Aon: fund mem­bers won’t be left in the lurch when ad­min­is­tra­tion arm closes

AON IN IN­DEM­NITY COVER COM­PLAINT

Weekend Argus (Saturday Edition) - - GOODPOSTER - BRUCE CAMERON

Aon South Africa, a sub­sidiary of United King­dom-based Aon, the world’s big­gest re­tire­ment fund ad­min­is­tra­tion com­pany, is to close its lo­cal re­tire­ment fund ad­min­is­tra­tion busi­ness and dis­pose of its ac­tu­ar­ial con­sult­ing busi­ness.

Seven um­brella funds and 25 stand­alone oc­cu­pa­tional re­tire­ment funds and about 25 000 mem­bers will be af­fected.

How­ever, the com­pany will still have a pres­ence in the re­tire­ment fund sec­tor, pro­vid­ing con­sult­ing, risk ben­e­fit broking and prod­uct de­vel­op­ment.

Um­brella Pen­sion and Prov­i­dent Fund So­lu­tions will be re­tained, and the trustees of this um­brella fund will have to ap­point a third-party ad­min­is­tra­tor.

Aon has un­der­taken not to do what Glen­rand MIB did in 2010, when it liq­ui­dated its ad­min­is­tra­tion com­pany, Glen­rand Ben­e­fit Ser­vices, to es­cape its li­a­bil­i­ties to 80 000 mem­bers of 20 re­tire­ment funds, the records of which had been left in a mess.

Rose­mary Hunter, deputy ex­ec­u­tive in charge of re­tire­ment funds at the Fi­nan­cial Ser­vices Board (FSB), says the FSB is aware of the changes at Aon and will be mon­i­tor­ing the process.

Jaco Kok, chief ex­ec­u­tive of Aon SA, says the de­ci­sion to close the ad­min­is­tra­tion busi­ness was made against a back­drop of legacy is­sues, which the com­pany is com­mit­ted to re­solv­ing.

“Our com­mit­ment to putting right legacy is­sues re­lat­ing to the ad­min­is­tra­tion of our clients re­mains undimmed. We will hon­our our com­mit­ments in this re­gard.”

Aon has had on­go­ing prob­lems with its re­tire­ment fund ad­min­is­tra­tion arm, which has re­sulted in the com­pany los­ing about R100 mil­lion over the past three years. Most of the losses were a re­sult of legacy is­sues.

Kok says that Aon will re­solve any prob­lems re­lat­ing to fund ad­min­is­tra­tion be­fore it starts an or­derly process of hand­ing over the ad­min­is­tra­tion of the um­brella and em­ployer-spon­sored oc­cu­pa­tional funds that it ad­min­is­ters.

The hand-over process, which will in­volve dis­cus­sions with the funds’ trustees, is ex­pected to be com­pleted by the end of next year. Aon South Africa has been hit by another com­plaint – this time to the Om­buds­man for Short-term Insurance.

The com­plaint has been lodged by Eric Jow­ell of Jo­han­nes­burg-based fi­nan­cial plan­ning com­pany Saint An­drews Bro­kers, on be­half of a num­ber of em­ploy­ees who par­tic­i­pate in the four trou­bled Dy­nam-ique um­brella re­tire­ment funds that Aon took over in 2008. Saint An­drews was also a par­tic­i­pat­ing em­ployer in the funds.

Jow­ell has been in the fore­front of le­gal bat­tles to have the R20 mil­lion that the funds’ for­mer trustees de­ducted from mem­bers’ sav­ings re­paid to them.

Jow­ell says the com­plaint is based on the

In De­cem­ber 2011, the FSB sus­pended Aon from ac­cept­ing any new re­tire­ment fund busi­ness. The sus­pen­sion, which was lifted in July 2012, was im­posed be­cause of fact that “the trustees of the funds did not have full pro­fes­sional in­dem­nity (PI) cover in place, as Aon let the PI cover lapse, and it was then re­in­stated on less favourable terms than the orig­i­nal pol­icy”.

Jow­ell has asked the short-term insurance om­buds­man to or­der Aon to pay the four funds the R20 mil­lion that was de­ducted from mem­bers’ sav­ings to pay for sort­ing out ad­min­is­tra­tion prob­lems at the funds, be­cause proper in­dem­nity cover was not in place.

Jow­ell ar­gues that if proper in­dem­nity cover had been in place, the R20 mil­lion could have been re­cov­ered from the in­surer that pro­vided the PI cover. nu­mer­ous prob­lems with fund ad­min­is­tra­tion.

Aon’s woes arose in part when it took over the ad­min­is­tra­tion of four prob­lem- rid­dled um­brella funds that had been ad­min­is­tered and spon­sored by Dy­namique Con­sul­tants & Ac­tu­ar­ies.

COSTS TO MEM­BERS

The four funds are still the sub­ject of ma­jor dis­putes be­cause of the costs in­curred by mem­bers when the records of the funds were re­built.

The trustees of the four funds de­ducted about R20 mil­lion (2.5 per­cent) from the sav­ings of 11 000 mem­bers em­ployed by 200 com­pa­nies to re­con­struct the funds’ records, which had been left in a mess by Dy­nam-ique Con­sul­tants & Ac­tu­ar­ies.

Since it took over the ad­min­is­tra­tion of the four funds in 2008, Aon has been con­tribut­ing sig­nif­i­cant fi­nan­cial and staff re­sources to put the funds’ records in or­der, in­clud­ing a full re­build of fund data, and au­dits and val­u­a­tions.

The sus­pen­sion on Aon tak­ing on new busi­ness was lifted once the com­pany had ad­dressed reg­u­la­tory con­cerns sat­is­fac­to­rily; in­de­pen­dent au­di­tors had con­firmed the ap­pro­pri­ate­ness of Aon’s new ad­min­is­tra­tion sys­tems; and the FSB was sat­is­fied that any new busi­ness would not be af­fected by the prob­lems ex­pe­ri­enced by the funds that Aon ad­min­is­tered al­ready.

Since the sus­pen­sion on new busi­ness was lifted in 2012, the FSB has been keep­ing a beady eye on Aon.

But there has been on­go­ing le­gal ac­tion, in­clud­ing com­plaints to the Pen­sion Funds Ad­ju­di­ca­tor (PFA), chal­leng­ing the right of the trustees to have de­ducted the money.

The PFA, Mu­vhango Lukhaimane, has is­sued two de­ter­mi­na­tions on the is­sue. The first de­ter­mi­na­tion, in which she or­dered the four re­tire­ment funds to re­pay the money, was set aside by the High Court. A sec­ond de­ter­mi­na­tion, in which Lukhaimane or­dered the for­mer trustees to re­pay the money, is be­ing chal­lenged.

At­tempts by the for­mer trustees to get the re­tire­ment funds to pay their le­gal costs have so far been un­suc­cess­ful.

In one of her de­ter­mi­na­tions, Lukhaimane se­verely crit­i­cised Aon, ac­cus­ing the com­pany of not con­duct­ing a proper due dili­gence on the Dy­nam-ique funds be­fore tak­ing them over.

Var­i­ous par­ties, in­clud­ing Aon, are be­ing sued by the cur­rent trustees to re­cover the mem­bers’ money.

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