Aon South Africa, a subsidiary of United Kingdom-based Aon, the world’s biggest retirement fund administration company, is to close its local retirement fund administration business and dispose of its actuarial consulting business.
Seven umbrella funds and 25 stand-alone occupational retirement funds and about 25 000 members will be affected.
However, the company will still have a presence in the retirement fund sector, providing consulting, risk benefit broking and product development.
Umbrella Pension and Provident Fund Solutions will be retained, and the trustees of this umbrella fund will have to appoint a third-party administrator.
Aon has undertaken not to do what Glenrand MIB did in 2010, when it liquidated its administration company, Glenrand Benefit Services, to escape its liabilities to 80 000 members of 20 retirement funds, the records of which had been left in a mess.
Rosemary Hunter, deputy executive in charge of retirement funds at the Financial Services Board (FSB), says the FSB is aware of the changes at Aon and will be monitoring the process.
Jaco Kok, chief executive of Aon SA, says the decision to close the administration business was made against a backdrop of legacy issues, which the company is committed to resolving.
“Our commitment to putting right legacy issues relating to the administration of our clients remains undimmed. We will honour our commitments in this regard.”
Aon has had ongoing problems with its retirement fund administration arm, which has resulted in the company losing about R100 million over the past three years. Most of the losses were a result of legacy issues.
Kok says that Aon will resolve any problems relating to fund administration before it starts an orderly process of handing over the administration of the umbrella and employer-sponsored occupational funds that it administers.
The hand-over process, which will involve discussions with the funds’ trustees, is expected to be completed by the end of next year.
In December 2011, the FSB suspended Aon from accepting any new retirement fund business. The suspension, which was lifted in July 2012, was imposed because of numerous problems with fund administration.
Aon’s woes arose in part when it took over the administration of four problem-riddled umbrella funds that had been administered and sponsored by Dynam-ique Consultants & Actuaries.
The four funds are still the subject of major disputes because of the costs incurred by members when the records of the funds were rebuilt.
The trustees of the four funds deducted about R20 million (2.5 percent) from the savings of 11 000 members employed by 200 companies to reconstruct the funds’ records, which had been left in a mess by Dynam-ique Consultants & Actuaries.
Since it took over the administration of the four funds in 2008, Aon has been contributing significant financial and staff resources to put the funds’ records in order, including a full rebuild of fund data, and audits and valuations.
The suspension on Aon taking on new business was lifted once the company had addressed regulatory concerns satisfactorily; independent auditors had confirmed the appropriateness of Aon’s new administration systems; and the FSB was satisfied that any new business would not be affected by the problems experienced by the funds that Aon administered already.
Since the suspension on new business was lifted in 2012, the FSB has been keeping a beady eye on Aon.
But there has been ongoing legal action, including complaints to the Pension Funds Adjudicator (PFA), challenging the right of the trustees to have deducted the money.
The PFA, Muvhango Lukhaimane, has issued two determinations on the issue. The first determination, in which she ordered the four retirement funds to repay the money, was set aside by the High Court. A second determination, in which Lukhaimane ordered the former trustees to repay the money, is being challenged.
Attempts by the former trustees to get the retirement funds to pay their legal costs have so far been unsuccessful.
In one of her determinations, Lukhaimane severely criticised Aon, accusing the company of not conducting a proper due diligence on the Dynam-ique funds before taking them over.
Various parties, including Aon, are being sued by the current trustees to recover the members’ money.
AON IN INDEMNITY COVER COMPLAINT
Aon South Africa has been hit by another complaint – this time to the Ombudsman for Short-term Insurance.
The complaint has been lodged by Eric Jowell of Johannesburg-based financial planning company Saint Andrews Brokers, on behalf of a number of employees who participate in the four troubled Dynam-ique umbrella retirement funds that Aon took over in 2008. Saint Andrews was also a participating employer in the funds.
Jowell has been in the forefront of legal battles to have the R20 million that the funds’ former trustees deducted from members’ savings repaid to them.
Jowell says the complaint is based on the fact that “the trustees of the funds did not have full professional indemnity (PI) cover in place, as Aon let the PI cover lapse, and it was then reinstated on less favourable terms than the original policy”.
Jowell has asked the short-term insurance ombudsman to order Aon to pay the four funds the R20 million that was deducted from members’ savings to pay for sorting out administration problems at the funds, because proper indemnity cover was not in place.
Jowell argues that if proper indemnity cover had been in place, the R20 million could have been recovered from the insurer that provided the PI cover.