Issue: March/May 09


A roar at four

Only a little one for a little milestone. There’s an Everest still to climb.

This edition marks TT’s fourth birthday. In these markets, it feels a lifetime. Still, one bangs on for the long term, which is what retirement funds are all about. When the force of gravity asserts itself on share prices, there’s no comforting offset to suggest that what goes down must again go up. But there is history . . .

The past four years have been tumultuous, with tumult in the retirement-fund industry far from over. They’ve wrought challenges, the more exciting for having been unanticipated, not least for a start-up publication that has constantly attempted to make some modest difference in its self-imposed mantra of “empowerment through education” for trustees.

To be sure, the battle remains uphill. A huge industry, affecting huge numbers of people, operates in a comfort zone for those who earn huge fees from it. Not infrequently has there been cause to reflect on whether change that can shift power imbalances, from the plethora of service providers to the mass of client funds, has serious traction. Largely at fault is inertia on the part of the latter, compromising the influence they can wield for financial and social benefit.

March 2005
March 2005... nappy days
  • Fund reform, ostensibly motivated by noble intentions, is mired in endless debate and interest-group division. While there are incremental adjustments, the latest Budget indicated no substantive decisions. Even where there is consensus, notably on the introduction of mandatory pensions preservation, the detail eludes the principle. No matter the old-age funding crisis that surely beckons;
  • Fund members, naive and trusting, are lackadaisical as ever. To save cents in supermarkets, they’ll jump through hoops. To get best value for rands in pensions, by contrast, they wouldn’t know where to start;
  • Fund trustees, for their part, have this “onerous fiduciary duties” message drummed into them. Whether through abundance of caution or paucity of skill, they typically prefer to acquiesce in the shadow of professional advisers. With an inability to compare costs and quality of service, all-knowing consultants can easily lead ill-equipped trustees by the nose.

For newcomers to this environment, a steep learning curve is unavoidable. Sometimes it’s disillusioning but mostly it’s rewarding. The complexity and multiplicity of issues to be confronted can border on intimidating.

Three landmark events, tied at the hip, inspired TT’s launch. Fortuitously converging, their common denominator is to enhance the participation of fund members and engagement with trustees in managing their money. The prerequisite is better-informed trustees.

First was the amendment to the Pension Funds Act, which provided for half of a fund’s management board to comprise member-elected trustees. Thus was introduced a new generation of trustees, drawn by popular ballot, whose levels of financial sophistication and fund proficiency vary enormously. For them, and not only for them, the need for awareness of trustee responsibilities could hardly have been brought into sharper focus.

Second was acceptance of the Financial Sector Charter. It obliges signatories to promote financial literacy amongst consumers. It’s specific about the need to enhance fund trustees’ understanding of investments. It contains a commitment to encourage training and awareness programmes for all shareholders, including “indirect shareholders” such as retirement funds. These are the cumulative precursors to shareholder activism, also enshrined in the Charter and further underpinned by the investment policy statement that trustees are required by the Financial Services Board to formulate for their respective funds.


Drucker... capitalism undefined
Drucker... capitalism undefined

SA debate over the future of retirement funds is infused by ideological inclinations, about respective roles for the private sector and the state, over who’ll call the shots in deployment of fund assets. It’s a microcosm of the larger power play stuck in the past. Consider what Peter Drucker, a leading management thinker of recent decades, had to say in his Post-Capitalist Society (1993):

  • Never before have there been such enormous pools of money as are now institutional investors, primarily pension funds. To integrate the pension funds’ real owners, present employees and future pensioners, into the management of the pension fund is a challenge that has not yet been tackled in any country;
  • Pension fund capitalism is fundamentally as different from any earlier form of capitalism as it is from anything any socialist ever envisaged in a socialist economy;
  • Pension funds are a curious and indeed paradoxical phenomenon. They are “investors” who control huge pools of capital and its investment. But neither the managers who run them nor their owners are “capitalists” Pension fund capitalism is capitalism sans capitalists. Pension funds are “trustees”. The owners (are) the future pensioners;
  • Pension fund capitalism is also capitalism without “capital”. The money of the pension funds does not fit into any known definition of capital. The funds of the pension funds are deferred wages...accumulated to provide the equivalent of wage income to people who no longer work. Wage earners are the main beneficiaries of the earnings of capital and of capital gains. We have no social, political or economic theory that fits what has already become reality.
  • Pretty incisive stuff, more pertinent now than then for SA, as retirement fund and social security reform tread their bumpy way.

Third was broad-based black economic empowerment. Retirement funds comprise perhaps the largest single category of investors in most major JSE-listed corporates, and certainly represent the largest single category of black workers in the form of “indirect shareholders”. As such, they should logically be considered for inclusion in BEE largesse.

Despite an amendment to the BEE good-practice codes designed to accommodate them, for which TT long argued, it hasn’t yet happened. This is despite the clear advantages to corporates in lessening the extent of shareholder dilution by entertaining so obvious a broad-based vehicle of existing beneficial shareholders.

Curiously too, the main trades-union federations haven’t promoted a practice from which black members of retirement funds would clearly benefit. Late last year, Cosatu launched its “Walking through Doors” project. Here’s one open door through which it hasn’t walked, perhaps because at least some of the larger affiliates were never made aware of how they could.

Pause to reflect on four years’ promising talk of retirement funds’ democratisation, of trustee empowerment, of inclusiveness in decision-making, of accepting and exercising responsibility for one’s own fortunes. On the ground, in hard evidence of progress, what’s changed? So far, relative to the mountain ahead, precious little.

Allan Greenblo,
Editorial Director