It’s a record for the ombud and a blight on the retirement fund sector: 11399 new complaints received, 10289 resolved, with 88% resolved in favour of the complainant.
According to its annual report released last week, the office of the Pension Funds Adjudicator (PFA) finalised 10289 complaints in the 2018/19 financial year - a surge of almost 17% on the previous year.
Finance Minister Tito Mboweni, in the foreword to the report, says pension funds and administrators must fall in line with the rules and adhere to good governance.
“From the complaints disposed of by the PFA, it is clear that market conduct remains a burning issue as funds and administrators continue to grapple with such issues as non-payment of contributions, late payment, and non-payment of benefits,” Mboweni says.
Financial Sector Conduct Authority (FSCA) commissioner Abel Sithole calls this unprecedented increase in complaints a concern, which requires their “undivided attention”.
“There has been an increased engagement with funds, fund administrators and the regulator to find ways of collaborating to address existing challenges, sometimes in the form of early warnings, while, in some instances, the PFA reports on trends that must be monitored.
“Some of these challenges have been persistently prevalent in the past few years; namely, non-compliance with section 13A of the Pension Funds Act on payment of contributions and section 37C on death benefit lump-sum payments, delays in the payments of benefits to beneficiaries, lack of adequate documentation and records management and poor quality/delayed responses by funds to the PFA.
“All these challenges, especially in the current economic conditions, have a direct impact on pension fund members’ welfare, and at times, right to human dignity.”
Brazen abuse
It’s an untenable situation, but the big administrators do as they please, says the adjudicator, Muvhango Lukhaimane, who views the sector as deliberately seeking to circumvent the law.
“These numbers show you the level of non-compliance in the industry,” she says.
Most of the complaints have to do with non-compliance with section 13A of the Act, which requires that employers pay contributions by the seventh of the month, that they provide a fund with member schedules in terms of contribution payments, and that interest is paid on late contributions - and delays in payment of benefits.
“Pension funds and administrators don’t comply with the most basic requirements,” she says. “Members often don’t even know which fund they belong to - they just see the contributions going off their payslips. When we make enquiries on behalf of complainants, the information we get is completely different.”
Along with the failure to provide benefit statements to members, the report notes “levels of non-compliance in these large funds put to question the policy considerations to consolidate funds, as it is apparent that the more removed a fund and its administrators are from the ordinary member and employer, the less compliance there is to basic regulatory requirements”.
Lukhaimane says employers are failing to pay contributions deducted from members’ salaries to their retirement funds. Some go so far as splitting contributions to make it seem as if they are making contributions towards a pension fund. “For example, you see R500 has been taken off a worker’s salary for pension, but that R500 is split, with half reflecting as their own contribution and the other half appearing to come from the employer.”
The worst offenders are the biggest schemes and municipalities: labelled in the report as “serial offenders”.
Lukhaimane says commercial umbrella funds, which house a number of employers within a single scheme, often don’t enforce their own membership rules and need to monitor more closely employers reporting on when employees join the fund. And municipalities are denounced for taking money earmarked for personnel benefits and allocating it towards other costs.
These are regulatory and compliance matters for the FSCA. The report notes that, for an industry that prides itself as world-class, with relative maturity, “this is a grave indictment on our commitment to act in the best interest of members and acting in the spirit of Treating Customers Fairly”.
It also cited a number of municipalities in the Free State and North West as being unable to pay contributions to funds, putting members’ benefits at risk for long periods. The adjudicator has been granted attachment orders to service such debts.
Lukhaimane says while it’s criminal not to pay over contributions, individuals aren’t being held to account.
“I have yet to see anybody being taken to task. The funds will just write out computer-generated letters. They don’t follow processes, so you don’t know who to hold to account.”
She says the industry only changes because it’s forced to. “They don’t back off because it’s the right thing to do - they do so because new laws come into play.”