OLD MUTUAL RETIREMENT FUNDS SURVEY 2010 OLD MUTUAL RETIREMENT MONITOR 2010

RETIREMENT FUNDS SURVEY 2010

Survey Objectives  Understand changes in the retirement fund industry  Evaluate retirement fund investment  Gauge attitudes and needs with regard to preservation  Assess adequacy of benefits  Establish levels of confidence and trust in trustees  Evaluate Fund Governance  Establish industry views on Umbrella funds  Examine communication to members 5

Sample Structure and Research Methodology Data Collection  Data collected via structured questionnaire  1 hour face-to-face interviews  Representatives of 71 retirement funds, 35 participating employers in umbrella funds, 17 Intermediaries and 7 Media, Government and Regulatory Bodies Company, umbrella and union funds were split:  45 Pension funds and 54 Provident funds 12 DB funds with pensioners:  11 company and 1 union fund Sector # of Respondents Standalone Company Funds 57 (1 response qualitative only) Standalone Union Funds 8 Participating Employers in Umbrella Funds 35 Preservation Funds 6 Intermediaries 17 Media and Industry Bodies 7 Total 130 Asset Value # of Responses  Less than 10 million 11  10 – 30 million 18  30.1 to 50 million 10  50.1 to 100 million 11  to 200 million 11  to 300 million 7  to 500 million 6  to 1 billion 8  More than 1 billion 7  Unsure / Refused 10 No. of Members # of Responses  members 32  200 to 999 members 31  100 to 199 members 18  20 to 99 members 18 6

Key Trends & Factors Shaping the Industry Continued / increasing need for member communication & education More member investment choice CONTINUING TRENDSNEW TRENDS EMERGING TRENDS Continued growth in Umbrella Funds Retirement Fund Reform, particularly NSSS A decrease in the number of company funds Stronger governance – especially for company sponsored funds Impact of global recession & current economic climate A move to a later retirement age Umbrella funds continue to grow in importance Governance, communication and member education remains a key industry issue Retirement Fund Reform and the global recession likely to further shape the industry 7

Views on Retirement Reform

National Social Security Scheme [NSSS]  Number of respondents aware of the issues tabled:  Company funds: 52%  Umbrella Fund participating employers: 34%  Mixed feelings around NSSS  Exception of Unions: where 63% are positive  50% of Union funds think their funds will shrink/disappear with NSSS  Perceived benefits of NSSS:  All South Africans will be covered  Higher levels of saving  Compulsory preservation continues to receive strong support Low levels of awareness and mixed feelings about the NSSS 11

Feelings about NSSS All Fund TypesIntermediariesPreservation Funds Media / Government / Regulatory Bodies Compulsory for people earning below a certain threshold Should be able to opt out of NSSS Compulsory if earning above a certain threshold Compulsory for everyone Don’t know % Responses Most agree the NSSS should allow opt out 12

Shifting Investment Strategies

-20 to to to to 29 % Responses 2008 Perceptions about Investment Returns Mean % Investment Returns Average returns perceived to be below 10% for the 1 st time in

Typical Fund Investment Portfolio Breakdown Union and parastatal funds generally have more conservative strategies Union and Parastatal Funds Most company and umbrella funds follow a balanced strategy Employer Sponsored FundsUmbrella Funds 16

Changing Investment Strategies Have ChangedWill Change % Responses 1)Use of more options 2)Different asset / fund manager 3)Preference for lower risk investments 4)Move away from totally guaranteed funds 5)Move to umbrella funds How investment strategies likely to change (in order of preference) Funds Overall Market volatility top of mind and driving changes to investment strategies 17

Criteria for Selecting Asset Managers Brokers/Intermediaries agree track record, performance, investment philosophy and reputation are the most important criteria. For Media/Government/ Regulatory Bodies track record and fees charged are thought to be the most important. For Preservation Funds its track record and investment philosophy. >> 19 1st Criteria 2nd Criteria 3rd Criteria % Responses

Preservation in a Changing Environment

Preservation  Factors increasing likelihood to preserve:  Advice (from advisers, family and friends)  Knowledge (own through education)  Awareness of consequences  HR departments have significant influence  Most important factors increasing likelihood NOT to preserve:  Strength of desire to access cash  High awareness of cash withdrawal option with lower awareness of other options  Lack of understanding of consequences of decision  Improving preservation:  Increase education on importance of preservation & options available  Redesign withdrawal form so that cash option is not the 1st option Preservation seen as very important by most respondents 21

Factors Influencing Likelihood to Preserve Funds % Distribution of Responses Motivator not to preserve (1-4) No impact (5) Motivator to preserve (6-10) A lack of awareness of options Desire to access cash Fear of decision making Withdrawal benefits is too small Lack of advice Lack of understanding of consequences of the decision Cost of transferring Strong motivators not to preserve 22

Compulsory Preservation Not in favour of compulsory preservation Somewhat in favour of compulsory preservation Strongly in favour but with a choice of Service Provider Strongly in favour of compulsory preservation Don’t know % Responses Preservation Funds Brokers All Fund TypesMedia/Government/Regulatory Bodies Strong support for compulsory preservation 24

Member Level Investment Choice

Member Level Investment Choice [MLIC]  MLIC becoming more popular:  More Company funds introduced MLIC in 2009 (  12% on 2008)  1/3 of respondents introduced choice in last year  Another 10% intend to introduce choice in next year  But number of different choices offered to members not seen to increase significantly in the next 3-5 years  Default option remains the most popular option:  68% of members in all types of funds  % Umbrella fund members using default option has decreased from 80% to 66%  Most popular choices:  Company funds - Balanced, multi-manager and life-stage mandates  Umbrella funds - Fully guaranteed, money market and life-stage mandates  Life stage mandates look to become more popular investment choice in Company funds in next 12 months Rising levels of MLIC despite most members choosing the default 32

% of Members Choosing the Default Option Choose default 2009 Mean: 68% 2008 Mean: 80% Umbrella 72% Company Most members choose the default option 33

Member Communication

 Despite continued emphasis on communication, low levels of understanding and action persist  17% believe members have a good understanding of the communication they receive  13% believe that members act on the information they receive  Printed material remains the dominant communication medium  Members desire more personal communication via workshops & one-on-one sessions  Company funds provide more communication both pre, during and post members being part of a fund  Definite need for Umbrella and preservation funds to become more proactive in effective communication  Importance placed on member communication decreases once the member becomes a pensioner. Many funds see their responsibility ending at this point Low levels of understanding of communication 38

Adequacy of Benefits  43% of respondents believe members think they have enough money to retire  Respondents believe benefits are actually enough only 26% of the time  % of salary at retirement most common measure of adequacy  70 – 79% of final salary (73% average) seen as adequate benefit  Companies & unions seeing more members retiring before 65 – main reasons given relate to needing a slower lifestyle & starting their own business Generally low levels of adequacy of benefits Discrepancy between members’ perception of benefits and reality 28

Member Communication More member communication and education is needed around:  Tax issues:  What does the member need to do  How much will it be  How it is calculated  How underlying investments work  What is it made up of  What is guaranteed and what is not  What benefits the member is entitled to on retirement, resignation and death  How and where to invest on retirement/what to choose  How funds work and the differences between different retirement vehicles e.g. provident, pension, RA’s Living annuities, Preservation etc. Focus on education needed 39

RETIREMENT MONITOR 2010 MAKING IT COUNT

Survey Purpose and Methodology  Examine pre-retirement perceptions amongst working South Africans, in particular their confidence levels regarding their financial provision for retirement  1051 interviews conducted  57% are members of a pension / provident fund  43% are not members of any retirement fund  Full-time employed metropolitan dwellers  Various races & genders  LSM 6 – LSM 10 43

Retirement Planning Confidence Question: “How satisfied are you with your financial readiness/provision for retirement at this point in time, given your age & the number of years that you have to go until retirement?” Responses indicated the following average levels of confidence: Confidence of members and non-members close Total sample 5.6 Fund members = Totally dissatisfied 10 = Extremely satisfied Non- members 4.8

Attitudes to Retirement  Majority of respondents across all groupings were concerned as to whether they have done enough to prepare for retirement The government will look after me Saving for the future is not a priority right now My children should look after me when I am old I am looking forward to retirement I fear I won't cope financially when I retire I plan to work for as long as I can after retirement I wonder if I have done enough to secure my retirement % Fund Member Non-Member 46

Low Levels of Engagement Among Fund Members Trustees Investments 45% know who manages the investment 55% don’t know or are unsure who manages the investment of their retirement fund 18% vague 58% don’t know where the assets are invested 24% claim good knowledge of where the assets of their retirement fund are invested 20% know trustees by name 50% don’t know who the trustees of their retirement fund are 30% know the company they are from 85% did not vote 15% voted in the most recent election 48

High Level Of Trust And Confidence In Trustees (Despite lack of engagement) “How much do you trust that the trustees are making decisions in the best interests you, the member?” Base = 583 Fund Members, weighted data Trust 7.3 Confidence = Extremely confident 1 = Absolutely no trust 10 = Trust completely 10 = Extremely confident “How confident are you in the knowledge and abilities of the trustees of your fund?” 49

Member Level Investment Choice Of whom: 58% very confident exercising that choice 35% fairly confident 6% not very confident 1% not at all confident Of whom: 66% s elected the default option (41% because they really thought it was the right option and 25% because did not know what else to choose) 11% made a different choice 22% can’t remember Amongst ALL Fund Members (not only those offered investment choice): 57% do not feel that they can make better investment decisions than their trustees 43% feel that they could definitely (15%) or probably (28%) make better choices 32% not offered 18% have member level investment choice 50% don’t know or are unsure whether their fund offers member level choice investment 50

Effectiveness of Retirement Fund Communication Base = 583 Fund Members, weighted data Fund Members = Does not meet my needs at all 10 = Extremely effective 51

Pensioner Sample MAKING IT COUNT

Background to Pensioner Sample  Sample of pensioners included to give a glimpse of post retirement life  200 interviews conducted with amongst pensioners being screened as follows:  Retired from a retirement fund and derive income from that fund (but could continue to work)  Only derive income from a privately funded retirement annuity excluded  Minimum pension income of R2 000 per month (could have other income)  Aged 55+ years  None worked in advertising, media, life assurance or retirement funding related industries  All living in major metropolitan areas 56

Retirement Fund Profile Fund retired from: Receive pension from:Fund structure: 6% Provident 94% Pension 95% Pension from the Fund 5% Insured Pension 45% Defined Benefit 14% Defined Contribution 41% Don’t know/ Not sure 57

Adequacy of Pensions 53% of pensioners felt a drop in their standard of living when they retired. For 33% the drop was slight, 25% reported a big drop As time has moved on, the proportions of pensioners seeing a drop in their standard of living jumps to 75% Only 17% feel that their pension has kept up with inflation, 51% feel it is a bit behind and a third feel that it is far behind On average, their pension meets 77% of their retirement needs 23% currently receive financial assistance from their children or other family members, and for these pensioners, this assistance is almost a quarter of their income Most pensioners see a drop in their standard of living when they retire 59

OMAC MeRCI MAKING IT COUNT

Introducing the OMAC Member Retirement Confidence Indicator – OMAC MeRCI  A number between 1 and 10 indicates the level of confidence that members of occupational retirement funds have in their fund’s ability to provide for their retirement.  Calculated from 15 lead (pre-retirement) and 1 lag (pensioner) questions. OMAC MeRCI Score 2010 =

Taking Action MAKING IT COUNT

Action Areas for Trustees  Increase member engagement with fund  More face to face communication  Help members understand the adequacy of their retirement benefits  Show impact of investment strategy and choice on retirement benefits  Improve general levels of financial literacy  Encourage Preservation  Understand barriers and look to remove some…  Understanding options and implications  Awareness of choices  Availability of trusted advice  Keep up the good work!  Members trust you

Thank You Questions? Craig Aitchison MD, Old Mutual Actuaries & Consultants