More education for retirement fund trustees
PriceWaterhouseCoopers (PwC) released the results of an extensive survey of the South African retirement fund industry recently.
The PwC Survey on Effective Management of South African Retirement Funds was based on feedback from 110 chairpersons representing a broad cross section of retirement funds in the country. These retirement funds manage R80 billion in assets.
Gert Kapp, PwC National Retirement Fund Leader, says that "besides establishing the state of the industry, the survey can also offer a benchmark against which trustees can compare various aspects of their fund and improve effective management."
Given recent developments in the financial services industry, it seems South Africa has a long way to go to ensure that the boards of trustees responsible for retirement funds are suitably educated for the positions they hold.
Conflict of interest ignored
A common global regulatory challenge is the failure of trustees (and product and service providers) to recognize, disclose and adequately manage conflicts of interest.
The recent Fidentia scandal has raised a number of questions about the standards that are expected of trustees. In this case, one of the trustees of the Living Hands Trust, Danisa Baloyi, also acted as a director of Fidentia Holdings. The Living Hands Trust decided to invest a substantial sum of money with Fidentia Asset Management, which was 100% owned by Fidentia Holdings. This constituted a serious conflict of interest.
The PwC report found that only 15% of funds had some form of policy in place to identify conflicts of interest among fund trustees. Such conflicts have negative implications for fund members, as the aforementioned case clearly illustrates.
Another area of concern was the fact that most funds made little or no assessment of trustee knowledge. Verwey Wese, PwC Cape Town said: "Local funds have made little or no assessment of trustees knowledge and understanding relevant to their funds operations. Understanding of the Pensions Fund Act is a key aspect of this knowledge but certainly not the only key area in which trustees need to acquire knowledge and understanding in order to be effective."
Tougher standards needed
There is strong case for the local retirement fund industry to instigate a formal assessment process to establish trustee knowledge. Some consideration might be given to the legislation of trustee knowledge requirements.
Plenty needs to be done to improve the governance process of retirement funds. This includes greater trustee knowledge, and improved trustee conduct. It is interesting to note that improving the standards of retirement fund governance is one of the stated outcomes in government's second discussion paper on Social Security and Retirement Reform:
"A number of weaknesses in the current model need to be addressed in order to strengthen fund governance. These include improving the level of trustee knowledge and standards of conduct, adopting a more systematic and consistent approach to trustee training, introducing a role for a compliance officer (which could possibly be an extension of the duties of a funds principal officer), and addressing conflicts of interest between trustees and their fund, and between trustees and fund service providers."
It appears the South African retirement fund industry is already appraised of the challenges facing the administration of members funds. Perhaps new legislation will include comprehensive requirements for education of trustees. In future, the role of the retirement fund trustee will consume more time and require more participation from the trustee.
Editor's thoughts:
The Pension Funds Act requires that all South African retirement funds conduct an appraisal of surplus funds - and pay such surpluses back to fund members. To date a number of funds have yet to complete these apportionments. Do retirement fund trustees have an obligation to fund members to ensure these apportionments are completed in a timely fashion? Send your comments to [email protected].
