Trustees of retirement funds will have to do a much better job of protecting members’ savings – and they will have to help you to choose an appropriate pension product at retirement.
This is according to National Treasury’s latest discussion document on retirement reform, which was released with the Budget last month.
According to the document, the role of principal officers, who are in charge of administering funds, will be reviewed to “ensure that the highest standards of accountability, professionalism, compliance and independence are maintained at all times”.
A set of guidelines for trustees, called “PF130 Good Governance of Retirement Funds”, which was published by the Financial Services Board (FSB) in 2007, is to be upgraded and made a compulsory code of conduct.
Finance Minister Pravin Gordhan will hold a trustees’ conference later this year to discuss ways to improve the governance of retirement funds.
The move to tighten up on governance follows a number of serious lapses in the retirement fund industry, where trustees and principal officers have allowed conflicts of interest that have endangered or undermined the retirement savings of members.
The most recent lapse exposed by Personal Finance was where retirement fund consultant Riscura, which is paid by retirement funds, recommends asset managers to funds, and then it collects fees from many of the asset managers for various, debatable consulting services.
National Treasury is also proposing that:
* The FSB applies “fit and proper” requirements to fund trustees and monitors the appointment of trustees.
* The FSB’s web-based Trustee Toolkit becomes a compulsory, basic, independent and free training kit for trustees. Currently, trustees need to undergo some training after they have been elected. However, the Financial Services Laws General Amendment Bill, which is currently before Parliament, requires trustees to obtain training within six months of their appointment.
* At retirement, your trustees will be required to guide you through the retirement process and identify a default pension product in accordance with a prescribed set of principles. Your savings will be shifted automatically into the default product, unless you request otherwise. Your retirement fund may provide the default product, or it may use an external product.
Living annuities will be eligible for selection as a default product, provided certain criteria are met, including those relating to costs, investment choice and drawdown rates.
* Trustees who make commission-free financial advice available to members on retirement will be given some legal protection in respect of the choice of the default pensions offered to members. The advisers will be paid by the retirement fund on a salary basis.