Good trustees are those who ask questions when they don`t understand, says
Kevin Davies, chairman of the Institute of Chartered Accountants` Pension
and Provident Fund group.
``Those who stand up and say they don`t understand are doing a better job
than those who sit and keep quiet,`` said Davies, who was addressing the
Institute of Retirement Funds conference on the duties of trustees with
respect to retirement funds` financial statements.
He urged retirement fund trustees not to abrogate their responsibilities to
auditors or to investment managers. Davies called for greater disclosure to
retirement fund members.
``Trustees, with regard to disclosure, are generally doing nothing,`` he
said. He asked how many trustees had put the question of the capital gains
tax, which kicks in next April, on the agenda and were discussing the
effect of the tax on defined contribution funds. ``My guess is,
very few.``
In the same way, he said, there was little discussion among trustees about
the effects of the tax on retirement fund income.
``Trustees should re-think the financial statements to provide better
disclosure. They should be telling members what happened in the fund and
how it was dealt with.``
Communication had to be understood to be effective, Davies said. ``There is
a need to know what members and future members can understand. What
language should be used? Should pictures be used? Communicating with
members is not a once-a-year task. It is continuous and constantly
changing.``
Communication was a better tool than insurance to protect trustees against
litigation, Davies said. Though South Africa did not have a history of
litigation like the United States or the United Kingdom, the situation was
changing and it would not be long before pension lawyers chased trustees on
behalf of disgruntled fund members.
The financial statements reflected the trustees` management of the fund and
could be a useful tool in communicating with members if properly prepared.
``But first, trustees themselves must understand the mechanisms of financial
statements.`` Davies said.