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A deeper problem to the retirement challenge

21 October 2014 Jonathan Faurie
Jonathan Faurie, FAnews Journalist

Jonathan Faurie, FAnews Journalist

We are all very familiar with the challenges South African retirees are currently facing. To date, industry experts have presented a number of arguments as to why very few South Africans can achieve a safe retirement, and all of them point to the consumers’ saving habits and investment decisions.

However, recent determinations by the Pension Fund Adjudicator (PFA) also show that there are many other additional challenges the country needs to overcome.

Security outrage

An area of significant concern that the PFA has indicated is that there is seemingly no end to the stream of complaints coming to its office from the security industry.

Of these complaints, employees in the industry are increasingly finding out that they are not sufficiently covered. In most of the determinations sent to the media by the PFA, the Ombud points out that the adviser or the insurer acted negligently.

The latest complaint came from Mr Ntuli who worked for Top Ten Catering and Security (second respondent) from the 22nd of April in 2010 until the 30th of July in 2013. He was a member of the Private Security Sector Provident Fund (first respondent).

Ntuli complained that the second respondent deducted money for Unemployment Insurance Fund (UIF) and for provident fund contributions from his salary. Following the termination of his service, no withdrawal benefit was paid to him.

The first respondent informed the PFA that the second respondent became Ntuli’s participating employer on the 8th of March in 2006 and was non-compliant in terms of section 13A of the Act.

The second respondent was deducting money from the complainant, as per his policy schedule, but was not making the relevant contributions to the first respondent. The first respondent indicated to the PFA that the complainant appeared on its contribution schedules for the period April 2010 to January 2013. Although the second respondent provided contribution schedules, it only provided corresponding contribution payments for the period January and February 2012, April 2012, December 2012 and January 2013. The company failed to provide corresponding contribution payments for the period April 2010 to December 2011, March 2012 and May to November 2012.

However, it was also found that the first respondent was negligent. It pointed out to the PFA that the second respondent did not register itself as a participating employer in a timeous manner. After investigations by the PFA, this proved to be a false accusation and the PFA expressed its concern about how the ABSA Consultants and Actuaries system was not allocating contributions received from employers.

According to the complainant, the second respondent was ordered to pay the first respondent the complainant’s outstanding contributions plus late payment interest.

The first respondent was ordered to pay the complainant the fund credit held on his behalf, together with interest thereto calculated at the rate of 15.5% per annum from August 2013 to date of payment.

Taking trust for granted

When you belong to a retirement savings vehicle, you assume that the right amount of fees applicable to the vehicle will be deducted.

Another complainant, Mrs le Roux brought a case before the office of the PFA that the fees charged on her lump sum contribution from an insurer was the same amount as a monthly contribution payment and the fees far exceeded the monthly return on investment.

The complainant brought the complaint against Lifestyle Retirement Annuity Fund (first respondent) and Liberty Group Ltd (second respondent).

According to her policy schedule, she had an initial monthly contribution of R200 which increased by 10% each year. On 15 October 2010, an ad hoc single contribution of R11 054 was paid and on 3 November 2010 a further ad hoc single contribution payment of R200 000 was made.

The complainant submitted that she was unhappy with the fees charged on her lump sumcontribution. She said she had not been informed that the lump sum would attract the same fee as a monthly contribution payment. She added that the fees far exceeded the monthly return on investment.

The second responded said the following fees, as stated in the membership certificate, should be deducted from the Asset Value of each portfolio every month: a management fee of 0.250%; an ongoing guarantee fee of 0.125%; and an ongoing commission recovery fee on regular contribution asset value of 0.125% per month.

It admitted that the first two fees were correctly being deducted from the full asset value. The ongoing commission recovery fee shown on the transaction statement as an advisory fee should only be applied to the regular contribution asset value and not to the single contribution asset value.

This charge resulted in the asset value being understated by R15 660. Without a directive from the PFA, the second respondent admitted it had made the mistake and reimbursed the complainant accordingly, bringing her asset value to R318 397.

Is TCF working?

The Financial Services Board (FSB) implemented Treating Customers Fairly (TCF) with the sole purpose of imposing guidelines on companies on how customers should be treated in a fair way. While TCF is not currently embedded in any legislative document, the FSB is expecting companies to be compliant with TCF.

In the FSB’s new role as the market conduct regulator, their responsibilities will be reduced in that they only have to concentrate on market conduct regulation, but it is by no means made easier as there are legacy issues of non-compliance in the industry.

Editor’s Thoughts:
The FSB is implementing legislation that will give more control to the public. However, will this work towards creating an improved retirement industry? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts

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