Many people in the retirement industry appear not to be serious about complying with the laws governing the industry. They seem to regard the law merely as a guideline, seeing compliance as necessary only when there is a danger they will be caught.
These concerns were raised by Rosemary Hunter, the deputy registrar of pension funds at the Financial Services Board (FSB), at this year’s Winter Conference of the Batseta Council of Retirement Funds for South Africa. (“Batseta” is a Pedi word that means “advisory council”.) The council aims to champion the interests of retirement fund trustees and principal officers.
Hunter and Muvhango Lukhaimane, the Pension Funds Adjudicator, were the two speakers in a round-table discussion on regulation and adjudication at the conference, which was held in Kempton Park on June 1 and 2. During the session, Hunter and Lukhaimane discussed some of the “hot issues” they are facing and the concerns these raise.
Hunter says there seems to be a view among funds and administrators that if compliance with the law is too expensive or inconvenient, they can simply apply to her department for an exemption from the Pension Funds Act. “There is a sense that exemptions are there for the asking,” she says.
The FSB is empowered to grant exemptions from provisions of the Act where compliance proves impractical; exemptions are not intended to make life easy or to save money, Hunter says.
She says the FSB is “applying its mind” to considering whether it should withdraw some of the exemptions it has granted.
Some of the FSB’s other key concerns are:
* Lack of capacity among fund administrators. Hunter says many administrators do not have the capacity efficiently to process claims and contributions and to address members’ enquiries.
Administrators are competing for business based on price alone, because funds can easily identify the percentage of contributions that are spent on administration, Hunter says. However, trustees need to realise that a cheap administrator can prove very expensive in the long run, when, as a result of bad administration, membership records have to be rebuilt from scratch.
Her department would like to see administrators putting adequate human and information technology resources into their operations.
* Failure to carry out section 14 transfers properly. Hunter says her department has found cases where, although the registrar gave a fund permission to transfer members’ benefits to another fund, it transpired when the fund was to be deregistered that not all the benefits had been transferred.
Her department is considering whether it should require funds to prove that transfers have taken place, Hunter says.
* Indirect election of trustees. Some funds elect trustees using a “collegiate” system, where members elect electors, who, in turn, elect the trustees. Hunter says she doubts this indirect system ensures that members’ interests are represented as the Act intended.
Lukhaimane says that, in the 12 months to the end of March this year, her office has seen a 30-percent increase in the number of new complaints. Although her office gets to know about only what has gone wrong, not about the many instances where funds and administrators are doing their jobs properly, this jump in the number of complaints is cause for concern.
It is apparent that funds and administrators are not doing their jobs properly when problems such as unpaid benefits, the inability to obtain a written response to an enquiry and the provision of inaccurate information are quickly resolved the minute a member complains to her office, she says.
Lukhaimane says there would be better outcomes for members if funds and administrators redirected their focus to why retirement funds were set up in the first place – to provide benefits to members and their dependants.
The people who typically complain to her office cannot afford to phone a call centre 10 times and be put on hold each time.
Although her office has the authority to require a member to complain to his or her fund or administrator before coming to the adjudicator, she says this is not practical, because, in too many cases, members do not obtain a response.
She says the issues of concern for her office include:
* The propensity of administrators, particularly those of umbrella retirement funds, simply to seek to liquidate a fund where employers are in arrears in paying contributions, without following a process to recover the outstanding contributions. Lukhaimane says trustees have an obligation to attempt to obtain arrear contributions.
* Trustees’ failure to investigate the extent to which each dependant was financially dependent on the deceased member; it is not sufficient merely to identify a beneficiary as a dependant.
* Trustees’ failure to ascertain whether or not a guardian is capable of managing a benefit on behalf of a minor beneficiary, before opting to transfer the money to a beneficiary fund. Lukhaimane says trustees must not regard beneficiary funds as the automatic choice for managing benefits left to a minor.
* Where section 14 transfers take place between funds that cater to members in the same industrial sector, trustees of the fund that must make the transfer are requiring members to prove that the benefit structure of the new fund meets their approval before they make the transfer. Lukhaimane says trustees have no business at all to sign off on the fund to which the member transfers his or her benefit; that is the responsibility of the deputy registrar of pension funds.
* Trustees’ failure to interact with her office to explain how they have interpreted the fund’s rules or made governance decisions. Lukhaimane says her office “takes offence” when funds expect their administrators to represent them in these matters. It is the duty of the trustees to ensure that the fund is being administered properly.