Pensions regulator lambasts errant funds

Muvhango Lukhaimane, PFA.

The absence of harsh disciplinary measures against errant pension fund administrators- such as the withdrawal of their licences - causes them to continue acting with impunity, says Pensions Funds Adjudicator Muvhango Lukhaimane.

The fact that some administrators continued to hold licenses was an indictment on those that should hold them accountable for the misery that they continued to inflict on pension fund members, she said.

Addressing the Pension Lawyers Association’s annual conference in Sandton, Johannesburg, Pension Funds Adjudicator Ms Lukhaimane said whilst her office had eliminated the historical backlog of complaints, there was an increase in new complaints.

“Complaints are increasing at a rate of approximately five percent per annum. The trends have also continued along the same lines, such as, withdrawal benefits, retirement benefits, death benefits, surplus, causal event charges and delays in the transfer of benefits.”

She said the industry needed to ask what is it that it “was doing incorrectly or not willing to do correctly”.

“Maybe it is even easier to reflect on whether the lack of consequences on our actions is what leads some of the funds, their administrators and boards to act with such impunity.

Communication remained the one key lapse that ensured that the complaints to the pensions tribunal were on the increase.

An example of lack of communication was when benefits changed with the change of administration of the fund.

“A fund member stays in an industry and when administration of his industry sector fund changes hands, his benefit as reflected on his statement is significantly different between administrators. This assures my office a steady increase in complaints.

“For years industry funds and bargaining council funds keep those that are marginalised ever on the fringe – whilst administration costs to rectify the problems increase unabated.

“At the Private Security Sector Provident Fund they have an administrator allocating contributions on a system that ostensibly cannot handle intermittent contribution patterns; there is a dedicated attorney dealing with the constant stream of complaints; there is a company visiting employers to do a reconciliation of contributions; there is a back office and a front office; and there is a call centre.

“Yet members cannot get a simple benefit statement. People that can ill-afford a phone call or transportation costs are made to incur unnecessary costs in pursuit of their benefits.

“It is important to communicate, if only to indicate that everything is well or forewarn that something might have gone wrong,” said Ms Lukhaimane.

She said she was aware of the complexities of operating a large umbrella fund or operating a fund where literacy of fund members - let alone financial literacy - is a problem.

But that is no excuse not to impart knowledge for members to actively engage with their benefits, and exercise their rights, she said. 

“It should not come as a surprise to a fund member to learn that their fund is being terminated or liquidated owing to the employer’s failure to pay contributions over an extended period of time. 

“Whilst it might be clean to liquidate a fund - often appointing an in-house employee as a liquidator - this process often leaves members in a far worse off position. 

“The propensity to liquidate for unpaid contributions without putting the regulator to the test in terms of the steps that are supposed to be taken to recoup outstanding contributions means that funds and administrators are not willing to ensure enforcement.” 

Ms Lukhaimane was critical of the delays in the payment of benefits. 

“There is a trend to elevate administrative processes undertaken to pay out benefits to the level of rules, often postponing the payment of a benefit to a later date. 

“The Act is very clear as to when benefits accrue. Therefore, to try and say members must wait for up to six months before their benefits can be paid out is irresponsible and unlawful.” 

She was also concerned about the allocation of death benefits. Apart from the unnecessary delays in finalising death benefits, there was a need to consider the financial circumstances of dependants. 

“The financial status of each dependant is required to determine the reasonable maintenance needs of the beneficiaries. 

“It cannot be that we create an artificial automatic entitlement to a benefit by the mere occupation of a particular relationship with the deceased, be it spouse, child or mother. 

“In addition to this, we do need to observe a semblance of cultural awareness, within the prescripts of the law of course. 

“We cannot ignore the existence of multiple and extended family arrangements,” Ms Lukhaimane said.