Members historically did not make investment portfolio choices when joining a new retirement fund. This brought changes forward in the legislative landscape with the default regulations that became effective on 1 September 2017. Retirement funds were given 18 months to implement the requirements of Regulation 37, 38 and 39 to the Pension Funds Act 24 of 1956.
Let us start by looking at the definition of a default investment portfolio as set out in Regulation 37:
“default investment portfolio means an investment portfolio(s) in which the retirement funding contributions of a member must be invested unless the fund has been instructed by the member in writing to invest them in another investment portfolio provided in terms of the investment policy statement of the fund or options available to members of the fund, and which portfolio(s) –
- Complies with the requirements set out in regulation 37;
- May differ in composition from member to member depending on:
i. The age or likely date of retirement from service of each member;
ii. The value of the retirement savings of the member in that fund;
iii. The actual or expected retirement funding contributions of the member; or
iv. Any other factor reasonably considered by the board to be appropriate in respect of that member; and - Complies with any conditions that may be prescribed.”
The Board of Trustees of retirement funds have the responsibility to take care of member throughout their lifetime as a member of the fund and as such need to make sure that the investment portfolios are appropriate, and the design of the portfolio consider the:
- Objective – what is the targeted returns of the investment?
- Underlying asset allocation – how is the investment structured to achieve the objective set out?
- Fees and charges – are the fees and charges reasonably priced, competitive and easy to understand?
- The expected risks and returns to which it exposes members whose retirement savings in that fund are or will be invested in the default investment portfolios.
Further requirements such as the communication of the composition of the assets and the performance of the investment portfolios, consideration to active and passive strategies and regular reviews of the default investment portfolio are set out in the Regulation.
This default investment portfolio offered does not mean that members cannot exercise their own investment choice to any other investment portfolio offered by their retirement fund.