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15 September 2004 Angelo Coppola

Trustees of retirement funds are battling with the complexities and responsibilities of allocating death benefits to beneficiaries of deceased fund members.

Trustees’ duty to trace and identify dependants in remote areas adds to the problems, and has led to a “slush fund of unclaimed benefits which is going nowhere”, according to Richard Krepelka, CEO of Fairheads Trust Company.
 
Krepelka said retirement fund trustees are faced with the problems of steady erosion of retirement benefits by the HIV/Aids pandemic, identification of dependants, and the equitable allocation of benefits to beneficiaries.
 
Some industry players are calling for simplification or even abolition of section 37C of the Pension Funds Act which deals with death benefits paid into trust on behalf of minor beneficiaries.
 
Krepelka said the value of trusts from retirement funds and risk benefits is in excess of R20 billion and is growing every day, propelled by the increase in Aids deaths. 
 
“Removing section 37C is not the answer. It was introduced precisely to serve a social function in looking after dependants, particularly minor dependants.

If trustees accept that they do indeed have a fiduciary and social duty to dependants, the industry has to accept the reality of complex legislation for the time being, and work at finding solutions,” he said.
 
At the industry level, Krepelka believed a guidance or practice note on the use of s37C would go some way to helping trustees until such time that the legislation is simplified. 
 
Statistics presented by consulting actuary Roseanne da Silva show that trustees need to build HIV/Aids into long-term planning as the pandemic has a direct bearing on the reduction of retirement benefits.
 
Da Silva estimated that current average levels of HIV prevalence in the South African workforce are around 20%. She said: “While HIV prevalence is expected to peak in 2007, Aids deaths are set to peak only in 2009. 

Widespread access to antiretroviral therapy will help defer some of these deaths, but they will not be prevented.” 
 
This means that trustees need to weigh up the interests of HIV positive members who are likely to die before retirement against the interests of HIV negative members whose projected retirement benefits will be eroded by increased costs of death and disability benefits.” 
 
The trend has also been to reduce levels of cover in response to increasing risk costs.  Da Silva questioned whether this adequately addresses the needs of the dependants of members and recommended that more innovative benefit structures be considered.
 
Her research is backed up by Tri-Linear Asset Management which handles the investment of section 37C death benefits for Fairheads Umbrella Trusts. 

Bruce Anderson, head of research at Tri-Linear, said recently that companies need to work at quantifying Aids prevalence in order to pre-empt and manage the disease.

Quick Polls

QUESTION

South Africa’s Financial Sector Conduct Authority (FSCA) has the power to raise revenues by issuing administrative penalties and fines against non-compliant financial services providers, with this money flowing back to the Treasury… Does this, in your view, create a regulatory / government conflict of interest?

ANSWER

Absolutely, as conflicted as it gets
Maybe, I’m on the fence on this
No, the FSCA can do no wrong
The guilty must pay
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