The Financial Services Board (FSB) is seeking to apply 14 internationally accepted principles to protect your retirement savings, says Wilma Mokupo, the head of the retirement funds department at the FSB. Mokupo was speaking at a recent retirement fund governance seminar.
Wilma Mokupo says the FSB, as a member of the International Organisation of Pension Regulators & Supervisors, subscribes to 14 of this body's principles and intends to regulate governance in the retirement fund industry in accordance with the principles to give your retirement fund greater protection.
Mokupo says the principles were compiled by the International Organisation of Pension Regulators & Supervisors with the assistance of the Organisation for Economic Co-operation and Development. The 14 principles are:
1. Adequate regulatory framework
An adequate regulatory framework for private pensions should be enforced in a comprehensive, dynamic and flexible way (taking into account the complexity of the schemes). This is needed to ensure the protection of beneficiaries, the soundness of pension funds and the stability of the economy as a whole. This framework should, however, not place an excessive burden on pension markets, institutions or employers.
2. Appropriate regulation of financial markets
Well-functioning capital markets and financial institutions are required in order for the investment of retirement savings to be productive and diversified, and therefore the risk is spread.
Advance-funded retirement schemes, which pay members a pension based on what they have saved, should go hand-in-hand with a strengthening of the financial market infrastructure and regulatory framework.
3. Rights of beneficiaries
Non-discriminatory access should be granted to private (employer/union/ industry sponsored) pension schemes. Regulation should aim to avoid exclusions based on age, salary, gender, period of service, terms of employment, part-time employment and civil status. Regulation should also promote the protection of vested rights and proper entitlement processes, taking account of contributions from employees and employers. The transfer of retirement savings from one fund to another should be encouraged. Mechanisms for the protection of beneficiaries should be encouraged, in cases where membership is not voluntary and you leave your employer and the fund before retirement age.
4. Adequacy of private schemes
Private funds should be properly assessed in terms of adequacy for you, including the risks of you receiving an adequate pension.
5. Regulatory system and separation
Adequate legal, accounting, technical, financial and managerial criteria should apply to pension funds and plans, but without an excessive administrative burden. The pension fund must be legally separated from the sponsor (for example, the employer).
6. Funding
Private schemes should be fully funded and not dependant on one generation of younger members paying for the pensions of the previous generation.
7. Calculation techniques
Appropriate methods of valuing assets and liabilities, including actuarial techniques, must be set up and based on transparent and comparable standards. There should be an increased reliance on modern and effective risk management, while industry-wide risk management standards for pension funds and other institutions involved in the provision of retirement income should be promoted.
8. Supervisory structures
Effective supervision of pension funds must be set up and there should be a focus on legal compliance, financial control, actuarial examination and supervision of managers. Appropriate supervisory bodies, properly staffed and funded, should be established in order to conduct off- and on-site supervision, at least for some categories of funds and in particular when problems are reported.
9. Self-supervision
Self-regulation should be encouraged. The role of independent actuaries, custodian services and internal independent supervisory boards should be promoted within an appropriate regulatory framework.
10. Fair competition
Regulation should promote a level playing field between all the operators. Fair competition should benefit the consumers and allow for the development of adequate private pension markets.
11. Investment
Investments by pension funds should be adequately regulated. This includes the need to balance assets and liabilities properly and the consideration of principles related to diversification.
12. Insurance mechanisms
The need for insolvency insurance and/or other guarantee schemes must be considered to protect fund members.
13. Winding-up
Proper winding-up mechanisms should be put in place where an employer sponsoring a fund goes bankrupt. This should ensure that contributions owed to the fund by the employer are paid in the event of insolvency.
14. Disclosure and education
Appropriate disclosure to and education of members should be encouraged, especially where choice is offered. Beneficiaries should be educated about the pitfalls of misusing retirement benefits, especially lump-sum benefits.