Many retirement funds not complying with law

One of the issues red-flagged by the Pension Funds Adjudicator is that many retirement funds are not conducting proper investigations into the dependants of deceased members when distributing death benefits. reports

MANY of South Africa’s retirement funds continue to act as a law unto themselves, failing to follow basic procedures laid down in the Pension Funds Act and being tardy in making payouts and dealing with complaints.

In the 2016/17 annual report of the Office of the Pension Funds Adjudicator, which was released this week, the adjudicator, Muvhango Lukhaimane, says complaints about the non-payment of benefits made up almost 70% of the 7 138 complaints finalised during the year. Many of these relate, she says, to non-compliance with section 13A of the Act, which governs the payment to funds of retirement fund contributions by employers. If employers fail to pay over their employees’ contributions, funds are obliged, as soon as non-compliance occurs, to recover the money on their members’ behalf.

Lukhaimane called on the Registrar of Pension Funds at the Financial Services Board to set up a reporting mechanism to keep track of this non-compliance. “After all,” she says in the report, “without compliance to section 13A and enforcement thereof, we do not have a retirement industry.”

DEATH BENEFITS

Lukhaimane says many retirement funds also fail to follow procedure in conducting proper investigations into the dependents of deceased members when distributing death benefits. This is meant to be done within a year of a member’s death, and retirement funds that have delayed too long in paying beneficiaries have been heavily penalised by the adjudicator.

“This is a life or death matter for beneficiaries, who suddenly find themselves without financial support and are condemned to live a destitute life while their breadwinner’s funds lie idle in a retirement fund account.

“For South Africans who are fortunate enough to belong to a retirement fund, this remains the biggest investment/savings in their lives and therefore those tasked with managing these funds, especially when the member dies, must take the task seriously and discharge the responsibility with the necessary skills and care,” Lukhaimane says.

Another failure by funds is in the area of communication. Although only 4.5% of the complaints finalised were about retirement funds’ failure to issue benefit statements to members, the adjudicator says that more than 80% of the complaints relating to withdrawal benefits also refer to members not receiving their statements.

“This again points to a culture of non-compliance by retirement funds with basic legislative and regulatory prescripts. The failure to provide members with annual benefit statements deprives them of an opportunity to follow-up with their employers in instances of non-compliance with section 13A of the Act,” the adjudicator says in the report.

Lukhaimane also criticised providers of retirement annuities for continuing to levy penalties (known in the industry as “causal event charges”) when members wanted to change products or switch providers. This contravened outcome six of Treating Customers Fairly, which states: “Customers [should] not face unreasonable post-sale barriers to change product, switch provider, submit a claim or make a complaint.”