The fact that some retirement fund administrators continue to hold their licences is an indictment on all the roleplayers who should hold them accountable for the misery that they continue to inflict on some pension fund members, the Pension Funds Adjudicator told a conference this week.
Muvhango Lukhaimane, the adjudicator, said that, because there were no consequences for their actions, some funds, administrators and boards break the law with impunity.
Lukhaimane told the Pension Lawyers Association’s annual conference in Sandton that although her office had cleared the backlog of complaints, this “general malaise” was causing new complaints to her office to increase at a rate of about five percent a year.
Fund members, fund’s boards of trustees and principal officers, fund valuators, accountants and administrators all have a role to play in ensuring that funds are accountable and that, when necessary, issues are reported to the regulator, the Financial Services Board (FSB), for enforcement of the law.
Complaints to the adjudicator’s office continue to be dominated by those concerning withdrawal benefits, retirement benefits, death benefits, surpluses, penalties or causal event charges on retirement annuity policies and delays in the transfer of benefits from one fund to another, she says.
A key failure on the part of funds and their administrators is communication, Lukhaimane said, citing an example of a fund’s failure to inform members about a change in their benefits statements arising from a change in the fund’s administrators.
The Private Sector Security Provident Fund (PSSP) has had problems with employers not paying contributions. It is responsible for more than a third of all the complaints to the adjudicator’s office. The FSB is investigating various aspects of the fund’s business, including its administration, and when the investigation is complete, it will consider whether ot not to take any action against the fund, Rosemary Hunter, the deputy executive officer at the FSB responsible for retirement funds, says.
Lukhaimane says that, after the PSSP fund moved its administration, members received benefit statements with significantly different benefit amounts from those reflected on previous statements without any explanation.
The fund’s administration was moved from NBC Fund Administration Services to Absa Consultants and Actuaries.
The adjudicator says for years industry funds and bargaining council funds have kept marginalised members “”on the fringe” while administration costs “ostensibly to rectify the problems, increase unabated”.
The adjudicator says the PSSP Fund’s administrator is allocating contributions on a system that apparently cannot handle the intermittent contributions made by employers in the sector. “There is a dedicated attorney dealing with the constant stream of complaints, there is a company visiting employers to do a reconciliation of contributions, there is back office and front office, and a call centre, yet members cannot get a simple benefit statement.”
She says this means that people who can ill-afford a phone call or transport costs are made to incur unnecessary costs in pursuit of their benefits.
Lukhaimane says a lack of literacy and financial literacy is no excuse for not giving members information that enables them to actively engage with their benefits, and exercise their rights.
She says if members were informed about their employer’s continual failure to contribute to their fund, they would not be surprised when they learnt that their fund was being terminated or liquidated.
Lukhaimane also criticised funds for using administrators’ employees as liquidators in “a very incestuous” arrangement that leaves members far worse off .
Funds and administrators have a propensity to liquidate funds where contributions have not been paid, rather than take the steps that are supposed to be taken to recoup the outstanding contributions, or test whether the regulator will take enforcement against the employer, she says.
Lukhaimane says some funds postpone the payment of benefits, saying that administrative processes need to be followed, but the Pension Funds Act is clear about when benefits accrue. Making members wait up to six months before their benefits are paid out is irresponsible and unlawful, she says.
The rules of some bargaining council funds state that if a member resigns and is re-employed in the same industry, the fund will not pay a withdrawal benefit.
Lukhaimane says some funds are not paying out benefits when a member has a break in service, because they claim the member will be re-employed in the industry.
The adjudicator also criticised funds and their administrators for failing to keep proper records and then employing tracing agents, at a cost to the fund’s members, to find former members who cannot be found.
“We are busy creating an unclaimed benefits problem that is never going to benefit fund members and beneficiaries,” Lukhaimane said.
She says she remains concerned about the way fund trustees allocate death benefits when a member dies. Not only are there unnecessary delays in allocating the benefits, but trustees are not following the provisions of the Pension Funds Act.
The Act obliges trustees to identify your dependants after your death and to allocate your benefits equitably among those dependants and anyone else you have nominated to receive your benefits.
Lukhaimane says she is concerned about:
* The way trustees treat nominees or beneficiaries. She says the Act is clear about what trustees need to do in cases where a member has dependants and has also named nominees. The board needs to investigate if there are dependants and consider their financial circumstances and maintenance needs, as this will guide it when it considers whether to make an allocation to a nominee. Lukhaimane says boards regularly ignore nomination forms, even where there are sufficient funds to honour the maintenance needs of the dependants and make an allocation to a nominee.
* The way in which boards assess dependency. Lukhaimane says the board must investigate the financial status of each dependant before it determines the reasonable maintenance needs of the beneficiaries. Dependants do not automatically become entitled to a benefit merely because they have a particular relationship with the deceased, such as a spouse, child or mother. The adjudicator says trustees must take great care to take into account the total financial picture of the beneficiary or nominee, to substantiate and verify allegations made by beneficiaries and to consider multiple and extended family arrangements.
The adjudicator criticised funds and administrators that do not operate funds for the purpose for which they were intended and instead “act in favour of a business interest”. For example, funds and administrators:
* Operate funds with unregistered rules;
* Register rules that lock members into funds, holding them to ransom while providing poor service and poor returns;
* Do not grant exemptions to employers and members who want to belong to funds other than the industry one; or
* Request retrospective approval of rules that have a negative impact on the benefit entitlements of members.