The retirement fund industry has moved beyond a philosophical dialogue on the impact of legislation. Instead, businesses are now making real decisions with legislation in mind. This is significantly altering the way the retirement fund industry is managing itself as well as how it will perform in future.

The trend to legislation in South Africa was driven by the 2008 crisis and the subsequent losses suffered by investors globally. The result is that retirement fund trustees are now expected to be able to address all the important issues, and risks, of the day - many of them beyond the ambit of what was traditionally expected of trustees.

This shift from discussion to active compliance has immediate implications for:

· The organisational governance of trustee boards,

· Trustee boards decision-making and efficient implementation in a world of increasing regulatory requirements,

· The skills, knowledge, time and resources required by trustees to deal with increased risk management complexity,

· Trustee Board’s contractual agreements with intermediaries, and

· The cost of administering funds.

As such, “it is important that Trustee Boards update each intermediary’s duties to avoid confusion and the risk of falling short of new regulatory requirements” says Muitheri Wahome, Head of Technical Solutions at Investment Solutions.

New Issues Affecting Trustees of Retirement Funds include:

· Investment administration, risk and performance reporting to meet new Regulation 28 requirements for compliance at all times.

· Applying more rigour to setting the strategy, and reflecting a thorough understanding of the Fund’s asset and liability risk. Being able to demonstrate that assets have been considered relative to liabilities is an imperative, not a nice to have. This is also one of the new principles introduced in Regulation 28 of the Pension Funds Act.

· Communicating with and informing members. This is now an important aspect of compliance. Promoting member education by providing members on-line tools, platforms and portals empowering them to understand their retirement investments and make the kind of decisions that will augment, rather than erode, retirement fund performance will be key. Since a person could change their job several times within their career these tools can be used to demonstrate how devastating not preserving retirement savings between jobs can be. Better informed members are also likely to challenge results more often. As such, a far higher standard of reporting and communication is required than in the past. Similarly, the revised Regulation 28 places greater emphasis on the education of trustees to meet the onerous duties of being a trustee.

· Designing portfolios using new opportunities created by the growth in managers and retirement funds along with alternative investments, like hedge funds and private equity which, due to Regulation 28, are now more mainstream.

· Identifying and selecting tomorrow’s winning asset management firms where clients want to build bespoke strategies.

“One of the major benefits of having covered manager research over a number of years as a business is the ability to observe these and other emerging trends” says Wahome.

The impact of legislation is also increasing investment in performance and compliance systems along with the bolstering of compliance and risk teams by asset managers. This, in turn, has fostered the trend, which begun in the last decade, of outsourcing non-investment related activities like compliance, investment administration and performance reporting. A broader and long term implication of these changes is that, inevitably, asset manager and intermediary businesses will have to be of a certain size to deliver within legislative requirement. In short, the days of the single person managed retirement fund are probably over – in South Africa at least anyway.

Certainly, while the intentions of these legislative changes are good and will lead to better managed retirement funds with increased protection for savers and retirees, from now on “trustees will need to work much more closely with skilled professionals, ensuring that robust processes are put in place to monitor the assets for which they are responsible” advises Wahome.