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More independent professional retirement fund trustees are needed – PwC

21 April 2010 PricewaterhouseCoopers

There is a majority view that independent professional retirement fund trustees are needed, with more than 50% of survey respondents across all sizes of funds indicating that at least one such trustee should be appointed.

The 2010 PricewaterhouseCoopers’ (PwC), Trustee Remuneration Survey sheds some light on the above as well as other aspects of trustee conduct and remuneration.

There have been two years of financial turmoil leading many funds to adopt more complex and sophisticated investment strategies as a defence mechanism. Financial and commercial pressures and also the many initiatives by the Registrar of Pension Funds, have not only increased trustees’ workloads, but also their level of responsibility to understand the complexities and to manage them more actively often through the establishment of sub-committees.

Gert Kapp, Retirement Fund Leader for PwC says, “The retirement fund survey collates the responses of 243 participants covering a wide spread of funds from the very large to the very small, across all fund types. It offers a benchmark against which trustees can compare various aspects of their fund’s workings and strategies with those of their peers, both in South Africa and The United Kingdom (UK).”

While the importance of good governance principles appears to take a front seat on the agenda, some of the key findings in this regard are:

· 92% of specialist funds that remunerate have two or more professional trustees;

· Between 20% and 30% of all trustees both in SA and the UK are ill-prepared for meetings;

· The amount of time and effort allocated by trustees to their duties is influenced by whether they are remunerated or not, with those being remunerated coming better prepared to meetings;

· 51% of small funds have at least one professional trustee; and

· 87% of boards meet at least four times per year.

Professional trustees

There is a majority view, albeit not overwhelming, that independent professional trustees are needed, with more than 50% of respondents across all sizes of funds and 61% of large funds indicating that at least one such trustee should be appointed.

A surprising 48% of small funds indicated that their professional trustees serve on more than 10 boards.

Trustee remuneration driven by workload

 

Only 45% of SA funds remunerate their trustees, compared to 93% in the UK. This presents a significant difference and highlights a skewed distribution of remuneration practices – less than a quarter of private funds remunerating trustees, while 80% of Umbrella and Preservation funds and 64% of Retirement Annuity funds do so.

The main reason for not remunerating trustees is that trustee duties are perceived to be part of the trustees’ employee salary and trustee time is taken out of normal working hours. 55% of total funds surveyed do not remunerate their trustees and 47% do not remunerate their principal officers. Approximately 50% of small and medium funds and 64% of large funds indicated that the review of their remuneration policies is on the agenda.

Kapp continues, “It is clear that specialised funds are more likely to remunerate fund officials than private funds. The single biggest determining factor for trustee remuneration for large funds is workload, while for medium funds it is experience of the trustee and for small funds, value added.”

Performance and Assessment

 

Although employers recognise their employees’ trustee responsibilities, their trustee roles are not taken into account in their performance appraisals (61% of cases) and they are allowed little time off for meeting preparation. Setting objectives for individual trustees happens with less than a third of companies compared to over half in the UK. With rare exceptions, there is no linkage between trustee remuneration and their performance and only 23% of funds indicated that they have fixed service level agreements with their trustees.

South Africa is well contained pertaining to gifts from service providers

 

Special service offerings or arrangements with service providers do not presently feature in the South African retirement fund industry. Trustee entertainment is well contained to lunches and sport events and only 35% of funds confirmed that they have been entertained over the preceding 12 month period. The bulk of regular entertainment was accounted for by consultants (24%), asset managers (29%) and benefit administrators (29%).

Are trustee boards allocating enough time to their roles?

 

The survey indicates that trustee boards are allocating time to their roles with 23% spending a predetermined amount of time on their duties and 51% dedicated time on a monthly basis depending on issues arising. A worrying trend identified previously seems to have continued with 23% of trustee meetings being either not fully attended or, if fully attended, not all trustees had read the papers in advance. This behaviour seems to be directly correlated to whether trustees are remunerated or not. Only 16% of funds that remunerate trustees, responded that trustees are not fully prepared and do not get involved between meetings, while 36% of non-remunerating funds confirmed this.

Kapp concludes, “Trustees will take on more responsibility, provide a higher level of care and undertake additional preparation for meetings, should they be remunerated – a view which is supported by 85% of respondents. A minority of 9% felt that it would not add value as the current board is either skilled enough or remuneration would not change attitude.”

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