Trustee vigilance required to combat increased financial risk

Improved vigilance on the part of trustees, regulators and fund advisers is necessary to protect retirement fund members from increased financial risk as a result of criminal activity, as well as the potential for market losses.

Paul Plaatjies, spokesperson for the SALA Pension Fund with a membership of over 20 000 people from municipalities nationally and the SA Police Service, said that trustees needed to be proactive in dealing with a number of risks that had been elevated by the economic climate. Foremost amongst these was the need to combat fraud and to prevent further investment losses.

“With stock markets having reached recent highs and concerns that economies could dip back into recession once governments unwind their stimulus packages, retirement funds and their advisers need to carefully manage the investment risk.

“Funds also need to caution against financial losses from fraud and due to the non-payment of contributions by cash strapped employers,” said Plaatjies.

He added that strong measures were needed to prevent criminal activity like the plunder exposed by the Fidentia investigation. Plaatjies said the retirement benefits of ordinary working South Africans had been compromised by practices ranging from “bulking” to inflated adviser fees and outright theft.

“In order to stop this misappropriation of members’ money, we need to ensure the effective prosecution of offenders while also raising the bar where supervision, monitoring and accountability are concerned.

“Asset managers and advisers must be called to account in terms of strict rules which, if flouted, result in the immediate termination of mandates. On their side, trustees need to ensure they’re beyond reproach and on top of the complexities involved in running a modern retirement fund.

“Trustees need to work harder at ensuring that they deal with those to whom they have assigned responsibility from a position of strength - based on a clear understanding of the objectives of the fund, and the plans put in place to achieve them. As trustees, we need to apply our minds to good governance, best practice and sound strategies.”