Retirement umbrella funds should be forced to operate under a regime similar to the one that governs collective investments, because this would ensure that funds are administered better, Steven Nathan, chief executive of 10X Investments, says.
10X Investments is a new-generation retirement fund administrator providing low-cost, index-tracking asset management.
Collective investment schemes include unit trust funds, exchange traded funds and mortgage participation schemes.
Nathan says the most important characteristic of collective investments that retirement funds can adopt is the unitisation of savings in funds. Unitisation means that you own units in a portfolio, hence the term “unit trusts”. The value of your units is set daily.
Unitisation is why you can receive the value of your investment instantly and can transfer your savings to another collective investment scheme, or withdraw them altogether, within 72 hours of giving notice.
As things stand, if an employer wants to switch from one umbrella retirement fund to another, the transfer takes months, if not years in extreme cases, to complete. Values are often in dispute and are calculated weeks, if not months, after the transfer instruction has been given, Nathan says.
He says a key reason for the delays in transferring retirement savings from one fund to another is that the administration of many funds is not up to date. Annual financial statements and valuations for some umbrella funds are five years out of date.
Another reason for umbrella funds to adopt a structure similar to that of collective investments is that there would not be a need for actuaries to issue valuation certificates, he says.
Nathan says that, in the experience of 10X Investments, most transfers between umbrella funds do not take place within the time frame set by the Financial Services Board (FSB).
Transfers between different retirement funds are governed by Section 14 of the Pension Funds Act. Any transfer must be approved by the FSB in an attempt to ensure that the correct values attributable to transferring members are transferred between funds.
He cites as an example the lengthy delay in the transfer of the property company Improvon, a participating employer in the Aon Umbrella Provident Fund, to the 10X umbrella fund.
Improvon instructed Aon in August 2011 to transfer its employees to the 10X umbrella fund. The documents were received last week. The trustees of the Aon fund must sign off the documents, which must then be submitted to the trustees of the 10X fund to sign off, Nathan says.
“Once this has happened, the transfer must be submitted to the FSB, which has a 30-day turn-around, assuming there are no queries. A query results in new documentation being submitted, with both sets of umbrella fund trustees signing. Once the transfer is approved by the FSB, Aon has two months to transfer the assets to 10X,” Nathan says.
Nathan says his company is a victim of the delays in transferring participating employers from other umbrella funds to 10X’s funds.
The FSB needs to get tough on offenders in the interests of fund members and the retirement fund industry, he says.
“There are many outstanding transfers to our umbrella fund well beyond the six-month period. I find it remarkable that a unit trust company can transfer your investment within 72 hours, but most pension funds are allowed to take up to a year to do this and still most can’t manage within this time frame,” Nathan says.