FSB puts needed re­tire­ment fund re­forms on hold

OTHER IS­SUES TO BE FI­NALISED

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

The Fi­nan­cial Ser­vices Board (FSB) is de­lay­ing high-pri­or­ity re­tire­ment fund re­forms to en­sure that mea­sures to bet­ter pro­tect your re­tire­ment sav­ings are legally sound.

One of the re­forms to be de­layed is the con­ver­sion to en­force­able reg­u­la­tions of a FSB guid­ance note to re­tire­ment fund trustees, known as PF 130. Th­ese reg­u­la­tions will re­quire stricter stan­dards of gov­er­nance in the man­age­ment of your re­tire­ment sav­ings, in­clud­ing avoid­ing con­flicts of in­ter­est be­tween trustees and ser­vice providers. Avoid­able con­flicts of in­ter­est have been be­hind nearly ev­ery re­cent re­tire­ment fund dis­as­ter.

Speak­ing at a Pen­sion Lawyers As­so­ci­a­tion func­tion in Cape Town, Rose­mary Hunter, the newly ap­pointed FSB deputy ex­ec­u­tive in charge of re­tire­ment funds, says that the FSB is do­ing its best “to stop the rip- offs ( of re­tire­ment fund mem­ber sav­ings) that we see at the mo­ment. The way things have been done in the past have not been suf­fi­cient to pro­tect re­tire­ment funds.”

But she wants to be ab­so­lutely sure that any reg­u­la­tory mea­sures are rig­or­ous, de­signed on the ba­sis of a proper un­der­stand­ing of the dif­fer­ent risks as­so­ci­ated with dif­fer­ent kinds of funds and ad­min­is­tra­tors, and that the mea­sures are legally de­fen­si­ble. This could take as long as two years and may re­quire some in­terim pro­tec­tion mea­sures.

She says it does not build con­fi­dence if the reg­u­la­tor is seen to be “flip-flop­ping” and chang­ing reg­u­la­tion be­cause it was not ad­e­quately pre­pared in the first place. “The stronger the bases for our de­ci­sions, the more con­fi­dence we and oth­ers can have in them,” Hunter says.

She de­tailed a wide range of ar­eas to which at­ten­tion is be­ing given by her FSB di­vi­sion and Na­tional Trea­sury to im­prove the pro­tec­tion of your re­tire­ment sav­ings. Th­ese in­clude:

◆ The scaled im­ple­men­ta­tion of the treat­ing cus­tomers fairly (TCF) prin­ci­ple-based reg­u­la­tory regime for re­tire­ment funds. Hunter says the six prin­ci­ples of TCF are as ap­pli­ca­ble to the re­la­tion­ship be­tween re­tire­ment funds and their mem­bers as they are to fi­nan­cial ser­vices providers and their clients. She says the TCF prin­ci­ples will also be built into con­di­tions for the li­cens­ing of re­tire­ment funds, fund ad­min­is­tra­tors and those who col­lect con­tri­bu­tions payable to funds.

◆ The draft­ing of sets of “best prac­tice” rules for re­tire­ment funds and ben­e­fi­ciary funds fall­ing within dif­fer­ent cat­e­gories.

◆ A re­view of how the voices of mem­bers of um­brella funds and their em­ploy­ers can be heard bet­ter. Cur­rently um­brella fund mem­bers, un­like mem­bers of stand- alone funds, do not have the right to elect trustees. This means that the b oards of um­brella funds may be out of touch with the needs of mem­bers.

◆ Im­prov­ing fit and proper re­quire­ments for trustees, with the tight­en­ing of min­i­mum qual­i­fi­ca­tions. Hunter says, how­ever, that set­ting a stan­dard is dif­fi­cult. A trus­tee with­out a ma­tric­u­la­tion cer­tifi­cate may be a more ef­fec­tive trus­tee than some­one with a de­gree.

◆ Pro­vid­ing guid­ance on the in­ter­pre­ta­tion of reg­u­la­tion 28 of the Pen­sion Funds Act, which sets pru­den­tial re­quire­ments aimed at lim­it­ing in­vest­ment risks for your re­tire­ment sav­ings. The reg­u­la­tion un­der­went a ma­jor over­haul two years ago, but there are still un­cer­tain­ties and anom­alies in it. Hunter says work­shops will be held in the new year to sort out the dif­fi­cul­ties in in­ter­pret­ing the reg­u­la­tion, which is “more com­pli­cated than can be imag­ined”.

◆ The es­tab­lish­ment of a new panel of cu­ra­tors, and a re­view of how cu­ra­tors and liq­uida­tors are ap­pointed and op­er­ate and the fees they charge. This is along­side an on­go­ing con­tro­versy about the high fees paid to cu­ra­tors and liq­uida­tors, the way in which they use their own le­gal and ac­count­ing firms with­out putting the work out to ten­der, and the high cost of le­gal ac­tion, which is usu­ally paid for by fund mem­bers.

Hunter re­ferred to the re­cent ar­bi­tra­tion award in favour of Stan­dard Bank against Tony Mostert, cu­ra­tor of the SA Com­mer­cial Cater­ing & Al­lied Work­ers Union Na­tional Prov­i­dent Fund, which re­port­edly could cost the fund mem­bers more than R20 mil­lion in le­gal and re­lated costs.

Mostert, who has re­cov­ered more than R1 bil­lion for mem­bers of var­i­ous re­tire­ment funds that saw their sur­pluses stripped by em­ploy­ers in the 1990s, has also been in­volved in a high-pro­file le­gal scrap with one of the em­ploy­ers, Si­mon Nash, in which his fees have been raised as an is­sue.

◆ Stricter li­cens­ing con­di­tions for re­tire­ment fund ad­min­is­tra­tors. Hunter says that con­di­tions for the reg­is­tra­tion of new ad­min­is­tra­tors is un­der re­view, and th­ese could in­clude lim­it­ing the num­ber of funds ad­min­is­tered by one com­pany un­til the ro­bust­ness of sys­tems and ser­vices of the com­pany can be proved. In the past, a num­ber of ad­min­is­tra­tors have failed in their ser­vices to funds, which have then de­layed ben­e­fit pay­outs to mem­bers.

◆ The clo­sure of dor­mant and cost-in­ef­fec­tive re­tire­ment funds. There are some 6 500 re­tire­ment Other ma­jor re­tire­ment re­form is­sues that still have to be fi­nalised in­clude:

◆ How re­tire­ment funds should en­sure com­pli­ance with the an­nuiti­sa­tion and preser­va­tion pro­vi­sions pro­vided for in the Tax­a­tion Laws Amend­ment Bill. This in­cludes the phas­ing out of prov­i­dent funds, which al­low mem­bers take all the re­tire­ment sav­ings as a lump sum at re­tire­ment. It also deals with the pay­ment of pen­sions for life.

◆ The Na­tional So­cial Se­cu­rity Fund. It was pro­posed some years ago that ev­ery for­mally em­ployed per­son should at least be a mem­ber of this fund, which would pro­vide min­i­mum re­quired ben­e­fits. ◆ The en­forced preser­va­tion of re­tire­ment sav­ings un­til re­tire­ment. ◆ Costs. Na­tional Trea­sury is de­ter­mined to re­form the in­dus­try in a way that re­duces costs, which are, par­tic­u­larly with life as­sur­ance prod­ucts, among the high­est in the world. funds reg­is­tered, but a large pro­por­tion of th­ese are dor­mant or not cost-ef­fec­tive. Hunter says the funds can­not be sim­ply closed or merged with other funds, or mem­bers trans­ferred to um­brella funds with­out the FSB know­ing ex­actly what is hap­pen­ing to their as­sets and whether there are ben­e­fits that must be paid. She says that even if a fund’s only li­a­bil­ity is a few thou­sand rand payable to a widow in Malawi, the FSB must do what it can to en­sure that the woman gets the money.

She says there are a few thou­sand small funds, es­tab­lished by em­ploy­ers such as in­di­vid­ual schools and churches, which are prob­a­bly too small to pro­vide value for money. The sus­tain­abil­ity of th­ese funds needs to be checked.

But she says care also needs to be taken in trans­fer­ring mem­bers of th­ese funds to um­brella funds. She says there should be fur­ther con­sol­i­da­tion of funds, but it should come with greater free­dom of move­ment be­tween funds to al­low mem­bers to “get the best deal”.

◆ Re­view­ing “lock-in” rules or prac­tices by re­tire­ment funds. Hunter says the FSB re­ceives many com­plaints about em­ploy­ers agree­ing to let em­ploy­ees move to other funds, but their ex­ist­ing funds make it im­pos­si­ble for them to do so.

“It is not the busi­ness of trustees to de­ter­mine con­di­tions of em­ploy­ment for mem­bers,” Hunter says. “That is the busi­ness of unions and em­ploy­ers. The boards of funds must make sure that they pro­vide value-for-money ben­e­fits with the money they have re­ceived. And if em­ploy­ers and em­ploy­ees, by agree­ment, de­cide that the em­ploy­ees should be­long to a dif­fer­ent fund, the fund should not stand in their way.”

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