1. Costs of Saving for Retirement
Finance Portfolio Committee
Costs of Saving for Retirement
Options for South Africa
Rob Rusconi
10 November 2004

2. Anatomy of research Methodology International context
International costs
South African costs
Collective investments
Occupational funds
Individual policies
Policy implications

3. Anatomy of research Methodology International context
2 & 3 4
Methodology
International context 6
South African costs
6.3
Collective investments 5
International costs
Policy implications
6.1
Occupational funds
6.2
Individual policies 7

4. International context
A large variety of systems exist DB DC
Private management
Public management
PAYG
Funded
Ref: pages

5. International context
A large variety of systems exist
Compulsory saving
Voluntary saving
Redistribution
Ref: pages

6. International context
A large variety of systems exist
(and SA is skewed to private sector)
Compulsory saving
Voluntary saving
Redistribution
Ref: page

7. International context
A large variety of systems exist…
… with a common problem
Ref: page 11

8. Measures of lifetime cost
Reduction in yield
Charge ratio
Ref: pages

9. Results: occupational funds
Shortage of data
Information used from a variety of sources
Data often undisclosed
Heterogeneous measurement methods
Major cost areas
Asset management
Administration
“Other costs”
Ref: pages 72, 73

10. Results: occupational funds
Estimated lifetime charges (core)
Charge ratio 17% - 27%
Reduction in yield 1.05% %
Evidence of a wide range
sensitive to size of fund
significant ‘random’ variation
Ref: page 84

11. Results: individual life RAs
Estimated lifetime charges
Charge ratio 27% - 43%
Reduction in yield 1.50% %
Considerable variety between providers
levels
patterns
Ref: pages 90, 97

12. Results: mutual fund RAs
Estimated lifetime charges
Charge ratio 22% - 33%
Reduction in yield 1.20% %
Much more competitive industry
transparency
consistency
With some reservations on retirement saving
Ref: pages 103, 104

13. Results: comparison Costs are on the high side...
… perhaps understandably
Ref: pages 67 & 107

14. Policy implications Transparency  Closure of channels 
consistent methodology
minimum disclosure
Closure of channels 
each serves a purpose
Charge ceilings 
consider implications very carefully
New class of products 
assess alternatives
in the context of South African needs
Ref: pages

15. Further research required
Better data
Deeper analysis
Better comparisons
Charges in the context of policy
Lifetime saving patterns
Ref: pages

16. Final thoughts This is just a start Fees are not everything…
… but they make a substantial difference

17. Costs of Saving for Retirement
Finance Portfolio Committee
Costs of Saving for Retirement
Options for South Africa
Rob Rusconi
10 November 2004

18. Appendix
Range of results
Ref: page 105

19. Unit trust RA: further analysis
Appendix
Unit trust RA: further analysis
Ref: page 103

20. Life office RA: further analysis
Appendix
Life office RA: further analysis
Ref: page 92

21. Life office RA: further analysis
Appendix
Life office RA: further analysis
Ref: page 93

22. Life office RA: further analysis
Appendix
Life office RA: further analysis
Ref: page 93

23. Life office vs unit trust comparison
Appendix
Life office vs unit trust comparison
Life office
Unit trust
Ref: pages 125 & 128

24. Life office vs unit trust comparison
Appendix
Life office vs unit trust comparison
Life office
Unit trust
Ref: pages 125 & 128

25. Costs of Saving for Retirement
Finance Portfolio Committee
Costs of Saving for Retirement
Options for South Africa
Rob Rusconi
10 November 2004