Edition: September / November 2015


Pride and prejudice

The former could explain why the FSB is keeping mum.
The latter has to do with customers who must be treated fairly.

Reading between the lines, it doesn’t take a vivid imagination to suspect an outbreak of tension at the top of the Financial Services Board. In the one corner is Dube Tshidi, FSB executive officer and the registrar of pensions. In the other corner is Rosemary Hunter, an FSB deputy executive officer and the deputy registrar of pensions; thus the head of the FSB’s retirement-funds department.

In the middle is the FSB board, chaired by the respected Abel Sithole and comprising such luminaries as National Treasury deputy director general Ismail Momoniat. Along the command chain, because the board reports to Finance Minister Nhlanhla Nene, it’s with him (and therefore parliament) that the buck might ultimately have to stop. All are drawn in.

The matter has to do with the FSB, prior to Hunter’s arrival, having cancelled the registrations of thousands of “dormant” funds. These largely include standalone funds that had been abandoned by their boards of trustees when employed members moved to umbrella funds, leaving nobody in charge to deal with any remaining assets and liabilities such as unclaimed benefits (TT June-Aug).

Where there were no remaining assets or liabilities, there’s no problem. The Pension Funds Act requires “proof to the satisfaction of the registrar” that the standalone funds’ assets and liabilities had “ceased to exist”. Once the registrar had proof to his satisfaction, he was entitled to cancel the funds’ registrations.

But somebody would have had to provide that proof. And if the fund had assets and/or liabilities, somebody would have had to dispose of them properly. Or the funds’ registrations could not legally have been cancelled.

Also controversial is whether the registrar had the power to appoint “authorised representatives” or “section 26 trustees” (under the Pensions Funds Act) to perform the disposals. If he did, the argument is that he should have appointed employees or agents of the standalone funds’ administrators to do it. The standard of “proof ” was that, before cancelling the registrations, the administrators had properly disposed of the funds’ assets and liabilities.

Nobody at the FSB is saying, at least publicly, whether the cancellations were legally effected. Either they were, on the watch of then pensions deputy registrar Jurgen Boyd who reported to Tshidi, or they weren’t, as Hunter has intimated. Her contentious address to the 2014 annual conference of the Pension Lawyers Association was met with a well-publicised rebuke from Tshidi.

This was followed by silence from both Tshidi and Hunter for nearly a year. Then, out of the blue on February 27 and implicitly with Tshidi’s consent, Hunter published a draft circular for public comment. Dealing with “the governance, winding up and cancellation of a shell fund or dormant fund without a board or liquidator”, a relevant paragraph for present purposes states:

To comply with his duty to consider whether material prejudice may have been suffered by any of the affected funds and/or any interested parties, the registrar has decided to investigate the circumstances in which a sample of dormant funds were cancelled in the period 2007-20013. If it appears that there is a significant risk that material prejudice may have been suffered by a larger number of funds and/or related interested parties, the registrar will expand the scope of his investigations.

It added:

In regard to those funds in relation to which possible material prejudice has been identified, the registrar will take such action as he may then consider appropriate to remedy or mitigate the prejudice.

A reasonable expectation is that there would have been progress, at least on the investigation, subsequent to February 27. Accordingly, to prepare a follow-up article, TT posed certain questions to Hunter on August 5.

Perhaps significantly – as she’s usually forthright and prompt in responding to media queries – she referred them to Tshidi for reply:

1. What investigation has taken place?
2. What were its terms of reference?
3. Who conducted the investigation?
4. When did the investigation commence?
5. Has the investigation been concluded? If not, when do you expect it to be concluded?
6. If the investigation has been concluded:
  a) What is the extent, if any, of the “material prejudice” revealed?
  b) What is the nature of such “material prejudice” i.e. how did it arise?
  c) How many funds had been cancelled at the request of “section 26(2) trustees” under the Pension Funds Act;
7. Will the report of the investigation be made public? If so, when? If not, why not?

Tshidi, Sithole, Nene . . . A mess-up? What mess-up? No room for a cover-up.

Equally, the FSB might additionally have been asked how the threshold for “material prejudice” was determined and the reason that only a sample of funds was to be investigated. Why not investigate any prejudice for members of all funds that had been cancelled?

Be that as it may, no response from Tshidi was received. Neither was there a response from Alta Marais, head of research and policy in the FSB retirement-funds department, for intimations of the public comments she’d requested by April 30 on the February 27 circular.

These are hardly instances of accountability and transparency at their best, particularly given the potentially large amount of money and the thousands of people possibly affected. Public interest is defeated by silence.

As Tshidi has previously advised, when pressed for information on the costs of certain curatorships: “The FSB, and its officials, have their hands full with performing statutory functions of regulation and have no time indefinitely to participate in these on-going debates; certainly not at the behest of a particular journalist.” (TT Sept-Nov ’14.)

But give the FSB the benefit of the doubt. Its latest annual report is due for publication. Expect that it will be closely perused for updated information on the cancellations of dormant funds.

That the FSB is governed by its own statute, and is operationally independent, does not make it a law unto itself. Of the FSB’s R577m in revenues for the year to end-March 2014, R153m was from levies on retirement funds. If necessary through the Finance Minister, its board and officials must therefore be accountable to retirement funds and transparent on its regulatory behaviour on such matters as registration cancellations that gravely affect them.


From time to time, the Office of the Pension Funds Adjudicator receives complaints from members whose funds have been cancelled or are in the process of being liquidated. But once a fund’s registration has been cancelled, points out Pension Funds Adjudicator Muvhango Lukhaimane, the OPFA will have no jurisdiction to deal with the complaint.

She cites several determinations where members’ complaints couldn’t be addressed because of cancelled registrations e.g. the funds of East Rand Plastics, KwaZulu Transport Services and Free State Cooperation Ltd.

Hazard a guess at the incomes, needs and frustrations of their members.

These aren’t principles to be mouthed but practised. Clearly in this instance, where silence prevails, to date they aren’t. The board is responsible to ensure that they are. For the implications are potentially profound.

The FSB’s years-long conduct towards dormant funds is being questioned on the cusp of “twin peaks”. In this imminent restructuring of financial regulation, the FSB will be replaced by the Financial Sector Conduct Authority with responsibility for supervision of financial institutions’ market conduct. Especially at this time, the approach of the FSB executive and board to the issue of cancellations cannot be seen as lacking.

Or else confidence in the future ability of the FSCA to supervise others will be lacking too. Everything must therefore come out in the wash -- and soon, given the forthcoming introduction of “twin peaks”.

If anything it to be learned from history, recall the damage to the reputation of the US Securities & Exchange Commission by its failure to act on detailed whistle-blowing reports that Bernard Madoff was running a Ponzi scheme. Eight years after the whistle-blower’s first report was submitted to the Today’s Trustee September/November 2015 31 SEC, Madoff ’s scheme collapsed. It exposed massive financial losses suffered by millions of investors worldwide who had relied on the SEC properly to supervise conduct in the financial markets. After a full investigation by the SEC inspector general on the Madoff disaster, new SEC chair Mary Schapiro acknowledged the SEC’s failures.


I was a member of a retirement fund but I did not get paid a benefit when I left my job. How might I be prejudiced by my fund’s registration being cancelled? How do I even get to know that it has been cancelled? How do I try to find out? What happens when I contact the fund, if I can? And if I call the fund’s administrator, presuming that I know who it is, what assistance can I expect?

Some tips:

  • Contact your former employer and find out whether its current employees are members of another fund e.g. an umbrella fund. If so, find out the name of the fund, which company is administering it and who are the relevant contact people e.g. a trustee, principal officer, consultant or employee of the administrator. This fund might have received unclaimed benefits from the cancelled fund;
  • If contact with the former employer is impossible or yields unsatisfactory results, contact the former fund administrator (if known), and ask whether it can tell you the name and contact information of the fund to which the cancelled fund’s unclaimed benefits were transferred before the registration was cancelled;
  • Contact the FSB. It may be able to help you ‘’follow the money”.

The effect of a fund’s registration being cancelled is that claims by and against the fund are unenforceable unless and until the fund’s registration is restored by court order.


At a media conference in August, the FSB estimated the unclaimed benefits in retirement funds at R20bn. The amounts in administrators’ unclaimed benefit funds, arising from the registrations of dormant funds having been cancelled, presumably represents a smallish but nevertheless significant proportion of it.

The R20bn was owed to over 3m people, excluding those in public-sector funds that the FSB doesn’t supervise. Some R5,2bn was owed to mineworkers’ beneficiaries alone.

Hunter criticised (unnamed) pension funds and administrators that did not maintain valid or complete member records. This made it difficult for beneficiaries to succeed in the laying of claims.

But there were also cases where pension funds or administrators weren’t to blame, she added. For example, some employers were not providing funds with sufficient information. Also, there were former members deliberately not claiming because they considered the benefit too small for bother or because they didn’t want to invite tax queries.

Takalani Lukhaimane, FSB manager for pension surveillance and enforcement, noted that some pension funds employ registered intermediaries, paid by deductions from members’ benefits, to trace beneficiaries. He was concerned about middlemen, approached by desperate beneficiaries, who were charging up to 25% of members’ benefits.

The FSB could only make the R20bn estimate based on the confirmed R15,8bn in pension funds’ financial statements for 2013. It doesn’t speak well of funds’ efficiency where later reports to the FSB remain outstanding.

She announced that it had already begun to change its staffing and supervision practices, and was drafting fresh industry rules.

Since then, the SEC has survived and improved. Unless the FSB executive and board take a similarly robust and transparent approach to the FSB’s own conduct, the FSCA risks being born with congenital defects.

Almost incidental to the broad policy issues, but certainly critical to it, is the outcome for perhaps many thousands of members in pension funds whose registrations had been cancelled. At stake is the supervision and protection of these fund members’ benefits.

Many of these members comprise society’s most vulnerable and unsophisticated. Neither their number, nor their extent of possible prejudice, nor the remedy that will need to be contemplated if prejudice is found, can be known until the subject of TT’s questions is released into the public domain. Over past years, thousands of fund registrations have been cancelled. Pending disclosure of the FSB investigation report, it will remain uncertain how many of these funds still had assets and liabilities. The amount of rands involved could run into the hundreds of millions, sitting in various administrators’ unclaimed benefit funds to the benefit of nobody except those drawing fees from them.

What was recently argued by The Economist about the regulation of banks applies equally to the regulation of retirement funds: “Society’s interest in keeping bankers in check must be balanced against its interest in holding officials to account. The best way to manage these trade-offs is through transparency.... The assumptions behind regulatory decisions ought to be disclosed. Just as bankers should not be left to their own devices, neither should rulemakers.”