I recently attended a small conference in Cape Town on private pension funding. The conference was sponsored by the Japanese government and the Organisation for Economic Co-operation and Development (more commonly known by the acronym OECD, and which is effectively a club of wealthy nations).
The most interesting aspects of the sessions I attended were:
1. Leakage.
Two retirement fund policymakers confessed to the select gathering that they had cashed in their retirement savings when they changed jobs. This is interesting because the policymakers admitted their decision was total folly. This issue, what is called "leakage", is also one of the burning issues of retirement fund reform in South Africa.
The leakage of money out of the retirement savings system reduces the ability of individuals to have a financially secure retirement.
There are many causes of leakage, for example, changing jobs and taking the cash to pay off debt or buy luxury goods, and/or taking maximum lump sums at retirement instead of buying a pension. Other causes of leakage, to my mind, are factors such as the high cost of some retirement savings products and the extraordinary costs of purchasing a pension.
If the problem of leakage is concentrating the minds of policymakers around the world, it should also be an issue for all of us.
Policymakers are concerned about leakage because they do not want to spend tax money on supporting you in your retirement. They want you to save your own money for your retirement so that governments can spend tax money on other things, such as building roads and schools.
But you should also be concerned about the situation. Think R820. That is the state social pension. Do you think you can live on that?
The answer is simple: Start saving early for retirement and don't touch the money that you save. And if you are starting late, top up your savings.
2. Talented policymakers.
South Africa is fortunate to have a core group of very exceptional people contributing to retirement fund policy. The main participants from South Africa (there were also people from other African states) included:
- Two key people from the National Treasury, Jonathan Dixon and Baron Furstenburg;
- A Financial Services Board (FSB) group, which was led by Dube Tshidi, the FSB's deputy executive officer, and included Mike Codron, the FSB's chief actuary, and Jeremy Andrew, the former chief actuary, and Wilma Mokupo, the head of pensions;
- Jan Mahlangu, the retirement fund co-ordinator for trade union federation Cosatu; and
- Rob Rusconi, who was the only actuary brave enough to blow the whistle on the costs of retirement
saving in South Africa.
I always sit back in amazement when I see this small group of people in action. Their understanding of the immense problems of putting a properly balanced retirement system in place that will deal with the challenges of our dual economy- which consists of a small group of comparatively wealthy people who can save for retirement and a large group of impoverished people who cannot save for retirement - is simply astounding.
And what is even more impressive is that this group of people can hold its own among any group of retirement specialists in the world (including the OECD team).
3. Working system.
Despite the problems we have in South Africa concerning HIV/Aids, leakage, costs and good governance, our retirement system, which serves employed people, is nonetheless a very well-developed and sound system.
OECD countries have their own problems, such as the pay-as-you-go system that many of them use. With the ageing populations in the developed world, an increasingly smaller workforce is funding the pensions of a growing number of pensioners.
In South Africa, most our funds are what are called fully-funded. In other words, the money we have saved pays for our own pensions.
We are way ahead of some OECD countries in dealing with this and other retirement issues, such as prudential investment controls.
For example, it is unlikely that South Africans would lose all their retirement savings in the same way that the employees and pensioners of Enron did when the United States multi-national corporation collapsed under the weight of management fraud in 2001.
The reason is simply that in South Africa the amount that occupational retirement funds can invest in their sponsoring companies is limited to five percent. In the United States, there were no such limits.
And with the publication of the second draft of the Retirement Fund Reform paper by the National Treasury (probably next week) we will see the basis for the next leap forwards.
A lemon to estate agents
It seems to me that written offers to purchase a property are increasingly turning into contracts favouring estate agents rather than what they are supposed to be: an offer to purchase a property.
An offer-to-purchase document is supposed to be a contract between a willing seller and a willing buyer. Any contract with an estate agent must be negotiated separately between the seller and the agent.
Recently, I have seen a few offer-to-purchase documents that place unacceptable obligations on the person offering to purchase a property. The worst of these obligations is that the prospective purchaser becomes responsible for the payment of full commission (at 7.5 percent, no doubt) to the agent if a sale falls through.
In one contract I was told about by a reader, the obligation is as broad as this without qualification.
In other words, if a condition attached to the offer to purchase, such as the sale of another property by the prospective purchaser or the granting of a bank homeloan, is not met, the estate agent will come knocking on the door for commission.
This is pure nonsense or, to put it more bluntly, theft.
But let's exclude this absurd case and assume that these and other conditions placed on an offer to purchase do not apply, but that the sale falls through because you drop dead, or you are seriously disabled in a motor vehicle accident, or you lose your job. The avaricious estate agent will still come knocking on your door to demand commission on a sale that did not take place.
Again, this is pure nonsense.
My advice is simple: Cross out any words in these pre-printed offers to purchase that involve any contractual obligation to an estate agent. Any such conditions should not be there. If an estate agent tries to insist on them, tell the agent to go jump in a lake.
An estate agent is obliged to put any offer that you make, in whatever way you make it, to the prospective seller. If not, you can report the agent to the Estate Agency Affairs Board (EAAFB) on telephone (011) 731 5600 or 086 613 8755 or email [email protected]
The EAAFB should issue a directive banning this obnoxious practice.