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More power to the regulator

01 September 2007 Gareth Stokes

The Pension Funds Adjudicator (PFA) is an independent body established to make binding and final decisions on industry-wide pension fund related matters. Since January 1998 the PFA has been responsible for interpreting the Pension Funds Act and ruling on abuse of power, maladministration, disputes of law and employer dereliction of duty in the pension funds space.

Previous Pension Funds Adjudicator, Vuyani Ngalwana, campaigned aggressively for changes in the long-term insurance industry and his efforts were rewarded when the Life Offices' Association and National Treasury signed a Statement of Intent (SOI) in December 2005. Ngalwana performed his duties so admirably that the SOI included the following. The Life Office's Association "recognise the problems highlighted by the Pension Funds Adjudicator (PFA) with respect to the lack of transparency of costs and charge structures"

The SOI amounted to an agreement by the life insurance companies to return nearly R3 billion to annuity holders who suffered excessive financial losses on the early termination or surrenders of their policies.

Greater powers for new boss

Had Ngalwana still been at the head of the PFA, he would have welcomed the latest legislative developments. Following the promulgation of the Pension Funds Amendments Act, 11 of 2007 last week, the Registrar of Pension Funds was given greater regulatory powers. The Financial Services Board (FSB) summarised some of these powers in media release sent on 31 August 2007.

The Pension Funds Amendment Act, 11 of 2007 allows the Registrar of Pension Funds to:

*  Suspend or withdraw the approval granted to a fund administrator
*  Impose an administrative penalty of up to R5-million a day
*  Conduct a compliance visit of the business and affairs of a fund
*  Intervene in the management of a fund.

Instead, Ngalwana's replacement, who took the reigns at the PFA earlier this year, will benefit from the new powers. The new watchdog is Ms Mamodupi Mohlala. Commenting shortly after her appointment, Mohlala said: "Fairness and transparency will continue to be vital and the Office of the PFA, under my leadership, will stop at nothing to ensure transparency is upheld and that freedom of informed choice is ensured at all times."

Opening the way for transfers

Apart from the new powers, the Pension Funds Amendment Act clarifies a number of other issues too. Among these is the interpretation of section 15B of the act regards the process of surplus apportionment. Loopholes in the old legislation which allowed for creative interpretations have been plugged.

Another change is that retirement funds established through bargaining council arrangements will in future fall under the regulatory auspices of the Registrar of Pension Funds. This requires that "bargaining council funds not registered under the Act must register on or before 1 January 2008."

The new legislation ensures that retirement annuity funds "may not prohibit the transfer of business from that fund to another." It also polishes the sections on divorce and maintenance claims in respect of pension benefits.

No good unless the power is wielded

The new legislation also outlines the jurisdiction of the Pension Funds Adjudicator and allows for the appointment of a Deputy and Acting Pension Funds Adjudicator. This should ensure the Office of the PFA has more resource to apply to dispute resolution and other matters of concern in the industry. It is up to the PFA to ensure the new power is wielded and that legislation is correctly applied across the industry.

In practice there are a number of problems which are not addressed by the law. At the top of this list is the use of bullying tactics by the large insurance companies who often render PFA rulings unenforceable. Upon receiving a favourable verdict from the PFA, individuals are often simply advised that the insurance company will challenge the ruling in the High Court. The cost of such proceedings and the resulting intimidation means many individuals simply drop their claims, PFA backing or not.

Perhaps it is time for the regulators to implement a system whereby individuals who receive favourable regulatory rulings are assisted legally and financially should these rulings be challenged. This would ensure that insurance companies cannot abuse their financial and legal advantage in undermining determinations in future.

Editor's thoughts:
The Pension Funds Adjudicator performs an important role in the resolution of pension fund disputes and in the protection of individuals from abuses of power. One often hears of cases where individuals fight for compensation through the various regulatory bodies only to give up the battle when insurance companies introduce a further legal hurdle. Do life insurance companies duck PFA decisions by challenging these rulings in the High Court? Send your comments to
gareth@fanews.co.za

 

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