What is retirement benefits counselling?

Retirement benefits counselling is a service that your retirement fund must, by law, provide to ensure you have the information necessary to understand the implications of any decision you make regarding your retirement savings.

Why was it introduced?

Counselling was one of a number of measures introduced by the Minister of Finance on 25 August 2017 in the so-called “default” regulations under section 36 of the Pension Funds Act. The intention behind the regulations was to improve retirement outcomes for working South Africans by:

• Including “default” options in their investment options for their pre-retirement savings. The default option applies if you do not actively make a choice.
  
  
• Establishing an “annuity strategy” for members when they retire by providing in-fund and/or fund-endorsed pension options.
  
  
• Allowing for members to become “paid-up” members and keep their savings in the fund after they change jobs, are retrenched, or reach retirement age.
  
  
• Providing benefits counselling to members when crucial decisions regarding the above need to be made.
  
  

What do the regulations say?

The regulations define retirement benefits counselling as “the disclosure and explanation, in a clear and understandable language, including risks, costs and charges, of:

The available investment portfolios; the terms of the fund's annuity strategy;

The terms and process by which a fund handles preserved benefits; and

Any other options made available to members.

There are two instances under which counselling must be provided:

• On leaving a fund when you need to decide what to do with your savings and “before any withdrawal benefit is paid to [you] or any transfer is made to another fund”.
  
  
• On retirement. In order to decide on a pension, you must be “given access to retirement benefits counselling not less than three months before [your] normal retirement age”.
  
  

How does it differ from advice?

On the face of it, “counselling” and “advice” may seem similar, but they have different meanings in the financial services industry.

The Financial Advisory and Intermediary Services (FAIS) Act defines financial advice as involving the recommendation and sale of financial products, and this can be done only through an adviser who is registered as a financial services provider.

Counselling, on the other hand, as envisaged in the default regulations, is intended to give you an overall picture of your options in terms of the rules of the retirement fund and explain the implications of any decision you make in regard to your retirement savings without making product recommendations.

A guidance note on the regulations published by the Financial Sector Conduct Authority (FSCA)  emphasises that counselling does not constitute advice and that members should be expressly informed of this fact.

The note says counselling may be provided “either in person or in a written format” and the fund “must keep a record of the counselling you receive”. If the counselling is in person, the person appointed by the fund “does not need to be a registered financial services provider or financial adviser in terms of the FAIS Act”. However, he or she “must be suitably qualified and experienced, and able to properly manage any conflicts of interest”.

In addition to receiving counselling, members are encouraged to seek advice when choosing specific financial products. This would typically be at your cost with a registered financial adviser.

What are the costs?

There is no direct cost to you, as a fund member, if you accept any retirement benefits counselling your fund offers. However, there is an indirect cost, as the expenses the fund incurs in providing the counselling need to be covered by the annual administration fee it charges you as a percentage of your savings.

What should I expect?

Some funds have taken the default regulations in the spirit that they were

intended – to genuinely improve outcomes for their members – while others provide the minimum required, regarding the process as a tick-box exercise.

Offerings range from a written document distributed to members outlining investment options and their implications to full one-on-one engagement with a counsellor, with various combinations of written, digital and human interaction between these extremes.

It is costly for funds to provide one-on-one counselling for every member, so fund trustees often choose to provide digital interactions, via dedicated apps or chat groups.

Is it proving effective?

In the years since the introduction of retirement benefits counselling and allowing for the disruption caused by the Covid-19 pandemic, there have been positive signs that the counselling is helping members to make better choices with their savings.

The 2023 Sanlam Benchmark Survey took note of how provident fund members who had recently retired managed their savings.

Of the members who received counselling, 53 percent used their savings to buy a pension and ensure they had an income for the years to come and 47 percent withdrew the money in cash, putting themselves at risk of not managing the money well and having an income for life.

Among those who did not receive counselling, only 24% bought a pension and 74% took cash.

How does the two-pot system change things?

The introduction of the so-called two-pot retirement system in 2024 (see “What is the two-pot system?”) is a further measure by the government to ensure that you save enough for your retirement.

It compels you, as a retirement fund member, to preserve at least two-thirds of your savings made after September 2024 for the rest of your working life.

Retirement benefits counselling should reflect the fact that your choices about any savings made since 1 September 2024, when the system came into effect, will be more limited.

However, if you had a substantial amount saved before September 2024 that is now in the “vested” pot and not subject to the new rules, you will still need counselling about the implications of withdrawing your savings when you change jobs, are dismissed or retrenched.