According to the Employee Provident Fund (EPPF) in a piece published by Moneyweb, the next phase of South Africa’s retirement industry should focus on who captures the economic value created by scale rather than on scale itself.
The sector has moved through a series of reforms over the past few decades. Defined benefit arrangements, where the employer guarantees a set pension, have largely been replaced by defined contribution funds, in which the member’s eventual pension depends on contributions and investment returns. Member-elected trustees and stronger governance structures have become the norm, and the industry has demutualised, meaning that many former mutual funds are now owned by shareholders. Regulation 28, tax treatment and default regulations have been harmonised, and the two-pot system, a split between a retirement savings pot and a separate investment pot, has altered the relationship between members and their savings.
Ownership and member outcomes
These changes have produced a more professional and systematised industry. Administration has improved, investment processes are more institutionalised and technology is giving members easier access to their accounts. At the same time, consolidation has reduced the number of standalone funds and increased the dominance of large umbrella and multi-employer structures. Larger arrangements can spread fixed costs, negotiate better fees and invest in specialist capability. The question EPPF raises is whether those efficiencies are passed on to the member.
Scale can lower the cost of administration, strengthen investment capability and create efficiencies in servicing members. However, the real test is how much of that benefit flows through to the member’s retirement income. EPPF suggests that the industry should answer this question empirically, by measuring outcomes such as investment returns, fees, administration quality and ultimately the proportion of members who are on track for an adequate retirement.
The discussion of ownership models is central to that measurement. In the late 1990s South Africa demutualised many major financial institutions, shifting them to shareholder-owned structures. Those commercial owners have brought capital, technology and professional management to the retirement space. EPPF does not dispute their legitimacy, but asks whether the sector should also accommodate member-owned, multi-employer structures that recycle the benefits of scale back to the people whose savings create that scale.
Member-owned models could combine the advantages of large institutions, such as specialist investment teams and advanced technology, with governance that is explicitly anchored in member interests. They could provide continuity for workers who change jobs, reducing the need to rebuild retirement relationships with each new employer. For small and medium-size enterprises, a multi-employer, member-owned fund could offer a cost-effective way to provide high-quality retirement benefits without having to negotiate separate contracts with large commercial providers.
Nevertheless, ownership alone does not guarantee success. A poorly governed member-owned fund could underperform, while a well-run commercial fund could deliver excellent value. What matters, according to EPPF, is alignment, accountability and evidence. The sector should move beyond binary debates, commercial versus not-for-profit, standalone versus umbrella, and focus on the institutional design that gives members the greatest likelihood of a dignified retirement.
For policymakers and regulators, the implication is a need for data-driven oversight that tracks the flow of cost savings and investment returns to members. The Pensions Regulator and other authorities may need to consider metrics that capture member outcomes rather than just industry size. Small employers and their workers stand to benefit if the industry can prove that larger, more efficient structures translate into better retirement income.
In short, EPPF calls for a shift in perspective: from measuring the strength of the machinery to measuring the quality of the retirement outcome for each member. The debate about ownership, therefore, is not ideological but a research question that requires empirical answers.
Consolidation is expected to stay a defining feature of retirement provision, with smaller funds often finding it hard to meet the growing governance, technology and regulatory demands that the sector now imposes, while larger arrangements can disperse fixed costs and boost bargaining power, according to the source material. This dynamic means that as the number of standalone funds shrinks, the relative importance of umbrella and multi-employer structures rises, creating a landscape where scale can be a lever for efficiency but also a potential source of concentration risk that must be monitored.
To answer whether scale benefits members, the industry is urged to adopt an empirical approach that tracks outcomes such as investment returns, fee structures, administrative quality and the share of members on track for an adequate retirement, as highlighted by EPPF. Rather than relying on ideological positions, regulators and fund managers would collect comparable data across different ownership models, analyse the flow of cost savings and performance gains, and publish findings that link these metrics directly to member income projections.
The late-1990s demutualisation of major financial institutions marked a shift toward shareholder-owned structures, bringing capital, technology and professional management into the retirement arena, the source notes. While these commercial owners have clearly added capability, the text argues that their legitimacy does not preclude the introduction of alternative models that can recycle the economic benefits of scale back to the contributors whose savings generate it.
Member-owned, multi-employer funds could harness the advantages of large-scale operations, such as specialist investment teams and advanced analytics, while embedding governance that is expressly tied to member interests. By maintaining a single retirement relationship across job changes, such structures would reduce the administrative burden on workers and allow small and medium-size enterprises to access high-quality retirement solutions without negotiating separate contracts, thereby aligning the scale-driven efficiencies with the goal of delivering better retirement outcomes.
