Dynam-ique’s ghosts laid comfortably to rest

Leading actuarial firm winds up troubled retirement funds. Has lessons to share with those considering liquidation.

Certain professions attract controversy. Invariably they involve large sums of money and their client’s livelihood or reputation rests on two outcomes: win or lose. We think of lawyers, financial advisors, and liquidators - in no particular order of respect or notoriety. There are ethical professionals in all of them of course. Individuals who uphold the honourable virtues that our parents hopefully instilled in us, and who abide by principles of good governance and the secret lies in being able to identify them from the crowd.

The responsibility of dealing with people’s life savings is caught between two critical and often mutually exclusive inputs: reward and risk. The extent to which members’ benefits grow and are protected depends on the skill and diligence of the retirement fund’s trustees, and when called to wrap up a retirement fund, the liquidator. When a retirement fund, for whatever reason, comes to the end of its useful life, selecting a liquidator who will make the process as painless, swift and fair to all stakeholders as possible is crucial. The liquidation process is known to be fraught with procedural danger and red tape - which can unravel at significant cost to members who are at stages of their lives where interruption to benefits is catastrophic.

Between August 2015 and May 2016 Francois Rosslee and Arthur Els of ARGEN Actuarial Solutions, were appointed joint liquidators of four troubled umbrella retirement funds; Dynam-ique SA Umbrella Pension Fund, Dynam-ique SA Umbrella Provident Fund, IF Umbrella Pension Fund and IF Umbrella Provident Fund.

Prior to a liquidator being appointed, Rosslee explains that it is important for the Trustees to ensure that all the Funds’ statutory affairs are up to date. Thereafter, appointment of the liquidator by the Registrar of pension funds can take another couple of months. Finally, after preliminary liquidation accounts have been produced by the liquidator and approved by the Registrar, the public is given sufficient time to raise any concerns regarding the winding up of the retirement fund. The actual distribution of assets will only commence once the Registrar is satisfied that any concerns have been adequately addressed by the Liquidator. So the process is a long one with the sole purpose of this process to protect the interests of all stakeholders. It is the fear of a lengthy and cumbersome process that often results in Trustees opting for the “simpler” deregistration route.

Prior to ARGEN being appointed as liquidators, the high profile Dynam-ique liquidations had been six years in the offing. Much had been written in the press regarding the process, the costs and the delays to bring these funds to a close. The members were the real losers. Rosslee explains that since 2010 members who exited the four umbrella retirement funds, were only paid part of their benefits while member records were re-built and the Funds’ statutory affairs were being brought up to date.

In 2014 Aon South Africa exited the retirement fund administration business and resigned as administrator, six years after taking over from Dynam-ique Consultants & Actuaries. Corné Heymans, the Valuator to these Funds, reported small deficits ranging from 1.5% to 0.3% in three of the funds in their most recent actuarial valuations. The Trustees distributed these shortfalls among members in terms of the Rules of the Fund prior to the Fund being placed in liquidation.

Rosslee confirms that the funds’ trustees opted for a voluntary liquidation of the funds as the most appropriate course of action to finally draw a line under these funds’ chequered history. Rosslee and Els were appointed to wind up all four of these funds over the past ten months as and when each fund’s statutory affairs were fully up to date. According to Rosslee the total value of the four umbrella funds is in the order of about R1.3 billion with approximately 20 000 members.

Distribution of assets to stakeholders of the first two funds, the Dynam-ique SA Umbrella Pension Fund and the IF Pension Fund, is already underway while distribution of assets in respect of the other two funds is expected during the course of the third and fourth quarter of this year, respectively.

“Liquidation is a bureaucratic process requiring various steps,” explains Rosslee. “All queries need to be resolved before moving to the next step and it would not have been possible to make the swift progress that we did on these funds if it was not for the close cooperation with the FSB.” Rosslee further states, “We are very proud of the fact that we managed to receive approval for the distribution of the first two funds within 6 months of appointment as liquidators while the final two funds are well on their way to achieve the same, but the next challenge will be to completely wind the Fund’s assets and liabilities down to zero within 12 months of our appointment.”

While liquidation is tightly regulated, this safeguards the interests of fund members says Rosslee. When we asked him how he had managed the process so swiftly, he said “preparing a fund for liquidation is about managing the process, and making sure there are no questions or queries. Any process that fails ends up delaying the process, sometimes by many years. Trustees need to assure themselves that they appoint liquidators who have a record for effectiveness and efficiency - otherwise they put themselves at legal risk and the members’ very sustainability at financial risk.

Rosslee recommends the liquidation route over deregistration under specific circumstances. “The Financial Services Board can always withdraw deregistration. As a result the fund is never really dead. The big downside for all is that it can be brought to life while there are no assets in the Fund, leaving former Trustees exposed if there should be any valid claims against the Fund.”

“The deputy registrar of pensions, Rosemary Hunter, is a strong supporter of the liquidation process,” says Rosslee. In an unprecedented move in January this year relating to other pension funds, Hunter served court papers on her immediate boss, her employer and Finance Minister Pravin Gordhan over concerns regarding the cancelled registrations of thousands of pension funds by the Financial Services Board (FSB) between 2007 and 2013.

As a result there are proposed changes to regulations governing the transfer of benefits to unclaimed benefit funds. The FSB is due to publish a draft notice of its intention to withdraw the exemption it granted funds from having to apply to the FSB to transfer assets into unclaimed benefit funds in terms of section 14 of the Pensions Funds Act. Requiring funds to apply for a section 14 transfer before transferring the benefits will allow the FSB to supervise transfers.

In Rosslee’s view the opportunity cost of a prolonged liquidation should not be underestimated. “It is common practice to invest assets in a Money Market portfolio for the duration of the liquidation. Delays even by one month due to inefficiencies or simply ineptitude can have a significant impact on members who will not share in market returns during this period,” says Rosslee. “Using the services of a respected liquidator is preferable as trustees can reduce the risk of delays, and the consequent social and financial costs.”

Ultimately the protection of retirement savings is served by vigilant regulators, and retirement fund trustees and service providers whose ethics are beyond reproach. The effective liquidation of these funds should serve as evidence that the liquidation process can be actively managed to achieve a desirable outcome for all concerned within acceptable timeframes if a suitably experienced liquidator is appointed.