NJMPF puts retirement planning centre-stage in South Africa

Encouraging saving and offering insurance is just the tip of the pension fund iceberg. To truly support members, financial literacy is key

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NJMPF is teaching its members about the importance of financial prudence and retirement planning

The Natal Joint Municipal Pension and Provident Funds (NJMPF) is a provincial retirement fund that provides retirement funding benefits for municipal employees in the province of KwaZulu-Natal in South Africa. The NJMPF administers pension funds for employees and pensioners of the 55 municipalities in the province, and its vision is to provide superior retirement services and benefits to its 30,000 active members, pensioners and beneficiaries.

Hindsight and insight
Several surveys have been published in South Africa on the state of the population’s attitudes and readiness for retirement. The results have been largely consistent. For example, a survey of South African households conducted some time back was performed on a representative sample of 65-year-olds, and the following startling facts were uncovered from respondents: 47 percent were dependent on relatives, 31 percent were forced to continue working, 16 percent were dependent on a state pension, and only six percent were financially independent. In recent studies, this challenge has not shifted, perhaps due to inflation rates, taxation, and the cost of living increasing.

Coupled with this challenge is the issue of low financial literacy levels. According to a study by the OECD, South Africa is at the bottom of the financial literacy table.

The OECD/INFE International Survey of Adult Financial Literacy Competencies questioned 50,000 people aged between 18 and 79, and found that, on average, only 56 percent of adults across the 30 participating countries achieved a score of at least five out of seven, the minimum target score. South Africa barely reached 30 percent. That is why the NJMPF is fully focused on driving the financial literacy campaign.

At the NJMPF, retirement funding services are more than collecting contributions, investing responsibly and paying out benefits; it is about building a member who is aware of their current financial situation, who is able to forecast for the future and exceed or maintain their standard of living after retirement. This means retirement funds should position themselves strategically to be able to enhance value proposition for members, pensioners and beneficiaries (NJMPF stakeholders) in all aspects of retirement funding activities.

The retirement industry in South Africa, similar to other countries in the world, is highly regulated by statute

This view of placing stakeholders at the core of retirement funding has resulted in the NJMPF being recognised by local and international industry institutions for its unwavering level of good governance. Recognition has also been given for top quartile investment returns, dedicated communication programmes, treating customers fairly, financial astuteness, and being the benchmark to which other funds aspire.

Innovation for the future
The retirement industry in South Africa, similar to other countries in the world, is highly regulated by statute. Due to this regulatory environment, some funds strive to merely achieve the standard requirements and fail to view systems and stakeholders in their holistic makeup. The NJMPF, on the other hand, strives to go beyond the norm. A new election process is being introduced at the NJMPF. All members will now be able to vote directly for members of the board of trustees through modern and innovative methods.

The new system will give each candidate a unique identifiable barcode which will assist in automating the scanning and counting process. In addition, a unique barcode will be generated for each member’s election form.

The voting method has also been enhanced to include voting via the NJMPF webpage and mobile app. Members can sign in to the NJMPF web portal and click the voting tabs. The election data is then filtered back to the NJMPF for counting. The unique barcoding system will assist in preventing any duplicate ballots and assist in verifying each ballot. The system will generate validation reports and flag any potential inconsistencies.

What’s more, a new mobile app has been introduced by the NJMPF. The app will allow members the ability to interact with the fund at any time. The objective of the application is twofold: to use technology as the primary means of communicating notices and news, while also helping stakeholders to become more financially literate. This, together with the improved NJMPF interactive webpage, will motivate members to improve their financial provision for retirement and encourage members to think about retirement planning daily.

Cost savings
The South African National Treasury has estimated a cost saving of two percent over the savings life of a member will increase the member’s pension by around 40 to 50 percent. The NJMPF, however, is not only looking at reducing costs through member saving, but also at the time of retirement by way of in-house annuities with an approximate saving in annual fees of three to five percent.

Ever mindful of containing costs, the NJMPF is using its own balance sheet to create reserves to meet death and disability benefits for its members. Instead of an outflow of premiums to an outside insurance company, the NJMPF retains such amounts in a self insured fund, which has proved to be most successful.

In the NJMPF’s two defined-benefit funds (superannuation and retirement funds), members become pensioners of the NJMPF when they retire. Monthly pensions are paid by the NJMPF and annual inflationary increases and ad-hoc bonuses are awarded by the board of trustees. The increases and bonuses declared by the NJMPF to its pensioners surpass inflation significantly, reflecting an improved standard of living for pensioners.

Provident fund members in South Africa, however, currently need to create a monthly income from their retirement benefit lump sums and approach an insurance company to purchase a pension or annuity. This can be a confusing and expensive exercise. For this reason, and due to imminent changes in legislation in South Africa, the NJMPF has investigated ways to assist provident fund members when they reach retirement age. The NJMPF will soon be offering an in-house annuity whereby monthly pensions will be offered at a significant discount for members.

Shifting mindset
Engaging and interacting with the membership regularly and running the NJMPF financial literacy wellness programme is an important part of the fund’s communication strategy. The NJMPF has always believed financial literacy requires a shift in thinking and behaviour, which is why we are engaging members and pensioners through practical and efficient methods of communication and engagement to build their capacity to manage their financial world and achieve financial independence in their lifetimes. The fund visits members in its 55 municipalities all year, explaining the benefits of the fund and instilling financial literacy.

The NJMPF’s success is driven by passion, strategic outlook, and creative thinking. Its philosophy is simple: look at what constitutes best practice and then try and surpass that. It is in the fund’s DNA that all its staff are constantly improving the way they do things.

The NJMPF has made an impressive mark on the local and global stage, with a total of 21 local and 11 international awards, making it the most decorated pension fund in South Africa.