By Gary Fisher, Alexander Forbes Head: Member Education Services
New laws governing Retirement Benefits Counselling (RBC) became effective last month, with the legislation aiming to improve the chances of retirement fund members retiring comfortably.
The reality is that the majority of South Africans do not retire comfortably - the 2018 Alexander Forbes Member Watch™ survey showed that the average retirement fund member would only receive R2 880 as a pension on retirement for every R10 000 that they were earning before retirement. This is mainly as a result of cashing in retirement fund savings instead of preserving when changing jobs, which results in a small pool of funds at retirement. In many instances members have very little information available to them before making these critical decisions and an RBC session at the right time could make all the difference.
The new legislation can be seen as a genuine effort to help turn the tide for so many individuals by providing them with advice when it counts, to guide them into making the right decisions which will bring about better outcomes for their retirement years.
The regulations require that RBC must be made available to members before any benefits are taken in cash or transferred and at least three months before a member’s normal retirement age This counselling needs to include explanations of investment portfolios, annuity strategies, rules about preserved benefits and other fund options.
RBC does not include dispensing of advice, unless the person providing the advice is a registered financial adviser. The regulations further state that the counselling may be done in person or in writing, and that funds must keep records of the counselling provided. Information shared during RBC should be in a clear, easy to understand language, including an explanation of potential risks, costs, fees, and charges.
Striking a balance between providing accurate RBC and ensuring that members understand what their options are when joining, exiting or retiring from their funds, and then following up with professional advice could change the status quo for retirement fund members in the following ways: