Media Release

Old Mutual welcomes Costs Paper

Old Mutual welcomes Costs Paper
Old-Mutual.jpg

Old Mutual welcomes the release of the paper on costs from National Treasury, saying it opens up the dialogue that is needed between government and other stakeholders to find real solutions to the cost challenges in the retirement fund savings industry.

Furthermore, as the proposals develop, structural changes such as the consolidation of funds, auto-enrolment and preservation will enable costs to be reduced in the industry.

This is according to Craig Aitchison, GM of Corporate Customer Solutions at Old Mutual Corporate, who is helping to shape Old Mutual’s response to the changes in the industry and engaging with various stakeholders to address the cost challenges.

Crucial to understand root causes of costs – don’t just treat symptoms

“Our view is that it is important to understand the root causes of costs in the retirement savings industry, and then take measures to address those causes. To fail to do so would mean we treat only the symptoms of the problem, without making much real change,” he says.

Aitchison says it is also important to recognise that South Africa has a successful retirement system that has achieved high levels of coverage despite the lack of compulsory retirement savings. “We should look for solutions that use the existing strengths of the industry and then work to refine the value that the industry offers to its customers,” he says.

Cost comparison of retirement funds – more work needs to be done

“More comprehensive work needs to be done to understand the true cost comparison of South African retirement funds, both locally and internationally. The examples quoted in the paper seem to be based on small samples and hence are unlikely to give a reliable picture of an industry with more than 2 500 funds and 100 fund administrators. We agree with the comments made that most comparisons are difficult to do because of the different systems and levels of accumulated savings per person in other countries.”

Aitchison adds that it’s also important to remember that very few members actually save for 40 years, mainly due to issues such as unemployment, retrenchment and not preserving their retirement savings.  “This means that cost comparisons on a 40-year basis are somewhat theoretical and could overstate the real impacts of cost savings in the industry today. Indeed, if the SA industry had compulsory preservation, far higher levels of assets would have been accumulated, and costs would naturally have been lower as a percentage of assets,” he explains.

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