More training needed but little is happening
Cost is one of the numerous obstacles
Finally, the paper states that “trustees who lack appropriate expertise must undergo training at the expense of their funds to obtain such expertise or seek the advice of appropriate experts”.
But little of this seems to be happening on any significant scale. A survey by Deloitte on Retirement Fund Governance found that many complaints forwarded to the Pension Fund Adjudicator could be linked to “inadequate trustee training and experience”, but that less than 18% of funds had formal training policies and that, on average, trustees received just 15,5 hours of training a year.
It concluded that “retirement fund governance is not at acceptable levels and consequently funds, their members and trustees are exposed to unacceptable levels of risk”.
Michael-John Albert, a partner at the financial institutions services team at Deloitte, says with the retirement industry becoming more complicated, responsibility for trustees has never been greater. “My view is that the duties of trustees are more onerous than company directors’. They are often looking after members’ only source of income.”
On a personal level, trustees also have far more at stake and can be found guilty of negligence. “Regulations now require trustees to sign off financial statements. If there are problems they do not understand or are experienced to deal with they are required to seek expert knowledge. Ignorance is no defence here,” Albert says. THERE’S LITTLE DOUBT that the greatest need in the retirement fund industry is for increased training of trustees. Raising the level of knowledge on retirement fund matters is essential – but there are numerous obstacles in the way.
One is costs. Trustee education programmes can be expensive, and while it’s in the longer-term interests of the fund and its members, the board may be reluctant to spend large amounts on trustee training.
Employers are also often reluctant to give trustees time off work to attend courses. And trustee apathy plays a role. Some trustees simply lack the motivation to attend courses.
These concerns were highlighted in National Treasury’s discussion paper on Retirement Fund Reform. It noted “deficiencies in the skills and expertise of some trustees, many of whom are responsible for the management of billions of rand of retirement fund assets”. It goes on to raise concerns about possible non-disclosure from service providers trying to sell products or services to a board of trustees, saying: “The Financial Advisory and Intermediary Services Act will require consultants to demonstrate that their advice is appropriate but, if the trustees themselves are not knowledgeable and vigilant, they are unlikely to challenge the advice they are given.”
A treasury discussion paper noted deficiencies in the skills and expertise
of some trustees.
This is just one new reason why trustee training has become so important. Albert says trustees must be in a position to run their retirement fund “from day one”. But at the same time, he says not enough time and money are being spent on trustee training.
“I would like to see some sort of needs analysis done on trustees. We could then build on that, identifying the needs and areas where training is needed.”
But why is there not more training taking place? Albert believes it’s because of a combination of factors.
“There’s no doubt that trustee training is expensive. Boards need to develop a proper budgeting process around that.” However, Albert believes the lack of relevant training often goes back to the trustees themselves. “There’s often reluctance on the part of trustees to say they don’t understand something.”
One suggestion Albert has is that new trustees serve a period as alternative trustees, building up knowledge and experience before becoming full trustees. He feels this could also deal with the conceptual problem some trustees seem to have, mistakenly believing they should serve the interests of the constituency that voted them onto the board.
Under current retirement fund structure, half the members of a board of trustees are elected by members and half appointed by the company. At times this can become like an extension of labour relations, with member trustees looking after the interests of the workforce and appointed trustees looking after the company. “Trustees must realise it’s their responsibility to look after the interests of all stakeholders, and that this includes the employer,” Albert says.
He believes training needs to take place on two levels. “There’s formal training, where trustees learn about the Pension Funds Act and other relevant legislation, about the fund itself and related areas such as investment returns and administration. But as important is learning how to work around the table in the boardroom – like how to ask questions and what questions need to be asked. This can be conducted through on- the-job coaching and training.”
He also believes training needs to be risk focused, where trustees learn to identify, understand and actively manage their fund’s risks.
The duties of trustees are more onerous than company