Thought leadership is ‘first principles’ thinking, supported by well researched insights and deep expertise, that helps shift others’ narratives and perspectives of the world to those of the thought leader. It has a few key facets. It is provocative, in that it surprises you. It is novel, in that it is something you have not heard before. It is timely, in that it is relevant to a time, place and situation.

As the premier Employee Benefits brand across the African continent, Old Mutual wants to leverage proprietary knowledge and insights, convene the best thought leaders in South Africa and from across the world, help prioritise game-changing policies and initiatives, and co-create solutions that address the most pertinent issues in our industry. We want to do this collaboratively with employers, labour organisations, policymakers, regulators, intermediaries and other key stakeholders.

Then and now

German Chancellor Otto von Bismarck developed the modern concept of retirement in 1889. At the time, global life expectancy was about 30 years. Today, it is about 73 years. We oversee a system that was originally built for people who largely died at work. It also still has cobwebs and remnants of the Defined Benefit funded arrangements of the past – trying to solve for member outcomes without meaningfully involving them in their journey.

We’re now in the New World of Work. This is a phrase that, unchecked, ends up meaning everything and nothing. In the Mindspace Thought Leaders Forum publication, we demystify it, looking at tangible data and insights from across the world. What are the current work arrangements for employees? Are employees ever going back to the office full-time? How are employees being supported and how is productivity being tracked? How do we ensure engagement and brand affinity in this world? Most importantly, we ascertain whether our industry is still relevant for this new world.

It turns out the New World of Work is more human and more connected than ever. As much as our solutions and policies need to evolve, the role of the employer and the employee benefits they offer has never been more critical, as remote work and digital engagement are here to stay.

All stakeholders – regulators, employers, retirement funds, intermediaries and employees themselves – have a vital role to play in improving both access and outcomes.

Access and outcomes

For many employees, retirement savings are a critical part of their asset portfolio. Our research shows that despite the progress of the past few decades, coverage and inclusion in South Africa’s private retirement system remain a challenge. Non-standard workers, the self-employed, many employees of small to medium enterprises and emerging service providers (asset managers, administrators, advisory organisations, etc) are still relatively excluded from the industry. There are real impediments to access.

We unpack what can be done to remedy this. We also review how the best pension systems, the world over, are addressing similar challenges. As Old Mutual, we also make announcements and commitments to further open the industry to enable more participation and inclusion.

Retirement outcomes in South Africa are still very poor. In 2023, we ranked 37 out of 48 in the Mercer CFA Institute Global Pension Index. National Treasury estimates that 94% of members in employer funds are not on track to achieve desired retirement outcomes. More than 90% of companies in Old Mutual Corporate Consultants’ OnTrack™ database have a 1-star rating (the poorest rating).

To use a more timely and practical measure, the Two-Pot Retirement System is going live in the coming weeks. We estimate that between 25% and 30% of commercial umbrella fund members and up to 50% of industry funds will not have initial access – largely because they have not saved enough to begin with. What is taking away from outcomes? Which fund constructs work better than others? Why are women worse off? What needs to be prioritised to reverse this trend?

We introduce our proprietary outcomes measurement tool, OnTrack™, which is designed to give employers, funds and regulators the capacity to objectively measure the outcomes of their funds relative to others. We unpack the six levers that decision makers could pull to enhance outcomes. We also explore the Collective Defined Contributions (CDC) construct as an alternative to traditional Defined Contribution schemes. Research seems to suggest they would deliver much better outcomes, but would this be palatable in our environment? We reflect on how market-linked balanced funds and smoothed bonus funds performed over the past 10 years and what lessons could be drawn from that.

There are other real impediments to outcomes besides inappropriate/inefficient fund design. It is not useful to expect members to save more, and for longer, while disregarding their everyday struggles. Employees are financially stressed and in debt, mental health levels are very low, financial literacy is low, digital adoption and member mobile or email contactability are low. Even trustees, whose jobs are to make decisions that close some of these gaps, are themselves not equipped to fully execute on their duties. What is the cost, to the members, of having ill-equipped trustees? We make more key announcements to effectively address some of these impediments.

A long-term approach and critical focus on measurable member outcomes will be a key adaptation into the next decade.

The future

The past few decades have been characterised by a move from standalone funds to umbrella funds. Commercial umbrella funds seem to be the net winners.

We expect to see umbrella fund consolidation, with those with stronger propositions absorbing weaker ones. Old Mutual expects some of those trends to accelerate even faster into the next 15 years. A long-term approach and critical focus on measurable member outcomes will be a key adaptation into the next decade. Two questions will drive this.

First, which structure most efficiently allocates the available total retirement contributions across all needs (savings, protection, other expenses) and is best empowered and equipped to make the most optimal strategic and contextual choices for its members?

Second, in the context of South Africa, which structure allows its members to grow their savings the most (net of fees and charges) and at the lowest (or most acceptable) level of risk?

In addition to core solutions, these structures will need to leverage their scale even more and demonstrate additional value to their members. We introduce the concept of institutionalisation to the industry and believe it to be one of three critical themes of the future. Being ‘just a fund’ will not be enough, and scale will matter.

The retirement industry may not need a thousand funds to be more effective. However, any further significant consolidation would also need to address issues of inclusivity and symbiosis. It cannot disenfranchise other key role players. We acknowledge that ‘inclusive consolidation’ is an oxymoron, but we set out a possible model to get it done.

A track record of execution & trailblazing

Old Mutual has been at the forefront of the Employee Benefits industry for decades. The first commercial umbrella fund in South Africa was the Old Mutual Orion Money Purchase Fund, launched in 1985. In 2013, looking at existing capabilities at the time and anticipating the industry direction of the next decade, Old Mutual committed to an umbrella-only strategy, a choice we believe significantly accelerated consolidation in the industry. Many competitors fought against these strategic choices; many more have belatedly followed. Today, Old Mutual holds the largest umbrella fund market share in the industry by many key metrics.

Equally, Old Mutual founded the first guaranteed fund in 1967, in the Defined Benefits world. This has transitioned over time through the rise of independent super consultants, to the years of excitement about absolute return funds, into a DC-friendly capability that has built and defined an entire smoothed bonus industry. Today, most core smoothed bonus funds are designed to deliver the same or better investment performance, net of all fees, to market-linked balanced funds, but at a lower level of volatility.

This is ideal for long-term retirement planning. Today, Old Mutual holds 80% of the smoothed bonus market share. This is a critical competitive advantage.  In the Mindspace Thought Leaders Forum publication we set out our vision for DC 2.0 and DC 3.0 – a clear vision for the next decade.

We look forward to leveraging our proprietary knowledge and insights, convening the best thought leaders in South Africa and from across the world, prioritising game-changing policies and initiatives, and helping to co-create solutions that address the most pertinent issues in our industry. We will ensure it is provocative, novel and timely.

* This article originally appeared in the Old Mutual Mindspace Thought Leaders Forum special issue. Read the full publication here.