Anbeeco Pension Fund is to be investigated for allegedly contravening the Pension Funds Act.
Check that your retirement fund is making investments in such a way that you can be paid out the benefits due to you should you resign, retire or be retrenched.
The danger of pension funds investing in inflexible investment products has been highlighted by the plight of members of the Anbeeco Pension Fund, which does not have money to pay its members their benefits.
The company Anbeeco distributed imported watches.
The Financial Services Board (FSB) is investigating the Anbeeco Pension Fund and its trustees for possible contraventions of the Pension Funds Act, and the matter has been referred to South African Revenue Service for possible tax transgressions.
John Murphy, the Pension Funds Adjudicator, recently ordered the Anbeeco Pension Fund to pay one of its members, Jannie van der Bergh, his full early retirement benefit, plus interest on the outstanding money.
Van der Bergh received only about R140 000 of his R180 000 lump-sum pay-out and has not seen a cent of his R3 700 monthly pension.
But the fund is unable to pay any of its pensioners because all its assets are invested in an offshore policy that only matures in 2004. The fund invested R3 million in an offshore policy in July 1999. Van der Bergh's complaint is one of 15 the Pension Funds Adjudicator has received about the Anbeeco Pension Fund.
Murphy says benefits promised to members under the rules of the fund are binding on the fund. The fund's financial circumstances do not alter this liability, he says.
Murphy stresses that the Pension Funds Act requires the fund's board of management to take all reasonable steps to ensure that the members' interests are protected at all times.
There is no evidence before me justifying the fund placing all its assets in a single investment policy that only matures in 2004, thereby precluding the fund from discharging its ongoing liabilities in terms of the rules of the fund, he says.
Naleen Jeram, of the Pension Funds Adjudicator's office, says the fund's board and the individual trustees may be in breach of their duties. In the event of the members not receiving their benefits, they may have a claim - in terms of the Financial Institutions (Protection of Funds) Act - against the trustees, who may be personally liable and can be prosecuted.
Jeram says the Anbeeco case highlights the importance of pension fund members knowing how most of their fund's assets are invested, whether they are made in terms of the law, and in the interests of the fund. If this is not the case, members should take up the issue with their trustees or take legal action.
Dube Tshidi, the deputy executive officer of the FSB and the assistant Registrar of Pension Funds, confirmed that the Anbeeco Pension Fund and its trustees would be investigated. He says he will look into whether the fund and the trustees made investments in line with Regulation 28 of the Pension Funds Act. Regulation 28 sets limits on retirement fund investments, preventing them from following the risky strategy of investing too much money in a single asset.
Chris Bösenberg, an independent consultant and expert on retirement funds who was appointed by the Anbeeco Pension Fund to find a buyer for its offshore investment, says the fund invested in an insurance policy to circumvent the requirements of Regulation 28. The regulation prohibits a fund from investing more than 15 percent of its assets offshore, but funds can invest up to 100 percent of their assets offshore if they do so through an insurance policy and there is a guarantee. The authorities are aware of this loophole and Regulation 28 is under review.
Bösenberg says structured products, such as the one in which the Anbeeco Pension Fund invested, are increasingly being marketed in South Africa. At first glance, these products look like a very good investment, with capital guarantees and overseas exposure, but there are significant weaknesses for long-term investments. (See The dangers of structured products)
The Anbeeco fund was advised to invest in the offshore product by its consultants, NMG-Levy Consultants and Actuaries, who earned a consulting fee as well as a three-percent commission on the investment of the assets over the five years.
Andrew Sykes, the chief executive of NMG-Levy Consultants and Actuaries, says it was not a conflict of interest for his company to advise the fund on its investments and to earn a fee from the investments. Sykes says this is not an unusual practice. However, the FSB's Tshidi says this practice does constitute a conflict of interest. It is a major problem and the FSB will be addressing the issue.
Sykes says that at the time the Anbeeco fund made the investment, the investment represented about 66 percent of the fund's total assets. This, Sykes says, is not considered an excessive portion to hold in an equity-linked investment.
Also, five years is not an unusually long time horizon for a pension fund's investments.
At the time, the Anbeeco company was a going concern and there were no indications from the trustees that the company was in difficulty.
Two years later, Anbeeco was liquidated and the liquid assets in the fund were used to pay retrenchment benefits. The fund itself took a decision to be liquidated in February this year.
At the time the investment was made the fund had only two trustees and both were directors of Anbeeco. This is in contravention of the Pension Funds Act, which requires that a fund must have at least four trustees and that at least half the trustees must be elected by the members to protect the interests of fund members.
Health Warning
Check that your retirement fund follows these guidelines:
- Fund members should elect at least half the trustees. This is to ensure that members' interests, not just the employer's interests, are properly looked after;
- The consultant advising the fund should not have any links or receive commission from the company managing the fund's assets. Otherwise, the consultant may have an incentive to steer the fund into certain investments; and
- The fund's assets should be invested in line with the prudency regulations, which limit how much a fund can invest in specific assets.