There is a real danger that fewer and fewer people will be prepared to become retirement fund trustees because of concerns about personal liability, Khutso Mampeule, the chief executive of Old Mutual Employee Benefits, said when opening the recent Personal Finance/Old Mutual Actuaries & Consultants seminar on retirement fund governance in Johannesburg.
The answer to individual's fear of serving as a trustee of a retirement fund could be in sound trustee training, Khutso Mampeule says.
"I am convinced that the implementation of proper trustee training will make it easier for trustees to take up this responsibility. By improving the governance of the fund, we will reduce the risk associated with its management, thereby increasing the chances of attracting suitable trustees."
Mampeule says sound governance of retirement funds hinges on the skills and knowledge of the members of the boards of trustees. And trustee education lies at the very heart of good retirement fund governance.
"It is critical that funds ensure that an effective trustee education policy is developed," he says.
Mampeule says the concept of a pension is inherently simple. It is the means by which we secure an income stream to provide financial security in later life. "With the best intentions, this simple concept has been made extremely complicated."
He says the challenge is to come up with a mechanism through which the attainment of the goals of the retirement industry is never compromised and members' interests are safeguarded at all times, without complicating the process.
"The solution is anchored on proper governance of retirement funds and the retirement industry as a whole," he says.
Corporate governance
Mampeule says retirement fund governance is a subset of corporate governance.
"The same principles that apply to corporate governance will generally apply to the management of the assets of retirement funds," he says.
Sound governance requires effective principles and processes that encourage sound decision making, proper and timely execution, and regular review and assessment. With all these in place, there would be a positive impact on administrative efficiency and on the investment strategies of the fund.
He says the benefits of good retirement fund governance include:
- In addition to reducing potential legal liability for decisions made about the fund, effective retirement fund governance can decrease funding costs because of improved investment performance and decrease administration costs because of greater efficiencies and better management;
- A competent board of trustees, through their individual abilities, will be capable of taking decisions that can be accounted for to members, beneficiaries and other stakeholders;
- There will be satisfactory risk management - internal policies and control are properly effected so as to reduce business risk and enhance the value of the assets of the funds; and
- Boards of trustees will have a code of conduct which will ensure that any professional and personal conflicts, which may be detrimental to the fund, are avoided.