Serious failures of governance by retirement fund trustees have resulted in an increase in complaints to the Pension Funds Adjudicator, according to the adjudicator and the Deputy Registrar of Pension Funds.
The adjudicator, Muvhango Lukhaimane, told the Institute of Retirement Funds Africa (IRFA) conference this week that last year her office had an almost 30-percent increase in complaints and in the first quarter of this year there was a further 15-percent increase.
Lukhaimane says the role of a trustee is not overly complicated if trustees pay attention to the things that are important. She says it is perplexing, however, that trustees have taken a “back seat” in favour of administrators and consultants.
When members join a retirement fund, they pay contributions and entrust the fund with the realisation of a promise, the adjudicator says. The promise is of:
* A decent return on their savings,
* A retirement benefit, and
* A death and disability benefit.
While they await the fulfilment of that promise, members ask trustees:
* For information related to their benefits;
* For the fund’s rules and any significant changes to them;
* To submit financials on time;
* To put in place proper governance structures and systems for early warning of failures; and
* To pay benefits on time.
Lukhaimane called on trustees to “reclaim their space” – their responsibility and accountability – and to pay attention to these important issues.
She said trustees should also stop assisting administrators to keep members in funds by engaging in questionable activities around transfers from one fund to another, as allowed under section 14 of the Pension Funds Act.
“Ask yourselves as member representatives on boards: why did you fight for the right to be at the table in the first place? You wanted to make a difference. If you cannot convince your members that you are doing the best for them, let the members go [to another fund]. In the end, being a fund member is largely about the promise of having something saved, and if you cannot deliver it, let them go to the next best person who can do that,” Lukhaimane said.
Rosemary Hunter, the Deputy Registrar of Pension Funds at the Financial Services Board (FSB), told the IRFA conference that there were serious shortfalls of governance, particularly in the appointment of service providers.
She says the FSB is currently dealing with a fund that made an investment decision that has “fallen apart”. The FSB has sent questions to the principal officer and each member of the board, wanting to know what each trustee’s role was when the decision was taken – in other words, what each board member did personally.
She says the FSB does not want to remove the entire board, because “not all of them are rotten”, and some may even have disagreed with the decision.
The trustees have also been advised not to use the fund’s lawyers to answer the FSB’s questions, and that instruction is now subject to a legal challenge, Hunter says.
Boards of trustees often have dominant voices, but funds don’t need trustees who are “going along for the ride”, Hunter said.
Steven Nathan, the chief executive of 10X, a company that provides retirement investments that use low-cost index-tracking funds, says the National Treasury is busy with retirement reform because it has identified a problem with retirement funding: some people are not getting good value.
He says there is uncertainty about what the regulator will do and by when it will introduce legislation, but retirement fund trustees know there is a problem and should start doing something now.
Nathan also says that trustees who are not as informed as they should be should not rely on the advice of service providers, because these providers may be conflicted.
The investment industry has launched too many complex products, he says. What trustees simply should be trying to achieve for members is more money at retirement, and this should be their focus, not forgetting that they are dealing with long-term investments.
The principles of long-term investing are not that difficult; reading just three books will give trustees all they need to know, Nathan says. These are: The Little Book of Common Sense Investing, by John Bogle; Rational Expectations: Asset Allocation for Investing Adults, by William Bernstein; and Elements of Investing, by Charles Ellis and Burton Malkiel.
Nathan suggests that trustees tackle one thing at a time: “If you try to do too much, you often achieve very little.” For example, trustees could set a benchmark for the fund’s investments or demand improved disclosure of fees.
* Finance Minister Nhlanhla Nene has extended Lukhaimane’s term of office for three years, to the end of June 2018. Lukhaimane took up the post of Pension Funds Adjudicator on July 1, 2013.