Issue: December 2007/February 2008
More questions than answers
Where are the trustees? Who’s speaking for them, and fund members, in the reform debate?
What’s nice to have and what can be had are often different things. Frequently, however, the difference is unrecognised. Trustees of retirement funds represent a case in point.It would be nice to have members of defined-contribution retirement funds clamouring to become trustees. That this is fantasy does not prevent its presumption. From the well-intentioned Pension Funds Act amendment (which provides for fund members to elect half the members of fund boards), to National Treasury’s proposed reforms (which emphasise the need for these trustees to be properly trained), to Adjudicator determinations and court judgments (which highlight fiduciary responsibility and personal liability), to the Financial Services Board circular PF130 (which meticulously sets out the most onerous duties); all are in denial.
It’s like not looking over a cliff for fear of the drop. And a drop there surely is, notwithstanding all the regulations and oversights and codes in the world, without competent trustees atop the cliff. That much is obvious.
Less obvious is serious effort to face the reality that there is a paucity of trustees and aspirant trustees – at least, “trustees” worthy of the name – let alone to identify reasons and promote remedies. That much is conspicuous by its absence. Either there’s a lack of commitment to encourage fund-member participation, better in the propagating than the practising, or there’s reluctance in officialdom and the private sector to take a lead in addressing some hard questions, better avoided because they’re so vexed.
Primarily, why would fund members want to stand for election as trustees at all? How can they be induced or incentivised? What’s in it for them, to balance the time commitment and liability risk against the elusiveness of reward?
These elements are of the essence. Even the most financially literate trustees must, to perform their roles with the care that behoves other peoples’ money, spend inordinate hours on a job additional to their fulltime employment. For the less financially literate, particularly those whom the Act’s amendment was designed to introduce, it’s worse. They’d also need to spend days on training courses.
From this, another series of questions begs:
First, If trustees are to be paid, then how much and by whom? If they’re to be paid by their funds, there’d be an addition to funds’ costs and a proportionate reduction in members’ benefits.
The issue of payment is itself contentious. There are no standards. Relatively few trustees, usually co-opted professionals, do receive payment; a benchmark is the hourly fee they’d attract as attorneys or whatever. But most receive not a cent more than the wages or salaries earned in their fulltime jobs.
In his seminal 2001 report for the UK Treasury, Paul Myners recommended: “It is good practice to pay trustees, unless there is a specific reason (for instance, where they are senior executives of the sponsor company)”. To support the principle doesn’t advance its implementation. In South Africa, the trades union leadership is loath to condone separate payment for a not dissimilar “specific reason”; namely, that it goes with the job.
Second, if it is to be taken as part of a person’s job and the trustee is not paid additionally, then why should he accept nomination? Or, if he is paid, then how much would by sufficient to reduce (preferably eliminate) the backhanders that bedevil the industry? Whether it takes the form of entertainment, travel or even educational grants, trustees and service providers are locked in a game dangerously akin to bribery. None dare speak its name, but it’s prevalent nevertheless.
Trustees aren’t shamed to expect sweeteners, nor service providers to offer them. For the former, it’s justifiable compensation. For the latter, it’s a cost of doing business. Either way, without an enforceable code agreed to by both on the giving and disclosure of gifts, the line to corruption is indistinct.
Third, there are questions of time. How much time should employers be expected reasonably to allow for employees’ attention to trustee duties and, if need be, to attend training courses? A week? A year? Three weeks? The issue is fraught because, by allowing time off, the employer indirectly pays. Alternatively, by not allowing sufficient time, the less literate employee won’t acquire the necessary skill to perform as a trustee.
Fourth is the cost of training. Who’s to pay it? If it’s the fund, it effectively means the fund’s members. If it’s the employer, it effectively means a supplement to the Seta skills levy. With the millions of rand already in Setas, unspent on the skills training for which they’re intended, an allocation for trustees can overcome this absurd paradox.
Alternatively, training by service providers is tainted by a perceived (possibly real) lack of independence and confusion with marketing. Moreover, given their obligations under the Financial Sector Charter, there’s no shortage of money for trustee and consumer education. The challenge is to access and apply it – all of it, in Setas and from Charter signatories, without further burdening employers and funds – for the national objective that has been identified.
And finally comes the question of competence, as the very purpose of training. Is it acceptable that trustees be elected by fund members merely on popularity, or should it be required that they have minimum qualifications before being allowed to serve?
Of course, there is an easy answer to all this. It’s simply to merge the thousands of funds into groupings of megafunds, whose economies of scale allow the employment of paid professionals as trustees, ignoring the policy turnaround it implies (see page 32) and threatening a reimposition of the top-down control that failed members in the past.
Until it happens – and safely predicting it will take years before it can happen – there’s a status quo that must be made to work. Meanwhile, it’s curious that these questions have not been specifically addressed in the reform debate where they rightfully belong.