We need golden year goals
One of the biggest challenges in the pension fund space is the lack of a clear income goal for retirement, an industry expert argues.
Shaun Levitan, chief operating officer of liability-driven investment manager Colourfield, says most defined contribution funds in South Africa lack a clear income-goal focus for individual members.
“If you are in a fund, do you re- ally know what you are on track for [to receive as an income in retirement?”
He believes the behavior of members could improve if they considered retirement savings in terms of an income target, not one large pot of money.
In the context of individual fund members in a defined contribution environment (where members carry the investment and longevity risk) the term goals- based investing is more prevalent.
Levitan says most people are unengaged with their retirement in the early stages of their careers. People in their 30s can’t be expected to know how much money they need in retirement. Moreover, any good retirement system would do that on their behalf, he says. Ultimately, there does come a point where people do become engaged.
“At that point you really want the tools to be available for them to be able to do more than what is really a default that is being chosen by a board of trustees.”
It is fairly easy for an actuary to calculate what the cost would be of buying an annuity at some future date that would provide for a particular level of income. The actuary would also be able to determine whether the specific member is on track to buy that in- come, Levitan says.
For example: The individual might need R25 000 a month in retirement, but is only on track to get R12 500. This would create a much more sobering picture than an aggregate fund where a million or two looks like a lot of money but, in a retirement context, is not. (CO)
If you are in a fund, do you really know what you are on track for?
Shaun Levitan Colourfield chief operating officer