This presentation covers the differences between free standing and umbrella funds, the anatomy of fees and importance of fees.

1. HEADING
Quantifying the total fees and their
impact on members’ retirement
outcomes
Costs Calculator

2. 1. Key differences between free standing and umbrella funds
2. Understanding the anatomy of fees and their importance
3. Quantifying total fees and their impact on members’ retirement outcomes
4. Conclusion: Costs matter
Agenda

3. Key differences: Free standing versus
Umbrella Funds

4. Key Differences

5. The Anatomy of Fees

6. Industry is often complex & inefficient: many choices, high fees
Broker/
consultant
Investment
advice
Investment
admin.
Pension
admin
Fund
managers
0.3% - 0.8% of
payroll
0.1% - 0.5% of
assets
0.5% - 1% of
assets
0.3% - 0.8% of
payroll
0.5% - 2% of
assets+ perf.
Fees can be broken down into three areas:
1.Advice:
Employee benefits (fund and benefit design) and investments
2.Administration:
Fund and investments
3.Investment management
Local, offshore, conditional fees eg. performance fees, guarantees
Investor Portfolio

7. The Importance of Fees

8. Myth: High costs are a small price to pay

9. Fact: High costs drastically erode lifetime returns

10. Fees matter
147% 100% 60% 27% Increased value from lower fees

11. Cost Calculator:
Quantifying total fees and their impact

12. Step 1: input data and fees
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Membership details
Number of employees 5,000
Average contribution per employee pm R2,250
Total assets R 100,000,000
Fee input (incl VAT)
Payroll based fees Fund A Fund B
Admin fees: select ONE of the following
1. Admin fees as % of payroll Nil 0.30%
2. Admin fees as Rand per member pm R34 Nil
Consulting fee as % of payroll Nil 0.15%
Asset based fees as % of assets pa
Investment consulting fee Nil 0.30%
Administration Nil 0.20%
Investment management 0.30% 1.00%
Assumes, 1% pa real salary growth, 5% real return, Male aged 65 purchases a CPI linked annuity at 6% initial yield

13. Step 2: Calculate total fees charged per month
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Fee output
Fund A Fund B
Payroll based fees R170 000 R337 500
Asset based fees R25 000 R125 000
Fund expense R 0 R20,833
Total scheme fees pm R195 000 R483 333
Excess fees 148%
Total scheme fee saving per year R3,460,000
Fee saving as % of assets 3.5%
Ave. scheme fees saved per member per year R692

14. Step 3: Calculate total fee impact on average member
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Projected retirement income increase* pa from fee saving
R 1,884 R 8,675 R 59,244
*Male aged 65 who purchases an inflation-linked annuity

15. Step 4: Project long term fee impact
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16. Conclusion: Costs matter

17. Fees matter:
•Each 1% fee savings increases your final pension by approximately 30%
•Quantify total fees from ALL service providers
•Demand full transparency (especially asset based fees)
The 10X fee calculator is available upon request.
What really adds value to fund members?

18. Thank you