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Why trustees need new take on pension funds

Sep 12 2016 06:00
Liesl Peyper

Cape Town - “Old-fashioned defined contribution” pension funds have become out-of-date, particularly among millennials who don’t easily adopt a savings culture, according to pension fund trustees. 

Sanlam Investments hosted its annual Institutional Insights Conference in Johannesburg where pension fund trustees came together to discuss the changes in legislation, new technology and challenges the pension fund industry faces. 

One of the speakers was Sonja Kellen, director of Global Retirement Benefits at Microsoft in the United States (US).  

A major challenge Microsoft faces, said Kellen, was how to convince the company’s 60 000 US employees to make extra provision for retirement, as the government social security programme is inadequate to fulfil their post-retirement needs. “Not only would they need to increase their personal savings, but also up their contributions to their pension fund.” 

As Microsoft employees are generally tech-savvy, they also want tech-savvy solutions, which the company provided in the form of an internal portal that offers a “three-click” menu, said Kellen. 

The portal allows pension fund members to enrol quickly, choose an appropriate rate of savings and get tips on the best investment choices for their own circumstances. The plan of their choice is immediately put into action. 

Kellen said Microsoft’s scheme has to date attracted 91% of Microsoft’s employees, whose average savings rate is 12% of their salary. Interestingly, younger members choose even higher savings rates. 

Another speaker, Anthony Barker, chief pensions officer at the Santander Bank in the United Kingdom, said so-called “legacy” pension funds – older defined contribution workplace-type schemes – failed to deliver on their promises of consistent returns. 

According to Barker, the asset managers of legacy pension funds often didn’t perform consistently using standard stocks, bonds, cash and property in portfolios. 

READ: Growth lies in a transformed investment industry

Instead trustees should consider direct investment in equity, infrastructure and hedge funds for investment portfolios. 

“We need to create vehicles to channel funds into new opportunities,” Barker said.  “Why should we exclude anything? Capital growth, high returns and yield can be found anywhere in the world if you are prepared to take a long-term view.” 

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