Edition: Sep - Nov 2014
If you pay peanuts...
...you can still get good trustees motivated by public spirit more than money. PwC survey focuses attention.
The matter of remuneration for retirement-fund trustees and principal officers needs to be properly addressed. But how? By whom? And in accordance with what guidelines?
For too long, the subject has been left up in the air. Some funds do remunerate; others don’t. Some succeed in attracting knowledgeable professionals; others rely on member representatives elected by popular ballot. Some pay quite generously; others turn a blind eye to indirect payment by third parties through gifts and entertainment.
This catch-as-catch-can type of situation will be turned onto its head by the imminence of regulation to impose “fit and proper” requirements to serve as trustees. These include not only tests of probity but also of adequate training.
The principles can hardly be faulted, if good governance is to be advanced, but the practicalities are less easy. For professionalisation comes at a cost. It will have to be at a cost to the funds, kept as low as possible for the sake of their members, but at the same time be as high as necessary to make it worth the while of individuals suitably competent to handle an increasingly complex regulatory environment; also, amongst other things, to allow continuous professional development and to accept personal liability.
It goes without saying that the hefty commitments are needed to spend time attending and preparing for board meetings, just as they are for directors of public companies. Although the responsibilities of trustees and directors are similar, however, their remuneration levels aren’t. Another difference is that directors’ remuneration is publicly disclosed, enabling comparisons specific to respective companies.
The best that retirement funds can do – and it is the best, because there’s nothing else like it – is rely for guidance on the latest two-yearly PwC survey that quantifies remuneration trends. It’s exhaustive but it’s also exasperating in that it illustrates the huge discrepancies even between funds of similar sizes.
The survey points out that for specialist funds (e.g. umbrellas and RAs), the median band for chairpersons, trustees and professional trustees is the same at R10 000 and R50 000 whereas the standalones pay more than the specialist funds at almost all levels: “This is perhaps because the sponsors typically associated with specialist funds are probably checking and monitoring costs more closely.”
The picture is not entirely sombre. There might be additional payments for serving on board sub-committees, and many professional trustees perhaps serve at more than one fund. Still, they shouldn’t look to give up their day jobs just yet. Of the 183 funds which responded to the PwC survey, only 11% remunerated all trustees; 39% remunerated some trustees, and 50% didn’t remunerate any at all.
Better to be a principal officer. The median across all funds was R350 000-R600 000, while 31% of principal officers at large funds (R1bn-plus assets) were getting over R1m a year. Chief executives of public companies and retirement funds aren’t exactly in the same league.
Quite suddenly, and most surprisingly, reports by curator Tony Mostert have begun to trickle onto the FSB website. This is a pleasant shock to the system, given the war of words between FSB executive officer Dube Tshidi and TT (see elsewhere in this edition).
The trickle started in early August and, by the time of going to press, a few more reports had appeared. They don’t precisely answer the questions raised (TT June-Aug), but they are cracks in the silence. Something, or somebody, might have caused Tshidi to relent.
The reports, which appear to be randomly selected, don’t make for easy reading. Sometimes they agglomerate batches of fees. Sometimes they disclose fees over a period of months, and at other times since the curatorship commenced. Sometimes they offer screeds of detail on litigation. The report for a Sable fund actually says that it “should be read with the previous oral and other interim written reports”; oral reports being impossible to read and previous written reports not being available.
All of which contrasts with the clarity in the latest report on Fidentia compiled by its curators, George Papadakis and Dines Gihwala. Whatever else is said about them, their reporting is not obscure.
There, neatly tabulated for the world to see, are details of defendants/respondents; attorneys of record; amounts claimed; amounts recovered; curators’ fees, lawyers’ fees and other disbursements. It’s a reporting model that other curators could emulate, and perhaps that the FSB should require as the standard.
Now that Tshidi has kindly broken the ice, it is reasonable to expect a thaw. Of the various reports still outstanding, the series dealing with the Saccawu fund (which has been under curatorship for 14 years) is still awaited. At present, the only Saccawu document shown on the website as a curator’s report is an FSB press release of two years ago.
It’s impossible to do justice in a few hundred words to the annual Sanlam Benchmark Survey and the Old Mutual Savings & Investment Monitor, both invaluable contributions to the state of play in the retirement-fund industry. Fortunately, they’re accessible on the companies’ respective websites where it’s best to analyse their findings in context.
Predictably, their focus and conclusions are similar; that the level of household savings is awful, particularly when increased longevity is factored. It’s all very well for the surveys to enhance awareness, but it’s hard to be confident that the annual litanies are achieving desired impacts.
While the surveys deserve the attention of serious players, so too does ‘Practical Governance: Retirement Funds’ by D P Mahoney. Published by Juta, it’s a handbook that principal officers and trustees should keep at their elbows.
Betwixt and between
The proliferation of strikes has put SA companies into a quandary over whether they’re legally compelled to maintain pension contributions for striking workers.
On the one hand, the Labour Relations Act allows employers to discontinue the payment of salaries to striking workers during protected strikes. On the other, the Pension Funds Act does not provide for suspension of pension-fund contributions when striking workers aren’t being paid.
“There are criminal consequences for companies and directors when contributions are stopped without a legitimate basis,” warns attorney Rebecca Jansch of Bowman Gilfillan, “while financial consequences for fund members include reductions in their retirement benefits and possibly the loss of their group risk cover.”
To bridge the legislative gap, and to avert undesirable consequences, she advises that pension-fund rules be properly drafted explicitly to provide for legitimate suspension of contributions during strikes.
Tricks of the trade
Moving in the opposite direction to SA, earlier this year the UK effectively lifted the requirement for most pensioners to buy annuities. Anticipating that the industry would grind to a halt, annuities providers fought back.
They promised new annuities with more flexibility and benefits to meet consumers’ needs and longer lifespans. In return, Treasury promised to change the tax code so that annuities could offer more flexible payouts, lump-sum distributions and death benefits. Already these so-called super annuities are being criticised for being more super to providers than to clients.
For instance, while Treasury has bought into the providers’ claim that the new policies will ensure a higher proportion of pension pots being passed to beneficiaries on a pensioner’s death, there are “benefits riders”. These are expensive at more than 1% a year and attach such strings as minimum waiting periods.
The more things change, the more they stay the same.
Box that can be inserted anywhere
Norton Rose Fulbright director Michelle David has taken over the reigns at the Pension Lawyers Association. Best of luck, Michelle, because a priority will be for you to ensure that the annual PLA conference maintains its exceptional standard and remains a highlight on the industry’s calendar.
To be clear
Anne-Marie D’Alton, chief executive officer of Batseta, writes:
In your interview with the Association of Black Securities & Investment Professionals (TT June- Aug 2014), certain comments were made by its representatives regarding the Batseta Council of Retirement Funds for SA (Batseta). We feel that they did not correctly reflect the role and function of Batseta, so we’d like to clarify them.
Batseta does indeed incorporate the Principal Officers Association, but it is much more than an organisation just for principal officers and trustees. It is a truly representative body for the retirement fund industry as a whole, bringing together for the first time relevant stakeholders to serve the interests of retirement fund members and their fiduciary officers. In consultation with government, the federations of organised labour – Cosatu, Fedusa and Nactu – began the initiative to form a single, united industry body. Their initiative was extended to include the POA.
Batseta has consciously excluded service providers from membership, given the high risk of interest conflicts. This body serves the funds’ interests solely. It is financed by member funds and independent fiduciaries. Income is also derived from Batseta events, special-project partnerships and sponsorships.
Its functions are to promote the highest levels of fund governance and to help guide the industry into a postreform era. Batseta is perfectly positioned as a strategic participant in shaping the retirement-industry landscape.
Both the Financial Services Board and National Treasury have engaged with Batseta. Rosemary Hunter, the deputy executive officer for retirement funds at the FSB, has been quoted in Business Day as saying: “The FSB looked forward to numerous engagements with Batseta in the future and hoped it would be successful.” Similar sentiments have been expressed in our interactions with National Treasury, industry bodies and other stakeholders.
An important role for Batseta is in education and training. As a professional body with SAQA recognition, members are able to acquire and maintain a professional designation while overall skills within the retirement fund sector will be enhanced. Through enriched knowledge, continuous professional development and ensuring ethical practices, the interests of retirement fund members will be protected. Beyond that, the acquisition of skills will enhance the professional credibility and status of the fiduciaries.
Another significant undertaking for Batseta is to influence policy directions that affect retirement funds, including lobbying and other stakeholder engagements, without the undue influence or interventions of service providers.
We would be most happy to engage with ABSIP to further the interests of the industry in general and our members in particular. We also look forward to taking the industry forward in a constructive and positive way.