The best way that you, as an individual pensioner or a member of a retirement fund, can protect your financial interests is to educate yourself about your rights. This was the advice that Jonathan Mort, a director of employee benefits at law firm Edward Nathan & Friedland, gave at the recent Personal Finance/Old Mutual Actuaries & Consultants seminar on retirement fund governance in Johannesburg.
As a member of a retirement fund or as an individual pensioner, there are a range of rights you can exercise to protect your retirement savings. But these rights are only effective if you know what they are and how to use them, Jonathan Mort says.
"It is infinitely better for members and pensioners to be well-educated as to their rights so that they themselves can look after their interests and ensure that their rights are properly respected. It is a universal truth that no one looks after one's own interests as well as oneself," Mort says.
He says the "bitter rumblings" among retirement fund members, and pensioners in particular, are often founded more on "a vague and undefined sense that something is wrong but which they cannot pinpoint".
Pensioners' or members' rage could be lanced like a boil if they correctly understood their rights, he says.
Mort says your rights as a retirement fund member or individual pensioner derive from four sources: the Constitution; legislation; common law; and the rules of the fund.
Mort adds that the legislation surrounding retirement funds is developing rapidly and there are still many unresolved issues.
Looking out for you
There are also various bodies to assist you in ensuring that your rights are protected. These bodies are:
- The Pension Funds Adjudicator.
- The Appeal Board of the Financial Services Board (FSB). The main purpose of this little-known board is to hear appeals against decisions taken by the Registrar of Pension Funds in relation to your fund.
- The High Court.
Mort says it is important to know the different ways in which these sources of law and bodies protect your rights.
The Constitution
Mort says the most important aspect of the Constitution for retirement fund members and pensioners is the Bill of Rights, which "overrides all other laws and binds every person subject to our law".
The most important part of the Bill of Rights in relation to a retirement fund is that no one may be unfairly discriminated against based on, among other things, gender, age, race, marital status or disability.
The Bill of Rights has resulted in numerous questions about discrimination being raised by way of complaints to the Pension Funds Adjudicator. The issues include:
- Cross-subsidisation between age groups in defined benefit funds, where younger members subsidise older members; and
- Single members receiving smaller pensions than married members when a company outsources its retirement fund to a life assurance company.
Legislation
The legislation that protects your rights as the member of a retirement fund or an individual pensioner includes: the Pension Funds Act; the Financial Institutions (Protection of Funds) Act; the Corruption Act; the Financial Services Board Act; the Promotion of Administrative Justice Act; and the Promotion of Access to Information Act.
The Pension Funds Act is the most important of these laws. Among other things, it entitles you to:
- The right to elect trustees, unless the fund is a retirement annuity or an umbrella fund that is exempt from having elected trustees;
- The right to expect that employer contributions are made timeously, and for action to be taken if they are not paid;
- The right that the fund keeps correct data to ensure, among other things, a proper record of contributions, values and benefits;
- The right that benefits and withdrawals are properly calculated;
- The right to information about the fund, including its rules, financial statements and any statutory valuation of the fund; and
- The right to expect your trustees to perform properly in terms of the Act, to protect your interests by acting with due care, diligence, good faith, to avoid conflicts of interest, and to act impartially.
The Financial Institutions (Protection of Funds) Act makes it a criminal offence for the trustees, administrators or investment managers of retirement funds to breach their fiduciary responsibilities in managing your fund. This obliges them to act with due care and in your best interests.
Mort says more attention should be given to the perks and gifts given to administrators and trustees in an attempt to influence the work delegated to advisers and service providers.
The Corruption Act, he says, states that anyone who receives or gives or attempts to obtain any benefit which is not legally due, with the intention of committing or omitting any act, may be found guilty of an offence.
Common law
Apart from the Pension Funds Act, Mort says the main source of your rights as a member of a pension fund are found in common law.
He says these rights are derived primarily from two sources:
- The fiduciary obligations of the trustees, administrators, actuaries, investment managers, lawyers and any other service provider of your fund; and
- Administrative law.
The fiduciary obligations of the various people involved in managing a fund give you far more rights than most members and pensioners are aware. In fact, the duty of care is higher than what you exercise in looking after your own affairs. The people managing your fund must be responsible, accountable and act with integrity.
With most retirement funds, the trustees delegate authority to various service providers. Mort says although trustees carry the ultimate responsibility for the fund's management, the service providers are not absolved from their fiduciary obligation to the fund.
Mort says the fiduciary obligations of the various parties managing the fund provide you with certain rights. These rights include:
- That the rules of the fund comply with legislation and common law;
- That you, as a member or pensioner, have the right for investments to be made in keeping with members' risk profiles;
- That you have the right to be told about conflicts of interest and for these conflicts to be properly managed; and
- That you have the right to expect that the trustees will give appropriate mandates to the fund's service providers.
Fund rules
Mort says the final source of your rights is the rules of your fund. Trustees may not act outside the fund's rules.
It is also your right that the rules of your fund are understandable and reasonable, and for them to comply with the law. The rules should also be reviewed regularly.
What is a 'Fiduciary duty'?
The term "fiduciary obligation" or "fiduciary duty" derives from the development of trust law in England. The word "fiduciary" has its origins in Roman-Dutch law, where it refers to a person to whom property is bequeathed, subject to the provision that on the death of that beneficiary - the fiduciary - the property must be left to a third party, known as the fidei commissary. For both the person making the original bequest and the fidei commissary, the fiduciary is the "trusted person" who must ensure that the ultimate beneficiary (the fidei commissary) receives his or her inheritance. Fiduciary duty has come to refer to anyone acting in a position of trust in relation to property belonging to someone else.
Retirement fund trustees therefore have a fiduciary duty to retirement fund members and to the retirement fund.