Picture: 123RF/RAWPIXEL
Picture: 123RF/RAWPIXEL

SA’s top financial services watchdog says it is working with the Treasury to drive more consolidation among retirement funds because there are too many of them to achieve lower costs.

The Financial Sector Conduct Authority (FSCA) said there are just under 1,500 active funds in the country and even though this is much lower than the 13,000 that existed 10 years ago, the regulator said this was still “too much” to achieve the economies of scale they need to reduce administration costs.

“The question is how do we go about it because there are some sensitivities there,” said Olano Makhubela, the FSCA’s divisional executive of retirement funds supervision, during the authority’s retirement industry conference on Thursday.

A study done by the FSCA and the Treasury showed that large funds provide more value for each rand of members’ money spent on administration and other costs, he said.

Makhubela acknowledged that some commercial umbrella funds were sometimes more expensive, but believed that if they could get smaller players into their stable that would bring down costs.

However, labour federation Cosatu has raised concerns that the consolidation drive would increase concentration in the sector, giving more assets to big administrators already receiving most of SA’s savings pie.

Jan Mahlangu, retirement funds co-ordinator for Cosatu, said one-stop-shop corporate umbrella funds would be a barrier to entry for black-managed funds at a time when the country should be encouraging competition to drive down escalating retirement funds costs. Mahlangu said if the drive for consolidation was happening in a transformed industry, Cosatu would not have a problem.

“I want to iterate that we are not opposing consolidation, but it’s how consolidation is done. It’s clear that it is consolidation to save ourselves and to make sure that no-one else gets into this space,” he said.

Makhubela said consolidation would benefit workers as Treasury studies have shown that bigger funds have economies of scale.

The FSCA’s specialist analyst in the retirement funds supervision division, Naheem Essop, said it would also ensure that the regulator is not spread too thinly among thousands of funds.

Makhubela said the ideal situation would be to have a few large umbrella funds, large union-driven funds and a few stand-alone ones such as the Eskom Pension Fund and Sasol’s, given their large size. Smaller audit exempted funds were probably best consolidated into big ones, he said.

But the regulator would not rush the process and would give the industry three to five years to drive this consolidation itself before considering any hard stance. “Already there are a lot of funds moving towards that direction, so we’ll first see where that traction takes us.”

Makhubela however said the FSCA will not wait for the envisaged consolidation to force retirement funds towards reducing their costs that eat into people’s retirement savings.

The regulator would soon peruse retirement funds’ statements to see how average costs compare with the industry average, he said. It will look at everything from administration costs to asset management, consulting and litigation fees, which he said were on the rise.