The introduction of a state pension scheme could force the pension fund industry to consolidate, Metropolitan, the fourth-largest life insurer, said yesterday.

Peter Doyle, the group chief executive, said there would be a shift in the pension fund industry as a result of the government introducing a mandatory state pension scheme.

In his national budget presentation, finance minister Trevor Manuel said the government would be working towards setting up a pension fund that would seek to draw in irregularly employed and self-employed individuals.

Doyle, however, said average-income earners, who were already contributing to private pension schemes, might opt out of this because they would not be able to contribute to two retirement schemes. This would result in some pension funds losing a lot of members to the state pension scheme. Funds would have to consolidate.

For a while, some pension industry commentators have decried the fragmented state of the industry. South Africa boasts 13 000 pension funds, with assets estimated at R1.6 trillion. Industry sources said the many stand-alone pensions could benefit members significantly if they became part of larger umbrella funds.

Hannes Victor, an executive manager at Old Mutual Corporate, said that through umbrella funds, administration costs could be significantly reduced.

Christie Franken, the chief executive of Verso Financial Services, said research showed that between 17 percent and 27 percent of pension fund member contributions went into administration and consulting costs. In the case of a consolidation, pension funds would be able to negotiate savings on investment fees.

Asked whether life companies’ retirement annuity (RA) businesses may lose to the state scheme, Doyle said there could be some trade-off between the two, but it would “not be direct”.

However, Mduduzi Ndlovu, the chief investment officer at Argon Asset Management, said at this stage he did not see the state pension fund pose a threat for the insurers’ RA business.

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