The Financial Services Laws General Ammendment Bill and other reforms for pension funds

Two technical discussion papers released by National Treasury on 21 September 2012 outline Treasury’s plan to promote household savings and retirement reform and have some very important legislative implications – especially for trustees of retirement fun

Arabella Bennett, Director at ENS (Edward Nathan Sonnenbergs), says these papers follow from Treasury’s broader policy framework in respect of South Africa’s financial sector, which is set out in a policy document entitled “A safer financial sector to serve South Africa better” dated 23 February 2011 (the Twin Peaks Policy Document).

“The two retirement reform papers are part of a series of technical discussion papers which expand on issues earlier raised by Treasury in an overview document on retirement reform[1] and are titled “Enabling a better income in retirement” and “Preservation, portability and governance for retirement funds”.

The document “Enabling a better income in retirement” provides an overview of the current annuities market, examines the various retirement products on offer in the market and presents several options for reform.

Meanwhile, the paper entitled “Preservation, portability and governance for retirement funds” addresses Government’s major concern that South Africans do not save enough for their retirement and that post retirement savings are not properly managed.

“The paper proposes various options to encourage preservation of retirement savings and further provides proposals to increase the portability of benefits between funds and to strengthen pension fund governance,” she says.

According to Bennett, with respect to pension fund governance, Treasury states that many pension fund trustees may lack the competence to make investment decisions consistent with the best interest of beneficiaries as a result of the increasing complexity in the financial world which often demands high levels of expertise.

“Given the fiduciary role of trustees, Government has therefore proposed to make it a statutory requirement for trustees to be “fit and proper” with relevant qualifications and expertise in the management of pension funds,” she says.

Bennett explains that to this extent, the proposal is that Pension Funds Circular 130[2] - which deals with good governance for retirement funds and includes a requirement for trustees to receive comprehensive training - and the “Trustee Toolkit” - an online education programme for the development and education of retirement fund trustees launched by the Financial Services Board - will be made legally enforceable.

“A further consideration is to professionalise the role of the principal officer of a fund such that he/she will play an executive role on the board with responsibility for the day-to-day running of the pension fund,” she says.

According to Geraldine Rabie, Senior Associate at ENS, the Twin Peaks Policy Document notes certain legislative gaps in eleven financial sector laws, including the Pension Funds Act, No.24 of 1956. She says the Financial Services Laws General Amendment Bill, 2012 was thus drafted to address those legislative gaps and was tabled in Parliament on 25 September 2012, after having been released for public comment in March 2012.

She says the proposed amendments to the Pension Funds Act as contemplated by the Bill include provisions to strengthen pension fund governance. Some of the key amendments to the Pension Funds Act include:

· whistle-blowing protection for board members, valuators, principal / deputy officers and employees who disclose material information to the registrar;

· a requirement for board members to attain skills and training as prescribed by the registrar within a certain period;[3]

· extending personal liability to employers in respect of non-payment of pension contributions to a pension fund;

· protection for board members from joint and several liability if they act independently, honestly and exercise their fiduciary obligations;

· provision to appoint a deputy principal officer and to delegate the functions of the principal officer to the deputy principal officer;

· deletion of the approval requirement in section 13B in respect of persons who administer the investments of a pension fund such that the approval is now only required in respect of persons who administer the receipt of contributions and the disposition of benefits;[4]

· power of the registrar to replace a board member if the registrar is of the view that the board member is no longer fit and proper to hold office; and

· contravention of certain provisions of the Pension Funds Act being a criminal offence.

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Bennett concludes that the amendments to the Pension Funds Act contemplated by the Bill address the need for the improvement of pension fund governance, but further detailed regulation is to be expected to give effect to the proposals made by Treasury in the technical discussion papers, specifically the proposed skills and training requirements for the board members of a pension fund.