Untangling another red tape bundle
It has been some time since the Financial Services Board (FSB) published its comprehensive guide for pension fund trustees, Circular PF130. FAnews Online has already published a series of articles discussing the contents of this circular as they relate to
The circular is a formal FSB guideline indicating to trustees the best practice methodologies for running and managing a pension fund. It also serves as an early indicator of post-reform governance standards in the industry. PF 130 could form the basis of decisions to ensure cost effectiveness and better governance in the administration and management of pension funds in coming years.
Today we examine whether PF130 places an additional burden on the trustee. This is a question raised at an Old Mutual Actuaries & Consultants corporate breakfast held in Sandton on Thursday, 4 October 2007.
Concepts are already familiar to trustees
The short answer to the question is "No!" The reason for this is that Circular PF130 simply restates the concepts with which trustees should already be familiar. It consolidates a number of the requirements in the Pension Funds Act, various previously circulated PF circulars and case law. Old Mutual believes while the circular "might not reduce red tape, it should certainly help trustees untangle it."
PF130 includes a detailed preamble which emphasises the concept that trustees are working on behalf of, and are accountable too fund members. Trustees are reminded of the requirements of acting in good faith, fairness, transparency, responsibility and accountability. In this sense, the circular does not introduce new responsibilities, but rather clarifies what the FSB believes is already expected of all stakeholders in the pension fund environment.
Amendments to the Pension Funds Act ensure that the Adjudicator now enjoys greater powers to punish errant pension fund schemes and administrators. It is now more important than ever for trustees to examine their fund rules, governance structures, policies and training programmes to ensure compliance. As a pension fund trustee, you should continually be asking the question: "Do you have measures in place to ensure this compliance?"
The role of education
A major problem faced by trustees is the sheer volume of regulatory information. Not only are they expected to stay on top of the legal requirements contained in the Pension Funds Act, but also keep on top of the outcomes of various court rulings. The days of accepting a trusteeship as a favour or obligation may be drawing to an end. Increasing demands could eventually put an end to the volunteer trustee and see these individuals replaced with professional independent trustees.
In the interim, the pension funds should provide "initial and ongoing training at the funds expense." This should happen in conjunction with annual appraisals which will be used to determine appropriate training requirements going forward. Education is important because it reduces legal risk, reduces reliance on experts, leads to early identification of problem areas and aligns the running of a fund to the running of a company.
Appraisals will become increasingly common in the pension fund administration environment. Old Mutual asked delegates at the presentation "How often do they do a performance appraisal of the Board and of individual trustees?" PF130 suggests this assessment is conducted at least annually.
Confidentiality versus full disclosure
As the body of regulation increases a number of contradictions creep in. One such contradiction is the requirement to allow trustees to have unfettered access to any relevant pension fund information. How can this happen in an environment that places a greater emphasis on confidentiality?
Concerns have also been raised about data retention at supplier level. Should a supplier contract be terminated it is imperative that member data held at the supplier be returned to the pension fund. Old Mutual expects more legislation on the protection of member information and rights in the future. Protection of information will place additional demands on regulators and trustees in coming years.
Making the guidelines work
Trustees should use the guidelines contained in PF130 and assess how well they measure up to these standards. As a first step, the board should perform a gap analysis to identify any shortcomings in terms of the newly introduced best practice principles. The second step is to prioritise actions to address any identified shortcomings.
The FSB wants to ensure that pension fund members benefit from well run pension funds. They want pension fund members to have full confidence in their pension fund trustees. One of the ways to achieve this goal is for pension fund trustees to leverage the recommendations contained in PF130.
Editor's thoughts:
The circulars issued by the Financial Services Board include recommendations on best practices in the administration and operation of pension funds. Do you think the recommendations contained in PF 130 will eventually be included in pension fund legislation? Send your comments to [email protected]
