The Fidentia scandal is breathtaking and horrifying in its scope. But what I find most amazing is how, yet again, the retirement savings and benefits of ordinary people have been targeted by people who have little more than self-greed in mind.
Why is it that the retirement savings and benefits of hundreds of thousands of hard-working people are seen as some sort of honey pot that can be simply dipped into by so many people, who live in splendid luxury at the expense of consumers who often barely make the poverty breadline? A few examples:
- Life assurance companies:
We have had the life assurance companies ripping into retirement savings through their retirement annuity (RA) products by:
* Applying excessive charges. Independent actuary Rob Rusconi found the costs of life assurance retirement savings products to be among the highest in the world. The result is that at retirement you receive far less money than you would otherwise have received.
* Applying confiscatory penalties. These penalties are often applied to people, who through no fault of their own, cannot afford to maintain contributions on RA products that were designed to provide maximum commission for product floggers rather than to cater for the needs of consumers.
Finance Minister Trevor Manuel partially put this right when he forced the life industry to pay the R3-billion effective admission of guilt fine. The money is currently being paid out by the life industry.
The rest will hopefully be put right by legislation and regulation that is in the pipeline.
* Blocking the transfer of funds. Life assurance companies are doing everything possible to block the transfer of the funds of disgruntled RA and preservation fund members to other administrators and cheaper options. Recently, the Pension Funds Adjudicator ordered that transfers be permitted, but Personal Finance continues to receive complaints that transfers are being blocked.
- Employers:
Many employers simply do not seem to give a damn for the welfare of their workers, pensioners and their dependants.
Examples include:
* Pension fund surplus distribution. Too often aided and abetted by so-called consultants to retirement funds (this includes actuaries and lawyers), many employers are doing their utmost not to pay up.
The Financial Services Board (FSB) has given warning after warning to funds to submit either nil returns or distribution proposals. One of the reasons for the delays has been that the employers and the fund advisers have acted in the interests of employers instead of the funds they advise and have tried every trick in the book to delay or minimise the surplus distributions.
The latest fiasco has seen the trustees of Sanlam's employee fund going to court to set aside requirements for Sanlam to repay what are seen as past misuses of the surpluses in the fund.
A few years ago, the FSB had to intervene to stop senior Pepkor executives who, with the help of Sanlam, wanted to plunder the surplus in the Pepkor retirement funds.
Who suffers? Pensioners, of course! Pray, not the over-paid executives who are actually the ones who make these decisions.
* Non-payment of contributions. On this page you will find a correction to a recent column. Behind this correction lies the massive non-payment by employers of contributions to the Private Security Sector Provident Fund. This is non-payment of both the employer as well as the employee contributions.
In other words, some of these companies are deducting retirement fund contributions from the salaries and wages of their staff and are not paying the money over to their retirement funds.
What exacerbates this fraud (as fraud it surely is) is that when contributions are not paid, group risk cover against death, disability and funeral costs for employees and their families falls away because the premiums are not being paid.
Security guards are in very high-risk jobs. Their dependants cannot afford not to be covered.
The Private Security Sector Provident Fund is administered by retirement fund administrator NBC.
NBC tells me at any one time, about 700 employers out of 1 500 participating employers in the fund are in default, and R28 million is currently outstanding.
And, the company says, it is almost impossible to force recalcitrant employers to pay up, let alone force them to join the fund (which is compulsory), without incurring legal costs the fund can ill afford.
This is why NBC wanted the Pension Funds Adjudicator to have jurisdiction and come to the aid of the fund members.
NBC says that even when employers are forced by legal action to comply, there is often "malicious compliance". In other words, they will do as little as possible, particularly when it comes to completing forms for benefits to be paid.
Since November, the NBC call centre has received more than 300 000 calls from members about unpaid benefits. And the reason benefit payments are a problem is that employers do not activate benefit claims for their employees.
The fund's trustees would like to see a system in place in which no one can employ a security company that cannot provide proof that it complies with legislation regarding its employees' membership of the fund and that all its commitments to its employees are up to date.
This problem is not restricted to this particular fund. Other industry players tell me it applies to almost every umbrella fund where there are multiple participating employers. It has also applied to employer- sponsored funds in which membership is restricted to the employer's own employees.
- Industry service providers:
Many service providers look to see what profits they can make legally and, sometimes, unlawfully while often putting the interests of fund members last. Examples include:
* Nearly every retirement fund administrator was found to be making secret profits in many different ways from fund members. The secret profits were not limited to the R380 million that Alexander Forbes had to refund retirement funds because it bulked their bank accounts to earn extra interest.
Alexander Forbes has to pay a further R120 million after evidence of more secret profits has been uncovered. The final industry-wide accounting of these secret profits is still being prepared by the FSB. The figure is likely to be substantial.
* The implosion of financial services company Fedsure after it completely mismanaged investor funds. Fedsure's demise, among other things, led to retirement funds in the building industry losing R600 million.
* Service providers, such as Sanlam and Alexander Forbes, played a part in the massive alleged surplus fraud in the Lifecare affair, in which several people, including a number of top company directors, are now facing criminal charges.
* Poor financial advice that is regularly given to consumers, particularly to people going on pension. Service and product providers have allowed squads of semi-skilled financial advisers to go out and sell complex retirement products, such as living annuities, and to give asset-management advice to you. The appalling advice that they have given has all too often left thousands of pensioners facing poverty.
- Trustees:
These are the people who should be playing a big part in halting abuses. But too many are more interested in what they can get out, or have such massive conflicts of interest that they do too little or nothing to stop abuses. Examples include:
* The many trustees who are employees or past employees of industry-sponsored retirement vehicles such as umbrella, RA and preservation funds. The conflict of interest is obvious. These trustees still have to explain why they did not object to the unfair products and the mis-selling of high-cost life assurance RAs, with their massive confiscatory penalties and the perversely structured commission structures for product floggers.
* The trustees of the Fidentia-owned Living Hands umbrella trust which is supposed to provide pensions to thousands of widows and orphans but, instead, has been so badly mismanaged that about half of the money simply seems to be missing and the remaining amount has been illegally invested.
Most of the trustees are, or were, directors of the Living Hands administration company and/or of one or more of the other Fidentia group of companies.
* Trustees who place themselves in a conflict-of-interest situation. Did the trustees who accepted luxury trips to a World Cup soccer tournament a few years ago stop to ask themselves why Sanlam was prepared to pay for such largess?
Tough action needed
As I have said before, this plunder of retirement fund savings and benefits has to stop. Manuel and the National Treasury have stepped in.
The FSB is doing its utmost, often with restricted capacity. The government has set up complaints bodies, including the offices of the Pension Funds Adjudicator and the Ombud for Financial Services Providers; it has introduced tougher legislation, with more on the way.
But none of this seems to stop the likes of pretentiously self-styled J Arthur W Brown of Fidentia.
The only answer is a few tough jail sentences. Hopefully this will include some for those implicated in the Lifecare scam as well as those in the Fidentia affair. I must ask why a company like Alexander Forbes has not brought criminal charges against those who were responsible for the unlawful secret profits.
There is increasing talk in government circles about setting up a single national retirement fund or a number of industry funds to replace the current system. If the industry cannot start acting responsibly in the best interests of all to stop this plunder, then this seems to be the only answer.
CORRECTION
I must correct a serious mistake I made in a recent column.
I accused retirement fund administrator NBC of attempting to block a complaint to Pension Funds Adjudicator Vuyani Ngalwana about the non-payment of contributions to the Private Security Sector Provident Fund, on the grounds that the adjudicator did not have the authority to hear the complaint.
Exactly the opposite is true.
NBC has argued that the adjudicator does have the power to hear complaints about the fund, which, although a statutory fund for an industry sector, namely private security guards, is nevertheless a registered retirement fund in terms of the Pension Funds Act.
Previously, the adjudicator had ruled that he did not ave the authority to take action. This was reversed as a result of submissions made by NBC.
I apologise to NBC.