Issue: September/October 2005
Retirement funds are like beached whales.
Every man and his dog can take a bite. The
funds are easy meat because the biters are as
astute as the bitten are defenceless, except for
their thick skins.
Between the biters and the bitten are supposed to be
trustees, poor things. They've hardly a hope in hell, and
sometimes don't even know about the bites until they've
been savaged. Of course, it isn't supposed to be so.
But examples abound: the outbreak of
controversy over costs, sparked by
the Pension Funds Adjudicator,
highlighted by actuary Rob
Rusconi, renewed in hostilities
between Deutsche and
Old Mutual; the outline
of abusive practices, a
number bordering on
the corrupt, identified
in National Treasury's
discussion paper on
the sewage about to spill
through the industry from
the scheme of insiders to
steal funds' surpluses. The
scandal of speculation in maize
futures, which last year wiped out a
third of a fund's assets, seems by
comparison to be innocent child's play.
For the whales to stand a chance, at least two things
are needed. One is a new Retirement Funds Act, which will
someday eventuate, giving effect to the discussion paper's
numerous recommendations. Among them are proposals
to promote good governance, avoid interest conflicts, and
sharply define the responsibilities of trustees (who have
fiduciary duties) relative to consultants (who haven't).
The other is proper education and training of the
trustees themselves. Without the capacity and will to
execute those responsibilities, the rest is hot air. Not that
brassy qualifications alone are sufficient. There's been no
shortage of corporate disasters under luminary-led boards
to underscore the point.
The difficulties are practical. And they are exacerbated
by expectation born from a plethora of laws,
codes, charters and policy pronouncements.
Consider a few scenarios:
The entitlement of fund
members to elect 50 percent
of funds' boards introduces
a new category of trustees.
Organised labour was in
the forefront of promoting
the amendment but
has yet to make full use
Once it walks
through the open door
in a big way, and it can
only be a matter of time
before it does, all sorts of
things are in the offing: some
real shareholder activism, some
acrimony with employer-nominated
trustees, of which the Seifsa dispute (TT
May and June ‘05) is a foretaste, and some areas of
deadlock, say, on the allocation of funds to "social"
Although trustees are beholden to promote the best
interests of their funds, not use them to advance the interests
of one stakeholder group at the expense of another, on
individual interpretation of "best interests" the whole area
of retirement funding can become highly politicised;
- Trustees are stewards for billions of rand in retirement-fund
assets. At least some trustees – old, new and aspiring
– simply don't and won't have the wherewithal to act with
"due skill and prudence". They're vulnerable to experts in
fees and gobbledegook;
- Any incentive, or any reason, to become a trustee is not
easily apparent. Unlike company directors, who're generously
remunerated, trustees rarely receive even a token stipend.
Like company directors, similarly responsible for huge assets,
trustees take on personal liability.
They're at risk, but (aside from "relationship-building" gifts
and hospitality, which can compromise them) they get no
reward. What they can get is sued. Yet they're expected to
commit weeks for training, days for meetings and more
days for preparation.
Sometimes employers give them all the necessary time,
sometimes not. Either way, to take on such commitments
voluntarily requires a dose of craziness or an attack of
- Then, having been through the training rigours, they
drop out. Predictably, under the circumstances of realising
what they've taken on, the level of trustee churn is incredibly
and unacceptably high;
- Who's to pay for the training? If a course is accredited,
employers can claim back part of the fee from their skills-development
levies, provided they've paid for the training.
The reality is that usually the funds pay for it. Because funds
don't pay levies, there's no claim-back;
Who's to do the training? Service providers have a
wealth of material and knowledge to impart. They also have
the motivation to impart it, if not entirely through altruism
and goodwill then through the need to shine their images
with existing and potential clients.
There's also the Financial Sector Charter's requirement
for institutions annually to invest a minimum of 0,2
percent of taxed operating profits in "consumer education",
and specifically to help pension-fund trustees "enhance
their understanding of investments".
But the unions are particularly mistrustful of service
providers, seen to be furthering trustee training to further
the sale of their products and services. Yet it's criminally
wasteful not to take the excellent material freely on offer,
screened if need be for objectivity and adapted if required
for use on accredited courses. To wait for something better
to arrive from bureaucracy is, well, to wait;
What, precisely, is "training" to comprise?
Given the huge differentials in trustees' investment
knowledge, it can range from the importance of minute-taking
to the intricacies of derivatives.
Given the massive swing from defined-benefit to
defined-contribution retirement funds, which transfers the
investment risk from employers to members, it can range
from drafting a statement of investment principles to the
appropriateness of an asset-allocation strategy and the
complex handling of individual member choice.
Given the intention of National Treasury to upgrade the
standard for judging trustees' conduct from what's expected
"of a person in the position of the trustee in question" to
"the skills and prudence of persons familiar with the issues",
implementation of laudable objectives is all the more
There's no way to short-circuit the commitments of
time and resources required to meet a priority
in the scale of social challenges. Unless
competent trustees can prise the whales
back into the water, people won't
get the best pensions to which their
savings entitle them.