The ‘low down’ on Section 14 transfer delays

FAnews has received numerous complaints about lengthy delays in completing S14 transfers and spoke to Wedaad Joseph, Divisional Director of Operations Support at Liberty Corporate to clarify some of the issues.

One of the challenges is that S14 transfers aren’t taking place as envisioned in the regulations,” says Joseph, who is a trustee of one of the largest underwritten umbrella funds and also involved in the processing side of S14 transfers. “The regulations around S14 transfers are intended to ensure member protection. They are designed for company mergers or acquisitions where employment and retirement benefits are changed to align employees in the same group to the same remuneration structures, including fringe benefits or for retirement funds who decide to change from defined benefit to defined contribution arrangements.

Application of regulations

Nowadays the regulation is more commonly applied to a retirement fund transferring from one insured umbrella fund to that of another insurer,” explains Joseph. “Regulations are also applied to transfers from standalone funds or single employer funds to umbrella funds.

When transferring between two defined contribution arrangements member benefits rarely change. Instead, special rules are registered within the destination umbrella fund to match existing benefits. “The S14 transfer regulation has to be complied with in these cases as well and it does not add the same value to members in this scenario as it would in the case of the first scenario.

Not an ideal world

The regulation is written for the 'perfect world' scenario and is particularly relevant to high-risk transfers: “The process is time consuming, and if any requirement of the regulation is not met, it would cause further delays.” These delays tend to be unintentional and usually stem from the general misunderstanding of the requirements of the legislation and the impact of non-compliance.

Common problems

A common hurdle is that participating employers assume they only have to provide the administrator or insurer with notification of their intention to transfer the fund to another administrator. But there are a number of factors that prevent the transfer from automatically completing. These include:

• Contributions in arrears at the effective date of the transfer. In this case the employer is required to pay all outstanding contributions before the transfer application can be submitted.

• No Board Resolution confirming the S14 transfer, or an incomplete application. The S14 transfer must include details of the name and registration number of the transferee fund, the effective date of the transfer, the date of the meeting when the resolution was made etc.

• Inadequate communication with members. Members must be informed of the transfer and the impact on their benefits.

• The fund or participating employer has not yet finalised the surplus apportionment exercise and received approval for their scheme from the Financial Services Board.

Possible solutions

In any of the above cases the questions or requests for additional requirements would be referred back to the Board of Trustees,” says Joseph. And in most cases the issues are only addressed as the next trustee meeting. A possible solution is to review the cumbersome regulation currently applied to what is effectively a change of administration.

A key to a functioning and efficient pension system will be to create easily portable benefits that can move between funds as circumstances change,” says Rowan Burger, Head of Investment Strategy at Liberty Fin. In the ideal world, funds will have to provide cost effective benefits and quality services, or face losing their members.