Pension Fund Members Research Articles

On the Legal Nature of Guarantees of Rights and Legal Interests of Private Pension Fund Members

On the Legal Nature of Guarantees of Rights and Legal Interests of Private Pension Fund Members

A Critical Legal Analysis of the Effect of the Proposed ‘Two-Pot System’ on Spouses in Unregistered Customary Marriages in South Africa

Abstract For the first time in the history of South African pension laws, a system is proposed that will enable pension fund members to access a portion of their pension benefits while still actively employed. The proposed system seeks to provide pension fund members with financial relief without requiring them to quit their jobs due to financial strain. This paper commends the government’s initiative in response, among others, to the financial problems caused by the coronavirus disease (COVID-19) pandemic. This paper argues, however, that despite the potential beneficial effects the system may have on pension fund members, it may introduce new challenges that pension fund stakeholders have never faced before. This paper aims to highlight a potential defect in the proposed system, particularly in cases where pension benefits are included in the joint estate of a pension fund member. South African customary marriages, whether or not they are registered, are by default in community of property. The pension benefits of a member who is a spouse in these marriages form a part of the joint estate. This paper examines and proposes solutions to the challenges that the proposed system may present to spouses in unrecorded customary marriages.

A Guaranteed-Return Structured Product as an Investment Risk-Hedging Instrument in Pension Savings Plans

This study proposes a structured product (SP) for hedging defined contribution pension fund members against capital market risk. Using Monte Carlo simulations on three different guaranteed returns to test the investment strategy of the SP against a balanced investment portfolio, we measure their performance across a wide variety of capital market returns and risk scenarios. The results show that the SP guarantees a minimal return on the pension savings portfolio and offers a higher portfolio return at a lower investment risk, compared with the balanced investment portfolio. We conclude that the SP may become popular among pension fund members, potentially leading to improved risk management, greater competition, and investment strategy innovations for defined contribution pension schemes.

Do Superannuation Fund Members Benefit from Large Fund Size?

Do Superannuation Fund Members Benefit from Large Fund Size?

Investment Option Switching Behaviour and Impact for Pension Fund Members Around the COVID Pandemic

Investment Option Switching Behaviour and Impact for Pension Fund Members Around the COVID Pandemic

Optimal chance-constrained pension fund management through dynamic stochastic control

We apply a dynamic stochastic control (DSC) approach based on an open-loop linear feedback policy to a classical asset-liability management problem as the one faced by a defined-benefit pension fund (PF) manager. We assume a PF manager seeking an optimal investment policy under random market returns and liability costs as well as stochastic PF members’ survival rates. The objective function is formulated as a risk-reward trade-off function resulting in a quadratic programming problem. The proposed methodology combines a stochastic control approach, due to Primbs and Sung (IEEE Trans Autom Control 54(2):221–230, 2009), with a chance constraint on the PF funding ratio (FR) and it is applied for the first time to this class of long-term financial planning problems characterized by stochastic asset and liabilities. Thanks to the DSC formulation, we preserve the underlying risk factors continuous distributions and avoid any state space discretization as is typically the case in multistage stochastic programs (MSP). By distinguishing between a long-term PF liability projection horizon and a shorter investment horizon for the FR control, we avoid the curse-of-dimensionality, in-sample instability and approximation errors that typically characterize MSP formulations. Through an extended computational study, we present in- and out-of-sample results which allows us to validate the proposed methodology. The collected evidences confirm the potential of this approach when applied to a stylized but sufficiently realistic long-term PF problem.

Consequences of the Australian Prudential Regulatory Authority’s Investment Performance Tests

The Australian Prudential Regulatory Authority (APRA) has introduced for MySuper products a publicly available comparison of investment performance over three-year rolling periods and will be introducing a similar longer-term comparison under the Your Future Your Super Performance Test. The investment performance will be compared to a reference portfolio. This paper considers the effect of holding illiquid assets and “active” investment management as part of a superannuation fund portfolio and concludes the APRA tests may have undesirable consequences for superannuation fund members.

Super‐sizing Renewable Energy Investment: Examining the Portfolio Preferences of Superannuation Fund Members*

We use a discrete choice experiment to quantify whether superannuation fund members value higher allocations of funds to renewable energy investments in their portfolios. Mixed logit modelling provides evidence that this valuation is driven by a fund member's environmental sentiment. Latent class modelling suggests that two classes of superannuation fund members exist: those whose preferences align with a renewable energy transition and those who are focused on financial returns. Our results suggest that the understanding of fiduciary duties, to act in the best interests of members, should be broader than a singular focus on financial returns.

Which consumers are more likely to adopt a retirement app and how does it explain mobile technology‐enabled retirement engagement?

AbstractAlthough planning for retirement is fundamental for consumers’ future well‐being, individuals often fail to engage with it. Retirement engagement refers to one's initial interest in and active planning for one's retirement. In this study, we focus on mobile technology‐enabled retirement engagement, operationalized as consumers’ perception of how a retirement app can help them plan for retirement. While rapid advances in digital platforms and mobile technology show promising use to the financial services sector, little is known about the adoption drivers of mobile technology in stimulating retirement engagement as a unique low‐involvement, yet high‐importance context. We address this gap in the existing literature by analyzing survey data from a representative sample of 440 Australian pension fund members. We find that consumers’ financial self‐efficacy, perceived financial security, consideration of future consequences, retirement planning involvement, and perceived usefulness have direct effects on their anticipated engagement with a mobile retirement app as well as indirect effects through their intention to adopt the app (financial self‐efficacy and consideration of future consequences only have direct effects). We also find that mobile computing self‐efficacy, prior finance app use, and perceived ease of use only have indirect effects through consumers’ intention to adopt the app. Notably, the association between adoption intentions and anticipated engagement is stronger for those closer to retirement.

The ‘right’ level for the superannuation guarantee: identifying the key considerations

AbstractWe deploy a stochastic life‐cycle model to examine how the superannuation guarantee (SG) impacts on welfare for Australian superannuation fund members under a reference‐dependent utility function that evaluates consumption relative to target, allowing for existing superannuation, taxation and Age Pension eligibility rules. The analysis highlights how the optimal SG can vary substantially with pre‐retirement income, the post‐retirement consumption target and various other assumptions. We conclude that no single SG rate is appropriate for all members and suggest that the main reason for increasing the SG above 9.5 percent would be an aim of replacing the Age Pension where possible.

Pension Funds in South Africa: Leadership Challenges

Service delivery in South Africa is a topical issue. What comes to mind immediately is the government’s ability (or inability) to provide basic services, such as running water, electricity, flushing toilets and tarred roads, to citizens. This line of thinking can be squarely attributed to the political history of South Africa. The country’s struggle for liberation was not limited to political freedom; the struggle was for economic freedom as well. Historically, the exclusion of Africans from mainstream economic opportunities also extended to pension benefits paid out upon retirement from active employment. Before 1994, only white beneficiaries had representation on boards of pension funds, but thereafter, Africans enjoyed full representation in pension funds in terms of leadership roles. However, many pension funds have recently been rocked by scandals resulting from poor leadership. We are reminded of the prophecy of O. R. Tambo that South Africa will experience a leadership crisis after achieving liberation. The aim of this article is to focus attention on the pension funds industry, which appears to suffer from a paucity of leadership. In the context of this article, pension funds are focused on as an aspect of service delivery as it can be regarded as a way of eradicating poverty among the historically disadvantaged. The author argues that if pension funds are administered properly, they have the potential to contribute to the eradication of poverty among historically disadvantaged communities. This argument is elucidated by the information provided by widows who are beneficiaries of pension funds in the Greater Sekhukhune District municipal area and by retired pension fund members with whom interviews were conducted. A focus-group discussion was also held with trustees employed in the Greater Sekhukhune District Municipality.

Comparative Analysis of Retirement Benefits in Private Pension Funds and Public Pension System

Abstract This paper identifies the conditions under which the private pension funds generate superior retirement outcomes compared to public pension system. The research objective is to determine the probability of success of the selected investment strategies in achieving the public pension system replacement rate, and the probability of the realization of extremely unfavourable outcomes. The methodology used in this paper includes the comparative analysis of simulated financial results of the four selected investment strategies implemented in the private pension fund model and the defined retirement benefits generated within the public pension system. For the simulation of the financial results at retirement, Monte Carlo simulation technique has been used. The authors have found that the success rate of the private pension fund in achieving superior financial results in comparison to public pension system is high, but only for the contribution rates higher than 10%. At low contributions rates, the extremely aggressive strategy is the only one that generates moderate success rate. Also, the probability of realization of extremely unfavourable financial results is lowest for the conservative strategy, which suggests that for the relatively high levels of the contribution rate, it is the most appropriate option for the pension fund members.

Management strategies for a defined contribution pension fund under the hybrid stochastic volatility model

In this paper, we introduce the Heston–Hull–White (the hybrid) model in the pension fund management. The optimal investment and benefit payments policies for the DC pension fund with an income drawdown option are presented explicitly. In this study, the pension fund manager is allowed to invest the fund wealth in riskless and risky assets. The risk asset price dynamics evolve according to the Hybrid Stochastic Volatility (Heston–Hull–White) model. The goal of the pension fund manager is to maintain the standard of lives for the pension fund members after retirement. We derived the HJB equation and established the closed-form solution for the optimal control policies using stochastic dynamic programming principle. To illustrate the economic implications of the model, we provide a numerical example and simulations. The results reveal that the optimal investment and benefit payments strategies convergence successful with time t. The risk asset price volatility and interest rate mean reversion are inversely proportional to investment policy. The interest rate volatility and risk preference are both directly proportional to investment and benefit payments. The pension fund managers are advised to control the investment and the benefit payments policies to achieve the goals of the pension fund members.

Who starts a self-managed superannuation fund and why?

Self-managed superannuation funds (SMSFs) – small retirement savings funds with four or fewer members – now manage almost one-third of retirement savings in Australia, and serve over 1 million members. The number of SMSFs has increased to more than half a million in two decades, yet little is known about the reasons people start the funds and how they operate. We use a survey of more than 500 SMSF members and 500 large superannuation fund members to analyse why SMSF members commence and manage their own fund, compared to similar people who stay with a large fund. We find that control over investments and tax minimisation are the most common reasons for starting a SMSF, while satisfaction with large funds and unwillingness to take on the administrative burden of self-management are the most common reasons for not doing so. SMSF members do not show any greater financial skills than non-members, but they do display overconfidence, a higher risk tolerance and a more trusting attitude to financial professionals. Model results show that the majority of SMSF members start their funds at the suggestion of financial professionals. We also show that those who say they are thinking about starting a SMSF are different in significant ways from the eventual SMSF members, further evidence of the influence of the advice industry.

Measuring Normative Risk Preferences

The results of eliciting risk preferences depend on the elicitation method. Different methods of measuring the same variable tend to produce different results. This raises the question whether normative risk preferences can be elicited at all. Using two types of manipulation, I assess the normative value of risk preference elicitation methods. Following IRT, the results of the multiple lottery choice method are combined with two qualitative methods into a composite score. The responses of 9,235 pension fund members to a dedicated survey indicate this composite score approximates the latent variable normative risk preferences better than individual method responses do, substantially reducing measurement noise and method-specific biases. Analysis of the manipulations shows that both the results and the normative value of the risk preference elicitation methods depend on the specific amounts, order, and endowment chosen. Combining simpler methods with more advanced methods framed closely to the relevant situation increases the normative value of elicited risk preferences.

Who Starts a Self-Managed Superannuation Fund and Why?

Self-managed superannuation funds (SMSFs) – small retirement savings funds with four or fewer members – now manage almost one third of retirement savings in Australia, and serve over one million members. The number of SMSFs has increased to more than half a million in two decades. Yet little is known about the reasons people start the funds and how they are operated. We combine survey responses of more than 500 SMSF members and 500 large superannuation fund members to understand the motivation of SMSF members and how they compare with similar people who stay with a large fund. Control over investments and tax minimisation are the most common reasons for starting a fund. Satisfaction with large funds and unwillingness to take on the administrative burden of self-management are the most common reasons for not doing so. SMSF members do not show more financial skill than non-members, but they do express a higher risk tolerance and a more trusting attitude to financial professionals. We present evidence that the majority of SMSF members start their funds at the suggestion of financial professionals. We also show that the types of people who say they are thinking about starting a SMSF are different in significant ways from the types of people who end up as SMSF members, further evidence for the influence of the advice industry.

Member perceptions of ESG investing through superannuation

Purpose – Environmental, social and governance (ESG) risks have the potential to negatively impact financial returns, yet few superannuation funds integrate these considerations into their investment selection. The Cooper Review (2010) identified a lack of member demand as a key impediment to ESG investing by superannuation funds. Given this problem, the aim of this study is to explore superannuation fund members’ perceptions of ESG investing by their funds in order to identify reasons for the lack of demand. Design/methodology/approach – An on-line survey was developed and distributed to assess possible reasons why members do not select ESG investment options. In total, 549 Australian superannuation fund members responded to the survey. Findings – Results indicate that the majority of superannuation fund members are interested in ESG investing. Members lack awareness of their fund’s approach to ESG investing, and they do not perceive there to be a financial penalty from ESG investing. Finally, members show a preference for consideration of governance issues over both social and environmental issues. Research limitations/implications – Respondents are well educated and the majority did not choose their superannuation fund. There was no measure of financial literacy included in the research instrument. There is also a general limitation in surveying superannuation fund members when they lack knowledge about superannuation. Practical implications – The results indicate that superannuation members are interested in both superannuation and ESG investing. Given the low take-up of ESG investment options, this finding raises the question of how effectively funds are engaging their members. Social implications – The results should be of interest to superannuation funds and may lead to renewed interest in promoting ESG products. Originality/value – This is the first study to examine superannuation members’ attitudes and behaviours towards ESG investing in the context of superannuation. The study also adds to our understanding of member decision-making in the $1.8 trillion superannuation industry.

A non-member spouse's entitlement to the member's pension interest

It is important that married couples seek legal advice with regard to the assets falling within their joint estate, more particularly their retirement benefits. This article reflects on the entitlement (if any) of non-member spouses to their spouses' retirement fund benefits. Pension benefits can be due before, during or after divorce, and parties to the marriage should be aware of their rights with regard to the accruing pension benefits of their spouses. While it is settled law that non-member spouses are entitled to receive a portion of their member spouses' pension benefits (known as "pension interest") immediately on divorce, it is not particularly clear whether non-member spouses are also entitled to receive the same before or sometime after divorce. In this article I provide a contextual understanding of the entitlements (if any) which spouses or former spouses of members of pension funds have on such member spouses' retirement benefits. Furthermore, it shown in this article that various divisions of South African High Courts have been inconsistent in how they have approached the issue of the pension interest between divorcing spouses or divorced ex-spouses.

Superannuation Knowledge, Behaviour and Attitudes in Young Adults in Australia

This report presents the results of a study examining superannuation knowledge, behaviour and attitudes in 994 young adult superannuation fund members (25-34 years old) in Australia. Respondents completed a 75 question online survey instrument which included questions on demographics and superannuation knowledge, behaviour and attitudes. It is the first large-scale study to focus exclusively on superannuation and the young adult population in Australia. The report concludes there are serious deficiencies in knowledge, behaviour and attitudes among young adults. Knowledge of basic facts about superannuation is poor. Young adults are unengaged by and uninterested in superannuation or retirement planning. Attitudes can be described as worried and skeptical.

Withholding of Pension Benefits in South Africa: A Nightmare for Pension Fund Members

This paper looks at the dynamics of withholding pension benefits in South Africa. It has often been argue that the fund do not have powers to withhold the pension fund and contend that such conduct is unlawful. In the premise the paper will evaluate the right of the employer to claim compensate against the employee through the withholding the pension benefits and the right of the members to their pension benefits. The paper will further determine whether the withholding of pension benefits extends to loss suffered by the employer as a result of employee and employer agreement. Pursuant to this, the principles laid out in the cases shall be evaluated against the backdrops of the challenges and solutions they offered. DOI: 10.5901/mjss.2014.v5n15p647