The trustees of your retirement fund are ultimately responsible for the governance of your fund, but this does not mean that service providers are not accountable for their failure to deliver good service or act ethically.
Service providers to retirement funds must take far more responsibility when pensioners' money is lost instead of shifting the blame to fund trustees, Jan Mahlangu, the co-ordinator of retirement funds for the Congress of South Africa Trade Unions, says.
At the recent Personal Finance/Old Mutual Actuaries & Consultants seminar on retirement fund governance, Mahlangu said that as far as he knew not a single retirement fund service provider had been fired for corruption or inefficiency.
Instead, service providers always attempted to push the blame on to the trustees of retirement funds when things went wrong with the management of the fund.
He chastised fund trustees for not coming out publicly and criticising service providers that have not done their jobs properly.
"Trustees must speak out when service providers do things that are incorrect and immoral."
Trustees also need to be more aware of conflicts of interest and should not appoint one service provider to provide all services to a fund. There should not be a "one-stop-shop approach".
Mahlangu says service providers also need to blow the whistle when they observe unethical conduct. He says fund administrators are often the first to see problems, but they do nothing about it.
He says that whenever any problems are unearthed they must be properly investigated in the interests of fund members.
Mahlangu says he is concerned about the way in which some retirement fund service providers are advising employers to close down privately sponsored funds and to merge with umbrella funds. The result is that members lose their right to elect trustees and have very little say in the umbrella fund.
Mahlangu says the service providers who do this are not acting in the best interests of fund members, but are merely finding ways of circumventing the law.
He is also concerned about the move towards giving retirement fund members greater investment choice, because he says this is unlikely to be in members' interests.
Mahlangu says your trustees must take responsibility for ensuring that they have good service providers.
He points out that service providers are paid high fees and it is in the interests of members that the services they provide are "up-to-scratch".
Mahlangu says a major retirement fund conference to be held in September, to discuss the redrafting of the Pension Funds Act, should look at all aspects of the retirement fund industry, including taxation, the establishment of industry sector retirement funds, the future of provident funds, and one Act, one registrar and one adjudicator to cover all retirement savings schemes. This is particularly important for the Government Employees Pension Fund, which is specifically excluded by the Pension Funds Act.
The conference should also deal with minimum pensions as well as pensions for domestic workers, farm workers and casual employees.
Mahlangu says attention must be given to ensuring that unclaimed benefits are paid to the rightful beneficiaries and that pension fund surpluses are distributed fairly.
Your trustees hold your retirement savings in their hands
Your retirement savings are mainly protected by the trustees of your fund, and by their ability to put sufficient controls in place to ensure that your fund is properly and efficiently administered, Bertie van Wyk, the acting chief executive of Old Mutual Employee Benefits, says.
Van Wyk, who addressed the Personal Finance/Old Mutual Actuaries & Consultants seminar on retirement fund governance, says that in spite of some problems, South African retirement fund members are lucky to have the benefit of some of the best fund regulatory systems in the world.
But, at a fund management level, the trustees have the ultimate responsibility to monitor and review governance mechanisms and structures on the funds they manage, to protect your retirement savings.
Van Wyk says, however, that some funds are still not complying with regulations, particularly those pertaining to the actions of trustees.
He says according to a recent Financial Services Board report problems identified include:
- Directors of administration companies are still serving as trustees of funds and this is resulting in conflicts of interest.
- Employer-appointed trustees are still appointing investment managers without involving member-elected trustees.
- Some fund trustees still appoint unregistered administrators to administer their funds and investments. This places fund members at the risk of losing their retirement savings.
- Some employers do not pay contributions to the fund as prescribed by the rules of the fund and the Pension Funds Act. In terms of the Act, trustees are required to take legal action against defaulting employers and communicate with the members about the matter.
Van Wyk says your fund trustees should urgently address issues surrounding fund management and set in process a review system to provide you, the fund member, with the assurance that:
- Adequate controls exist to safeguard the funds' assets;
- Reported pension information is reliable;
- The fund has complied with legislation, internal control policies and procedures, and has filed statutory documents; and
- The fund is adhering to a sound investment strategy.