Beyond scale: Rethinking ownership in South Africa’s retirement industry

South Africa’s retirement industry has never stood still. Over the past several decades, the system has moved through profound changes in regulation, governance, tax, product design and institutional structure.

Defined benefit arrangements increasingly gave way to defined contribution funds.

Member-elected trustees and stronger governance structures became embedded.

The industry demutualised. Regulation 28 evolved. Tax treatment was harmonised. Default regulations were introduced.

Two-pot has changed the relationship between members and their retirement savings.

And consolidation has steadily reduced the number of standalone funds while increasing the importance of larger umbrella and multi-employer structures.

These reforms have brought important benefits

The industry is more professional, more systematised and, in many respects, more sophisticated than it was a generation ago.

Administration has improved. Governance expectations are higher. Investment processes are more institutionalised. Technology is transforming member access. Scale has created opportunities to reduce duplication, strengthen capability and improve efficiency.

Those are real achievements.

But the next stage of the industry’s evolution requires us to ask a harder question: Has all this institutional progress left the member materially better off?

That question should not be interpreted as criticism of what has gone before. It is the natural next question for a maturing industry.

At EPPF, we increasingly believe that the retirement sector needs to distinguish between the strength of the machinery and the outcome experienced by the member.

Investment returns matter. Costs matter. Administration matters. Governance matters. Scale matters. But none of them, in isolation, is the ultimate outcome.

The real outcome is whether a member can convert a working lifetime of contributions into adequate, sustainable income and retire with dignity.

That shift in perspective changes the questions we ask about the future structure of the industry.

Consolidation is not the destination

Consolidation is likely to remain one of the defining trends in retirement provision.

There are compelling reasons for it.

Smaller funds often struggle to sustain the governance, technology, investment expertise and regulatory capability increasingly demanded of retirement institutions.

Larger arrangements can spread fixed costs, improve bargaining power, deepen specialist capability and invest more effectively in technology and member support.

The issue, therefore, is not whether scale is good or bad.

The more important question: Who captures the economic value created by scale?

If consolidation lowers the cost of administration, strengthens investment capability or creates efficiencies in servicing members, how much of that benefit ultimately flows through to the member?

How it flows through to the member is an important consideration:

Does it appear in lower all-in costs?
Does it result in higher net returns?
Does it allow more money to be contributed toward retirement?
Does it fund better advice and guidance?
Does it create more effective retirement-income solutions?
And ultimately, does it improve the member’s expected income in retirement?

Those are questions the industry should be willing to answer empirically rather than ideologically.

Ownership deserves to be part of the conversation

South Africa has also experienced a profound change in the ownership architecture of financial services.

The demutualisation of major financial institutions in the late 1990s reflected a global move toward shareholder-owned structures and formed part of a broader modernisation of financial markets.

Shareholder-owned businesses have contributed enormous capability to the retirement industry. They have brought capital, technology, professional management, product innovation and scale.

The question is not whether those businesses have a legitimate place in the system – they clearly do.

The more interesting question is whether the future retirement system should contain a broader range of ownership models, each designed around the particular purpose it is intended to serve.

Ownership models

Retirement funds occupy an unusual position. Members are not simply consumers purchasing a product. They are entrusting decades of deferred income to an institution that may remain part of their lives for 40 or 50 years.

That creates a different relationship. It invites us to ask whether, alongside existing commercial models, there may be greater room for member-owned, multi-employer structures in which the benefits of scale are deliberately recycled toward the people whose savings created that scale in the first place.

Such structures could potentially combine several advantages.

They could achieve the scale and professional capability normally associated with large institutions while maintaining governance structures explicitly anchored in member interests.

They could provide continuity across employers rather than requiring the retirement relationship to be repeatedly rebuilt each time an individual changes jobs.

They could invest in technology, guidance and member analytics on behalf of a much larger population.

And they could create an institutional architecture in which the economic benefits of scale are transparently directed toward better member outcomes.

This does not mean that ownership alone determines success.

A member-owned institution can be poorly governed. A commercial institution can deliver excellent value. Structure is not destiny.

What matters is alignment, accountability and evidence.

A more useful question than ‘Which model is best?’

The industry can easily fall into a binary debate: commercial versus not-for-profit, standalone versus umbrella, employer-sponsored versus multi-employer. That would be a mistake.

The better question is: What institutional design gives the member the greatest likelihood of achieving a good retirement outcome – and how do we measure whether it is actually doing so?

That means comparing structures on outcomes rather than labels:

Cost
Net investment return
Contribution adequacy
Quality of governance
Member engagement
Preservation
Access to guidance
Retirement-income outcomes.

And eventually, perhaps most importantly, the proportion of members who are genuinely on track for an adequate retirement.

This is where ownership becomes an important research question rather than an ideological position.

The next phase of innovation

At EPPF, we believe retirement innovation should increasingly move beyond product design. Among the most important innovation over the next decade may be institutional innovation.

In this case, the questions are:

How should a retirement relationship survive changes in employment?
How should scale be shared?
How should risk be pooled?
How should members participate in governance?
How should technology and data be used to provide support at the moments that matter?
And how should the economics of the institution itself reinforce – rather than compete with – the member outcome?

These are questions we believe deserve serious industry research and open debate.

EPPF is therefore examining the role that different ownership and governance structures could play in the next evolution of South Africa’s retirement system, including how multi-employer, member-oriented models might complement existing structures.

It would be premature to suggest that there is one answer. There probably is not.

But it would be equally premature to assume that the institutional architecture we have today must necessarily be the architecture we carry into the next 30 years.

South Africa’s retirement industry has shown repeatedly that it can evolve.

The next evolution should not be driven simply by the pursuit of larger institutions.

It should be driven by a more demanding ambition to build institutions in which scale, governance, technology and ownership all work together to leave the member better off.

That is the question worth asking. And it is a question the industry should be prepared to answer with evidence.

Sonja Saunderson is chief investment officer at EPPF.

Brought to you by EPPF.

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