HEADING

Quantifying the total fees and their impact on members’ retirement outcomes

Costs Calculator

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

Key differences: Free standing versus Umbrella Funds

Key Differences

The Anatomy of Fees

Industry is often complex & inefficient: many choices, high fees

Broker/ consultan

t

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 investments2.Administration:

Fund and investments3.Investment management

Local, offshore, conditional fees eg. performance fees, guarantees

Investor Portfolio

The Importance of Fees

Myth: High costs are a small price to pay

Fact: High costs drastically erode lifetime returns

Fees matter

147% 100% 60% 27% Increased value from lower fees

Cost Calculator: Quantifying total fees and their impact

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

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

Step 3: Calculate total fee impact on average member

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Projected retirement income increase* pa from fee savingR 1,884 R 8,675 R 59,244

*Male aged 65 who purchases an inflation-linked annuity

Step 4: Project long term fee impact

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Conclusion: Costs matter

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?

Thank you