Member-elected trustees of retirement funds sometimes come up against powerful opposition when attempting to serve the interests of fund members. Unless they understand governance requirements, they don't stand a chance, says Herbert Mkhize, the executive director of Nedlac.
Member-elected trustees of retirement funds often find themselves in the position of a four-year-old squaring up to a heavyweight boxer when they go up against employers and service providers, says Herbert Mkhize, the executive director of Nedlac (the National Economic Development and Labour Council), an institution for dialogue between government and organised business, labour and the community.
Mkhize, who was speaking at the recent Personal Finance/Old Mutual Actuaries & Consultants seminar on retirement fund governance, says elected trustees need to be given more muscle through better training and by ensuring that other parties operate according to a values charter.
He is also concerned that increasingly retirement funds have focused on issues around service providers, and members have been forgotten - "left in limbo".
Mkhize says that retirement fund trustees have an inadequate understanding of governance requirements, and this leads to poor decision making, huge administration problems, an over-reliance on advisers, and non-compliance with laws and regulations, all of which work against the interests of fund members.
He says this is often compounded by an attitude from employers that leaves much to be desired. This includes a hands-off attitude and a refusal to give trustees time to carry out their retirement fund duties, which can also result in trustees having insufficient knowledge and experience.
Mkhize, who, as Nedlac's executive director, will host a national retirement fund seminar later this year, says a number of key interventions must be made to protect the interests of retirement fund members.
These should address the need for:
- A change in the attitude of employers who regard retirement funds as non-essential to their business. Retirement funds should be recognised as performing a specialised function of the business.
- Decent and appropriately accredited independent training for all players in the retirement fund industry.
- A clarification of roles and responsibilities. Mkhize says that many trustees out-source duties to consultants, administrators and other service providers, but there is often no idea of who is ultimately responsible.
Consultants often make simple situations more complex to charge higher fees.
Mkhize offered the following solutions to some of the problems facing the retirement fund industry:
- The development of a credible values charter to govern practitioners in the industry.
- The need for a clear distinction between those who undertake tasks from those who bear the ultimate responsibility.
- A shift from a lack of trustee activism to trustee involvement in every facet of the fund's affairs.
He says all stakeholders in the industry need to address the issues in more depth, which should include a conference to adopt a values charter for the industry.
A Common interest
Mkhize says it is in the interests of all the major parties, including members, to support a retirement system and ensure that it works properly. Retirement fund governance is an important element of this.
He says the government has an interest in easing the financial burden on the state to provide for the retirement of individuals, and to ensure that retirement funds are well managed and deliver on the promises they make.
Employers have an interest because retirement funds enable them to attract and retain skills by demonstrating to employees that they have a "moral obligation" to support their retired employees beyond their years of productivity, while employees themselves can focus on running the business.
Trade unions have an interest to extend their political and economic influence, by demanding additional rights for their members who belong to pension or provident funds.
Trade unions will push for increased representation of members or workers on the boards of trustees, and demand that their members be given the choice to join an industry-based pension or provident fund.
Mkhize says that it is important to look at retirement fund governance in a holistic manner, dealing with all components of the system, right through to seeing that retirement savings are invested in a way that benefits the whole community.