TCF proves to be the pension industry’s bugbear

If anyone is in denial about how tough 2017 was on the financial services industry, as well as on some of our clients, they just need to take a look at the 2016/17 Annual Report of the Pension Funds Adjudicator (PFA) to change their view.

The PFA received 7 501 new complaints during the period under review. While this is a 22% reduction in the number of new complaints, Muvhango Lukhaimane – the PFA – said that some of the compliance trends were worrying. 

The major complaint

Complaints relating to withdrawal benefits continue to be the highest at almost 70% of total complaints finalised. 

These complaints relate to non-compliance with Section 13A of the Pension Funds Act by employers (non-payment of contributions) and retirement funds (failure to enforce employer non-compliance). 

“This is a trend that has continued unabated, indicating levels of non-compliance that fly in the face of regulatory prescripts. In this instance, the lack of enforcement by the Financial Services Board (FSB), as the registrar, is compounded by the awareness by retirement funds of such lack of enforcement in that retirement funds do not even go through the prescribed legislative procedures of claiming outstanding contributions from employers,” said Lukhaimane. 

This behaviour often leaves members out-of-pocket when they claim their benefits. Commercial umbrella funds are also not faring any better in this regard. 

The regulatory bugbear

According to Lukhaimane, compliance with the outcomes of Treating Customers Fairly (TCF) is proving to be a major problem for the pension funds industry. 

“If we look at TCF as the end game, then the trend of complaints points to an industry that is not in good health as far as governance and its conduct is concerned. The failure by retirement funds to enforce compliance with Section 13A of the Act (by following the prescribed procedures) is of utmost concern,” said Lukhaimane. 

She added that retirement funds are obliged in terms of Section 13A of the Act to recover outstanding contributions on behalf of members as soon as non-compliance occurs. However, this is not done except for an automated electronic mail generated from an administration system here and there. 

“Even in instances where funds approach the PFA for intervention in respect of employer non-compliance with Section 13A, this is often the first and only step that they would have embarked on. In significant instances, by the time a member lodges a complaint with the PFA, it is often too late as the employer might be under business rescue or undergoing voluntary liquidation. It is, therefore, imperative that the registrar, in the least, sets up a reporting mechanism to keep track of non-compliance with Section 13A of the Act. After all, without compliance to Section 13A and enforcement thereof, we do not have a retirement industry,” said Lukhaimane. 

The key role-player

Regulatory compliance is a very wide reaching challenge that insurers, advisory practices, and brokers need to comply with. As pointed out by the FSB, TCF is much more than dotting a few I’s and crossing a few T’s. 

The nature of the relationship between all role players in the industry needs to fundamentally change so that the objectives of TCF are adhered to. Ultimately, this will result in a better relationship between insurers and policyholders. One of the ways to achieve this is through a changing dynamic between insurers and advisers. 

If compliance with Section 13A is a problem, then advisers need to engage more with employers. If the regulator is lacking enforcement in this area, advisers can keep employers in check. However, it must be remembered that advisers are not policemen and that the FSB will eventually have to address this situation. 

Further issues

The PFA belongs to a tribunal (which is made up of the PFA, the FSB and National Treasury) which meets on a quarterly basis to review the complaints that are received by the PFA. 

The Tribunal records the number of complaints and TCF outcome related thereto. 

The PFA's statistics for the period in question revealed that 83,5% of the complaints involved the provision of clear information (TCF outcome 3), 10,5% of complaints relate to investment performance (TCF outcome 5 which states that customers are provided with products that perform as firms have led them to expect). 

A further 4,2% of the complaints relate to the advice or lack thereof provided at the time of contracting (TCF outcome 4 which regulates the provision of suitable advice) while 1,4% of complaints relate to refusal to allow a transfer of funds (TCF Outcome 6 which regulates post-sale barriers). Half a percent of complaints relate to general dissatisfaction with service (TCF outcome 1 which regulates the fair treatment of customers). 

"This Tribunal remains concerned about the weaknesses in regulations in the retirement sector when viewed in light of the abovementioned TCF outcomes," said Lukhaimane.  

Editor’s Thoughts:
There is a role for every person to play when it comes to regulatory compliance. This is an opportunity for advisers to show their value beyond the normal services that they offer clients. And I am in no doubt that there are advisers who are chomping at the bit to play an increased role. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.