Picture: 123RF/FLYNT
Picture: 123RF/FLYNT

The country’s top financial services watchdog says it is going to crack the whip to ensure pension funds accelerate efforts to drive down costs that eat into people’s retirement savings.

Speaking at the Financial Sector Conduct Authority’s (FSCA) retirement industry conference on Thursday, the regulator’s divisional executive of retirement funds supervision Olano Makhubela said they will soon be looking at retirement funds statements to see how their average costs compare against the industry average.

Funds whose costs deviate significantly will have to explain themselves. Makhubela said the regulator will be looking at everything, from administration costs to asset management, consulting and litigation fees, which he said are on the rise, eating further into member’s savings.

“We have to address this issue of costs differently and urgently because it is a real problem,” said Makhubela.

He said the FSCA will conduct research to get a sense of industry averages. It will be looking at large umbrella funds as these have the economies of scale that the FCSA and National Treasury want to see all funds achieve.

“We’ll need to design a model to see what the optimal number of members is that yields the economies of scale we need to bring down costs and then we will address the outliers,” said Makhubela.

He said the regulator is, however, cognisant that some investments, such as private equity and alternatives that allow pension funds to invest in development projects, do not come cheap. He added that the drive to have funds whose costs exhibit economies of scale will undoubtedly lead to more consolidation in the industry.

The FSCA said there are more than 1,500 active retirement funds in the country. Makhubela said the ideal situation is to have a few large umbrella funds, large union-driven funds, and some standalone ones, such as the Eskom Pension Fund given their large size.