South Africa's mutual fund market is ripe for growth and international competition as local consumers wake up to the comparatively high cost of insurance-backed retirement savings plans.
Retirement policies backed by South African insurers were some of the most expensive in the world, with charges as high as 43.2% of assets, which could reduce yields by up to 2.8%, according to a recent report.
Individual insurance policies are the most common way for South Africans to save for retirement, in addition to their occupational pensions, said Rob Rusconi, who wrote the report for an actuarial group before becoming a member of the global asset allocation team at SEI Investments, Johannesburg. In 2002, contributions to occupational pension plans were 54 billion rand ($8.9 billion), while 27 billion rand was invested in life assurance policies, according to the most recent figures from the Financial Services Board, which regulates the investment industry. Mr. Rusconi estimated that contributions to mutual funds were around 1 billion rand that year.
He believes savers will make greater use of mutual funds as they become aware of the relatively high cost of insurance policies. However, he said, "There are very few companies that provide mutual funds in a retirement (i.e. tax-efficient) wrapper."
