FSCA considers action against pension fund for failing to protect member interests

The Financial Services Conduct Authority (FSCA) is considering “regulatory action” against the South African Local Authorities Pension Fund (SALA) because it isn’t providing the required information on members’ contributions.

 That the FSCA is considering regulatory action is the result of yet another referral from the Office of the Pension Funds Adjudicator (OPFA) regarding the pension fund and its failure to address several issues. The FSCA has, Corlia Buitendag, departmental head of retirement fund conduct supervision at the FSCA, previously engaged the Fund to address issues.

 Buitendag told Personal Finance that “it is deeply concerning that, despite these interventions, the Fund has shown no meaningful improvement. Regulatory action is being considered.”

The Office of the Pension Funds Adjudicator’s most recent referral of SALA to the FSCA came after the Pension Funds Adjudicator “severely criticised” it for not responding to requests for information. OPFA sought details to decide a matter after being approached by a complainant who had been employed by the South African Police Service (SAPS) and was unhappy with the amount he received as his withdrawal benefit.

Pension Funds Adjudicator, Muvhango Lukhaimane, said SALA was not compliant with requests from her office as it didn’t respond to her demand that it provide her Office with information on the matter. She told Personal Finance that “SALA has had many administrative issues over the years – and has not had a history of compliance”.

Lukhaimane added that issues relating to SAPS members have, in some cases, resulted in members even losing out on benefits because of a process breakdown. “At this stage the situation seems quite dire,” she said, which is why she asked the FSCA to investigate. “The fund’s non-compliance is intolerable.”

It is “incumbent upon pension funds and administrators to ensure that enquiries from the Adjudicator are properly and adequately responded to. This is especially so since boards of funds and principal officers are required to be fit and proper,” Lukhaimane said.

“The failure to respond to enquiries and to timeously response to complaints by such persons is a failure to uphold their fiduciary responsibilities. It impedes the Adjudicator’s ability to deliver on its mandate, and if allowed to continue, will render the Adjudicator ineffective. It also constitutes a barrier to the complainant being able to have their complaint properly resolved,” said Lukhaimane.

Between April last year and now, the OPFA has received 44 cases against SALA, of which 29 are closed and 15 are still open.

The complainant asked OPFA to investigate whether all his contributions had actually been paid over by SAPS and whether this would have affected the value of his withdrawal.

In the FSCA’s latest annual report, Finance Minister Enoch Godongwana said the Authority has been focusing on ensuring that employers fulfil their obligations to pay over their employees’ retirement fund contributions. Documents from the Parliamentary Monitoring Group show that at least 30 municipalities have owed SALA contributions for two years or more.

“The timely payment of employee retirement fund contributions by employers is crucial for securing the financial security and stability of employees upon retirement. When employers fail to make these payments, it jeopardises the future well-being of their workers, undermining their trust and the overall integrity of the retirement system,” said Godongwana.

SALA has now been ordered to reconcile the complainant’s contributions and pay him any outstanding fund credit, which consists of the arrears contributions, said Lukhaimane, noting that her Office can only deal with one complaint at a time.

Lukhaimane added that the complainant could also follow a legal process if the fund does not comply with her order, which could include seeking an attachment of the fund’s assets to cover the value of the claim. “The complainant is at liberty to enforce the court order by following the normal enforcement processes for all court orders,” she said.

Based on recent cases regarding a determination made by the Adjudicator, courts can authorise writs of attachment, leading to funds being seized.

Lukhaimane also indicated, in a statement on the issue, that the administrators, Fairsure Administration, seemed to have an issue with receiving and allocating contributions.

Although the FSCA did not specify which sanctions it may consider, it can vary, suspend or revoke the licences of retirement funds, fine or refer a matter to the South African Police Service for potential criminal prosecution, as well as remove board members if they have been involved in a crime, for example.

In addition, the FSCA can issue a directive against financial service providers as well as pension funds, among other entities. Should a directive be ignored, the Authority has the power to impose a fine of as much as R15 million or imprisonment not exceeding 10 years, or both. The FSCA’s mandate is to oversee and regulate the conduct of the financial sector.

The FSCA’s annual report, for the 2023/24 financial year, indicates that it completed 418 investigations during the year, imposed R943m in fines, issued 156 debarment orders, and withdrew 75 licences. It also effected 1 061 licence suspensions.

SALA last issued a monthly report on fund performance last September, having previously published these each month. At that stage, its portfolio was worth R12 billion. The latest figures in terms of its membership, which is drawn mostly from the municipal and police services sectors, date back to May 2009, at which time this figure was at 19,000.

PERSONAL FINANCE