Putting a stop to pension fund graft

GIFTS FORBIDDEN: NOTHING MORE THAN R500 A YEAR New regulations close loopholes.

In a bid to curb corruption in the pension fund industry, Dube Tshidi, the registrar of pension funds at the Financial Services Board, has issued a directive forbidding the giving or receiving of gifts.

This will prevent asset managers from using gifts as a means of soliciting business, and pension fund principal officers, board members or trustees from receiving any gift worth more than R500 per year.

This directive (No 8: Prohibition on the Acceptance of Gratification, March 8 2018) brings legislation governing the pension funds industry in line with that governing financial services providers, which falls under the Financial Advisory and Intermediary Services (Fais) Act.

Back in 2010 the Fais Act issued a directive that applied a R1 000 limit on gratuities – given or received. It applied specifically to financial service providers, but many industry participants chose to interpret it as applying to all fiduciaries. Inevitably though, regulatory gaps are there to be exploited and this is the gap the registrar seeks to close.

The new directive makes it clear that all fiduciaries in the service of retirement funds – from the principal officer to employees of administrators to future service providers – are now subject to a gratuity limit. That limit is R500 a year. The registrar has also made the definition of “gratification” sufficiently wide and inclusive so as to prohibit the giving of any material gift.

“This directive is part of the regulator’s drive to set clearer and more consistent rules to improve governance in our industry,” says Ryan Kieser head of Compliance at Futuregrowth, which manages pension fund monies, among other investments. “It does so by re-emphasising and strengthening the fiduciary role each stakeholder must play in protecting the pensions of all the citizens.”

The registrar has gone further and directed that anyone who becomes aware of a possible transgression has a duty to report it. “This means that you cannot stick your head in the sand and pretend you did not see something,” says Kieser.

Another positive step is that the directive specifically carves out an exception to allow retirement fund trustees and board members to be remunerated for their service by the sponsor of a retirement scheme. Currently they are not paid for the work they do. Also, the directive may encourage retirement funds to provide training for trustees.

“We think it will be beneficial to allow service providers to provide or even subsidise bona fide third-party, educational programmes for retirement fund trustees.”