its overall sound stewardship, which is an important factor for Trustees and Management.