The 1 455 pensioners of one of the oldest and biggest retirement funds in the country, the Joint Municipal Pension Fund, face a one-third cut in their pensions after the fund's trustees allowed a Johannesburg stockbroking company, W J Morgan, to play the agricultural futures market, resulting in a R1.4 billion loss to the fund's assets.
This is the single-biggest pension disaster since the virtual collapse of financial services group Fedsure. The Fedsure debacle resulted in retirement funds in the building industry suffering a loss of R600 million because of the inappropriate investment strategies followed by Fedsure.
This week, the Financial Services Board (FSB) won a court battle to have the trustees of the Joint Municipal Pension Fund fired and for the fund to be put under the management of three professional trustees. The fund currently has 950 members.
Conflict of interest
The professional trustees are to investigate suing various parties, including some former trustees. The FSB has accused some of the former trustees of having serious conflicts of interest because they were also directors of a company that administered the fund.
As a result of the losses in the futures market, the fund lost the surplus it had three years ago. Instead, it now has a shortfall of assets to liabilities (what must be paid in pensions) of R787.3 million - a funding level of 66.4 percent. In other words, it is one-third short of the assets it requires to meet pension payments.
Dube Tshidi, the registrar of pension funds at the FSB, says the fund's pensioners stand to lose up to one-third of their pensions, but the FSB intends doing everything it can to recover the money.
He warns, however, that a long, hard battle still lies ahead.
The Transvaal High Court this week also approved the election by the fired trustees of three additional trustees "to ensure a measure of continuity in the administration of the fund".
The professional trustees appointed by Tshidi are: Jan Mahlangu, the retirement funds co-ordinator of the Congress of South African Trade Unions; Nikki Howard, a Johannesburg attorney who specialises in pension law; and Karin Biggs, the chairperson of the pension and provident fund interest group of the South African Institute of Chartered Accountants.
This week's court order followed a failed attempt by Tshidi during September last year to have the business of the fund placed under curatorship. The registrar has been granted leave to appeal in that matter, and the appeal is likely to be heard later this year.
An FSB inspection in October last year, on which this week's court application was based, concluded that the former trustees of the fund had neglected their fiduciary duties by failing to exercise suitable control over the fund's investments in agricultural derivatives.
Among other things, the trustees virtually ignored early "warning lights" and admonishments by the registrar's office, which, if heeded, could have averted much of the loss.
Brokers blamed
Tshidi says the former trustees persistently denied any neglect on their side and imputed all blame on the fund's former brokers, W J Morgan.
The new board of trustees has been tasked by the High Court to:
- Investigate all possible avenues of recovering losses suffered by the fund;
- Refer criminal irregularities to the prosecuting authorities;
- Give priority to the submission to the registrar of a scheme, setting out proposals to restore the financial soundness of the fund;
- Effectively communicate with the beneficiaries of the fund; and
- Consider and implement steps to improve the governance of the fund.
The trustees have been ordered to report back to the High Court within six months. They will report on hardships of fund members, the recovery of any losses and when the fund will be able to revert to normal governance in terms of its rules.