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Registrar of pensions asked to probe long delay in rebuilding fund

31 March 2015 Muvhango Lukhaimane, PFA
Muvhango Lukhaimane, Pension Funds Adjudicator.

Muvhango Lukhaimane, Pension Funds Adjudicator.

The board of a provident fund must comply with its fiduciary duties by itself providing benefit statements to members on a regular basis rather than relying on an intermediary to do so, the Pension Funds Adjudicator, Muvhango Lukhaimane, has ruled.

Ms Lukhaimane was also critical of the long delay by a provident fund to finalise its rebuild exercise and transfer a member’s share of fund. She has asked the Registrar of Pension Funds to investigate.

Mr DI Rodsethhad complained to the Office of the Pension Funds Adjudicator about the lack of communication on the part of Dynam-ique SA Umbrella Provident Fund (first respondent) and its administrator AON South Africa (Pty) Ltd (second respondent) on the rebuild exercise and the failure to provide him with information regarding the fund value. He also said there had been no benefit statements for several years.

The complainant had been employed by Lundbeck South Africa (Pty) Ltd (“the employer”) from 1994. The employer was a participating employer in the first respondent which has been undergoing a rebuild process in order to verify and confirm the accuracy of the members’ fund values.

The second respondent submitted that the employer commenced its participation in the first respondent on 1 October 2006 and terminated its participation in the first respondent effective from 31 July 2013. With effect from 1 August 2013, the employer commenced participation in the FundsAtWork Umbrella Provident Fund (FundsAtWork) administered by MMI Group Limited.

The assets in the first respondent relating to the employer were yet to be transferred to FundsAtWork in terms of section 14 of the Act.

The second respondent said there was currently a pending section 14 transfer from the first respondent to Momentum in respect of the employer. The section 14 transfer had been delayed as a result of the ongoing rebuild exercise in respect of the Dynam-ique and IF Umbrella Funds.

Due to the rebuild exercise, the trustees were at present unable to certify members’ fund values. Should incorrect values be transferred, this could prejudice the remaining members on the first respondent and will not be in the best interest of the members.

The second respondent provided the Office of the Pension Funds Adjudicator with a communiqué that was sent to members on 15 December 2014 providing an update on the funds’ rebuild.

The communiqué showed that the first respondent had a deficit of -2.4% (R7.4 million). It also indicated the different options that were being considered by the board to recover the outstanding amounts including litigation against the previous administrator and former trustees. It submitted that it was, however, unlikely that the outstanding deficit amounts would be substantially recovered.

It further annexed a copy of the communiqué sent to members on 5 February 2015 stating that even if a member agreed to his share of the fund being reduced by the relevant fund deficit, the board could not do that without amending the rules and such amendment requiredthe FSB’s approval.

It provided the Adjudicator with a copy of a communiqué sent to members on 13 February 2015 stating that the rule amendments which allowed for the distribution of any funding deficit to the members and thereafter winding up the first respondent had been approved by the board of the first respondent.

It mentioned that once members’ shares of funds had been reduced, if applicable, the Dynam-ique Pension and Provident Funds and IF Umbrella Provident Fund would be 100% funded.

The second respondent provided the Adjudicator with the complainant’s benefit statement as at 28 February 2014 indicating his share of fund to be R999 844.31.

The second respondent submitted that in intermediated arrangements, the broker would usually assume responsibility for disseminating information to the participating employer and the members.

The second respondent said that its administration section advised that the latest benefit statements at 28 February 2014 in respect of all the employee members associated with the employer were submitted to the intermediary, Neels Brink from PS Consult Corporate, on 3 February 2015 for onward transmission to the members.

It further stated that the previous year’s benefit statements as at 28 February 2013 were similarly submitted to PS Consult Corporate in January 2014, or thereabouts.

It was unable to confirm if in this instance the complainant received his 2013 and 2014 benefit statements from the intermediary of the employer. However,it could confirm that the benefit statements were definitely forwarded.

It attached the complainant’s latest benefit statement as at 28 February 2014 indicating his share of fund which would have grown with fund interest since then.

In her determination, Ms Lukhaimane said that the second respondent in its response attached the communiqué to its members, employers and brokers.

This was an indication that members were provided with information and kept up to date on the rebuild exercise.

Ms Lukhaimane expressed concern about the amount of time that had lapsed since the rebuild exercise of the first respondent commenced.

“Members of the first respondent who have left their employment have not been paid their full withdrawal benefit.

“Some members’ fund values have not been transferred to the funds where their employers are participating after terminating their participation in the first respondent due to the non-completion of the rebuild exercise of the first respondent.

“This clearly indicates that the first respondent failed to take reasonable steps to ensure that the interests of its members are protected at all times as it is one of the duties of its board in terms of section 7(C)(2) of the Act.

“Thus, it is considered appropriate to refer this issue to the Registrar of Pension Funds to investigate the non-completion of the first respondent’s rebuild exercise as the delay since the commencement of the rebuild exercise is excessively long and appears to be prejudicing the first respondent’s members,” she ruled.

With regard to the complainant claiming he was not provided with benefit statements for
several years, Ms Lukhaimane said funds accounted to their members by inter alia furnishing
them with benefit statements on a regular basis in order to give them information regarding
their benefits, contributions and other relevant information.

“Therefore, a benefit statement plays a very important role in the sense that it gives members
vital information regarding their benefits in the event of death, withdrawal,disability,
retirement and other relevant information relating to the fund’s assets,” she said, adding the
FSB had directed that an annual benefitstatement must be furnished to eachmember
(excluding pensioners and deferred pensioners) not later than six months afterthe financial year
end of that fund.

Ms Lukhaimane said while the second respondent had submitted that annual benefit statements were sent to the intermediary for onward transmission to the members, the provision of benefit statements was one of the duties of the board of the first respondent.

“By forwarding benefit statements to the intermediary for onward transmission to the members, the board has abandoned its duty to ensure that adequate information is communicated to members.”

Ms Lukhaimane ordered the first respondent to submit to the Registrar the section 14 transfer application of the complainant’s benefits being transferred to FundsAtWork, within four weeks of completion of the rebuild exercise.

The first respondent was also ordered to provide the complainant with a copy of all his outstanding benefit statements indicating the growth or otherwise of his fund value over the years plus his latest benefit statement within four weeks of this determination and one annually thereafter for as long as the rebuild exercise was not completed.

In a separate complaint involving the same respondents - Dynam-ique SA Umbrella Provident Fund (“first respondent”) and its administrator, AON South Africa (Pty) Ltd (second respondent) – Ms Lukhaimane again referred the matter to the Registrar of Pension Funds to investigate delay in payment due to a rebuild exercise.

Mr NA Scullard complained that he was dissatisfied with the amount of the withdrawal benefit paid to him. He said he was informed that the first respondent was being wrapped up due to the employer having moved the funds to the second respondent. He said he could not get answers as to when his outstanding withdrawal benefit would be paid.

The complainant was paid an interim withdrawal benefit on 14 May 2014 by the first respondent representing 80% of his share of fund.

The second respondent said the rebuild exercise commenced in July 2010 and was still in process and was, therefore, unable to pay the balance of the withdrawal benefit to exiting members.

In her determination, Ms Lukhaimane said the first respondent had updated members regarding the fund rebuild exercise. The first respondent revealed it had a deficit of –2.4% (R7.4 million). It submitted that there was little prospect of this deficit being reduced from the investment performance. It further said that as a result, the board of the first respondent was considering other options including legal action against the previous administrator and the previous trustees.

It stated that the anticipated success of these options appeared limited and in considering the size of the deficit and the costs of the rebuild in relation to the three funds involved, the only available option was to reduce the members’ benefits in proportion to the size of the deficit.

Meanwhile the Registrar had recommended that the first respondent be placed under liquidation.

Ms Lukhaimane said the fact that the first respondent was in deficit, it would be undesirable for the Adjudicator to decide on the complainant’s outstanding benefit from the first respondent.

“Thus, an order by this Tribunal regarding the payment of the complainant’s outstanding benefit will be prejudicial to the complainant’s fellow members unless the deficit is recovered and it will be presumptuous on this Tribunal to decide what should happen should the attempts to recover the deficit fail as that issue is currently before the Registrar.

“As a result, this Tribunal makes no finding regarding the payment of the outstanding benefit from the first respondent.

“However, this Tribunal urges the Registrar to insist on timelines from the first respondent for the finalisation of this matter as members continue to be prejudiced as a result of the delay in finalising this matter.”

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