In South Africa, employees are increasingly demanding flexibility in relation to their employee benefits (including retirement benefits). As a result, many South African retirement funds extend choice to members - these choices might include:
• contribution rates,
• salary definition to be used (which may be lower than the actual salary),
• investment portfolio,
• whether to withdraw savings when changing jobs and
• the annuity product to convert savings to a pension in retirement.
Our paper will provide a brief overview of the South African retirement system and will consider the choices available to members within defined contribution schemes and the impact on their retirement outcomes. We present results from an analysis conducted on a number of employers within a large commercial umbrella fund, to evaluate the effectiveness of the retirement fund in delivering sound retirement outcomes for members. Our observations from this analysis indicate that more choice leads to a wider dispersion of outcomes within the membership of a particular employer implying that many members get "left behind". The results will show that offering member choice in relation to benefits requires schemes to structure the benefit design to ensure that the "default" position (i.e. for members who make no choice) targets a suitable expected outcome, and that any choices offered would only enhance that position. Choices that detract from a suitable retirement outcome should not be available. Any choices need to be accompanied by sufficient information and education as to the impact on retirement outcomes. We will also focus on the impact of current legislation around preservation and annuitisation and how it is detracting from retirement outcomes giving rise to a need for urgent reform.