Edition: April / June 2016


The end is nigh?

FSB to review whether the protracted curatorship of the Saccawu fund remains necessary.

After more than 13 years under the curatorship of Tony Mostert, the Financial Services Board is considering whether governance of the R6bn Saccawu national provident fund should be restored to normalcy.

Rosemary Hunter, FSB deputy executive officer for retirement funds, confirms: “We are engaged in consultations with Mr Mostert in regard to the manner and conditions subject to which the curatorship may be brought to an end in the best interests of the fund, and when this may most appropriately take place. Even if, following consultations with Mr Mostert and other interested parties, we are convinced that the curatorship should end, it will naturally be the court that will decide on the matter.”

Mostert has lodged a complaint with the Press Council about our cover-story article arguing for an end to the curatorship (TT Dec ’15-Feb ’16). The Council’s ruling will be finalised for publication in our next edition.

Shortly after the article appeared, in a determination concerning the Saccawu fund, Pension Funds Adjudicator Muvhango Lukhaimane stated: “The curator was appointed to take control of the business of the first respondent (the Saccawu fund) in order to bring the latter to a healthy financial state. However, given the number of complaints this tribunal is receiving, and the curator’s submission that the fund is now in a healthy state, it is important for the Registrar to review whether or not the placing of the first respondent under curatorship is still necessary.”

She asked that the Registrar provide fund members, from its regulatory platform, with reasons for the continued desirability of the curatorship and thought it “appropriate to refer this issue to the Registrar for consideration”.

In his curator’s report to the FSB last October, Mostert argued forcefully that the curatorship be continued. Amongst his reasons:

  • “Obstructive conduct” and dishonesty on the part of the SA Commercial Catering & Allied Workers Union (a Cosatu affiliate);
  • A High Court judgment in 2012 which directed that the curatorship of the fund should continue;
  • Conflicting interests of the union and its disregard for the interests of fund members, it being “on record that the union considers that it owns the fund and can utilise pension monies for its own purposes”;
  • Pending litigation and investigation of irregularities being managed by the curator, developed over several years under his guidance and control. “Any break in continuity of the litigation and making recoveries would have the risk of causing financial prejudice to the fund.”

The report – the first on the fund’s curatorship to be published on the FSB website – does not disclose the fees to date that have been charged to the fund. Neither does it offer a projection of likely fees should the curatorship continue, or match these against the amounts of recoveries made and to be claimed. This information would doubtless be available to the FSB for its review.

Mostert does argue: “It would be contrary to the purpose and spirit of the Pension Funds Act and the curatorship application to place too much emphasis on the duration of the curatorship compared to the mere desire to bring it to an end because of the aspirations of the union and Cosatu. Such an approach would merely sanction the sentiment expressed by Cosatu at (its) ninth national congress.”

There are counters to this argument. First, the Saccawu fund has slightly over 100 000 members. Roughly a third of them are not members of the union. Being a defined-contribution umbrella fund, its board of trustees should by law comprise elected representatives of participating employers and union members in a 50/50 proportion. It would therefore seem that the fund cannot fall under the control of the union, even if all union members voted for the same union nominees.

Second, there is protection under the Act. At s7B an umbrella fund may apply for exemption from the requirement that fund members have the right to elect board members. If the exemption is granted by the Registrar, the board must still have at least one independent trustee and three others for a quorum of four. The Registrar may withhold or withdraw an exemption. In other words, by not granting exemption the fund would be obliged to hold proper elections for the 50/50 board.

All the more reason, then, not to prevent restoration of the fund to normal governance. It will enable a properly-constituted board of the fund to decide, in the best interests of the fund, on the litigation and investigations it wants to pursue as well as the principal officer and service providers it wants to appoint. Obviously, curatorship fees will fall away.

Happiness all round

Can two contending parties, with daggers drawnat each another’s throats, both claim victory on the same set of facts? Yes, apparently they can.

Mostert and Nash . . . SCA intervenes

Consider the order recently handed down by the Supreme Court of Appeal, the latest round in the years-long dispute between Tony Mostert and Simon Nash. Mostert is the curator of the Cadac pension fund while Nash chairs both Cadac and the fund. The appeal was against a decision by Justice Caroline Heaton-Nicholls in the South Gauteng High Court where she endorsed the suitability of Mostert as curator (TT March-May ’14).

The SCA order essentially contains two key elements. They are that:

  • Mostert be joined by Johan Esterhuizen (of Shepstone & Wylie) and Norman Klein (of Westrust) as co-curators;
  • The costs orders by Heaton-Nicholls be set aside and reserved for later determination by the court on consideration of the curators’ final report.

On the first element, Mostert is happy in that the attempt by Nash to have him substituted as a curator has failed: “The appeal of the High Court order, under the direction of Nash more than two years later, also failed, the SCA obviously having determined that I was suitable for final appointment as a curator and obviously not conflicted.” He adds that “there was never a question of opposing the appointment of additional curators”.

For his part, Nash is happy too: “Members of the Cadac fund welcome the fact that, after five years of strident resistance, the FSB and Mostert have reversed their previous positions and agreed to the appointment of two independent curators.”

The order provides that the curators shall be under the control of the Registrar to whom they must furnish six-monthly progress reports. The shall also prepare a final report, including any minority report, for submission to the court by end-August “or such other date as the court may determine for a final determination on all outstanding issues, including costs orders”.

On the second element, Mostert would be happy because the SCA has suspended a Heaton-Nicholls finding: “I am of the view that Mostert’s lengthy affidavit (of 144 pages plus some 1 000 pages of annexures) was unjustifiable . . . It was not for Mostert to defend his own appointment. The costs of drafting this affidavit must be specifically disallowed. No party to these proceedings should be burdened by these costs which Mostert should pay personally.”

But then, Nash too must be happy about the costs suspension. He and his fellow trustees had wanted Heaton-Nicholls to appoint “alternative curators”. Instead, holding that Mostert should not be dismissed “at this late stage”, Heaton-Nicholls had ordered that Nash and his co-trustees personally pay the costs on a punitive scale for having countered the FSB application that Mostert’s provisional appointment be made final.

So, in a sense, it’s back to square one of the Mostert v Nash saga. But the difference is that this time there’ll be three curators looking over one another’s shoulders.

Curiouser and curiouser

A billion rand here and a billion rand there is petty cash in the portfolio of the Government Employees Pension Fund and its asset manager, the Public Investment Corporation. But there is an important principle. It’s to explain their justifications for, and performance of, politically-sensitive investments; the more so when an investment equates or exceeds a 25% stake, significant for voting on special resolutions under the Companies Act, in the control consortium.

Yet the latest annual report of the PIC says not a word about the monies of GEPF members invested in Independent News & Media SA. However, the latest GEPF annual report does say something. At face value, it’s disturbing in that the fund’s exposure to INMSA is ballooning.

At end-March 2015, direct loans by the GEPF to INMSA totalled R896 000m against R791 452 the year previously. These loans, a note explains, are secured by a “borrower cession and pledge in security, guarantee from Sekunjalo and cession of shares”.

There’s no clue as to why the loan is growing. Neither is it evident whether the loan is inclusive of, or additional to, the R500m paid by the GEPF/PIC to support the purchase of the media group by Iqbal Surve’s privately-held Sekunjalo for R2bn in 2013. It was then widely reported that the GEPF/PIC had acquired 25% of the INMSA equity for R500m.

It must be assumed, bowing to the wisdom of the GEPF/PIC, that the loan to a non-listed entity is effectively secured. Less easy to assume is a healthy performance of the investment. Doubts arise from the falling circulations of major INMSA titles, which implies a downward trajectory in revenues (TT June-Aug ’15), and the political case being made for state agencies to switch their advertising from rival groups, which lacks commercialism (TT Dec ’15-Feb ’16).

Universally, and certainly in SA, print was already under serious pressure when the GEPF/PIC decided to embark on this endeavour. Most fundamental of all, therefore, is why they did.

Reform delay

The brouhaha over the Taxation Laws Amendment Act, once signed into law, really shouldn’t have happened. With more than sufficient time having elapsed for the consultation processes to be completed, retirement-fund administrators stood ready for full implementation from March 1.

Something in the communications between National Treasury and the trade unions must have gone awry in that Cosatu was able to overturn the applecart of policy certainty. At its insistence – possibly to screw optimal generosity from, or to hasten proposals for, a broader package on social security – Treasury succumbed to Cosatu’s demand that mandatory annuitisation for two thirds of provident-fund withdrawals be postponed by at least two years.

Seen in isolation, as opposed to the exertion of political leverage, the postponement won’t make much difference to most union members. Or to anybody else, for that matter.

It was always envisaged that provident-fund members, who are 55 years and older when the tax harmonisation with pension funds takes effect, would not be required to annuitise or take a pension on the proportion of new contributions if the total of these accumulated savings is R247 500 or less at retirement.

Further, as National Treasury has pointed out: “Irrespective of age, whatever a member has accumulated in a provident fund as at (date of implementation), and the growth on those amounts, will be available to them as a cash lump sum when the person retires (i.e. protection of vested rights). For most low- and middle-income workers, it will take several years (more than five and up to 15) to reach this R247 500 threshold, and hence many years before they are asked to annuitise at retirement.”

Note that the postponement applies only to compulsory annuitisation. All tax-related measures – including the harmonised 27,5% tax deductions on contributions to pension funds, provident funds and retirement annuities – were implemented on schedule with deductions capped at R350 000 a year.

So, for the present, the heat from the unions on this single element of the reform process is turned down. But on the promised social-security paper, which involves both National Treasury and the Department of Social Development, it’s likely to turn up.

Clarity on costs

As SA moves toward a standardised measurement of effective annual cost for retail products (see article elsewhere in this TT edition), the UK has begun moving toward them for pension funds too.

According to research of the Financial Services Consumer Panel from 2014, the full extent of these costs is simply unknown. It has proposed a new reporting standard intended to improve transparency of pension funds as well as provide trustees with better insight into the charges being paid. This, it believes, will help to give those who govern pension schemes a clearer sight of charges and provide a basis for better negotiation with service providers.

It recommends, amongst other things, that:

  • The standard should initially be based on data that asset managers can report immediately.
  • It should be consistent with the packaged retail and insurance-based investment products’ definitions of costs and the outcome of work by the Department of Work & Pensions and the Financial Conduct Authority on transaction costs;
  • Data collection should be in a standard format and reported on a ‘comply or explain’ basis:
  • The FCA should conduct research into the practical difficulties of a single charge and to make proposals for overcoming them.

At the same time, the Investment Association has formed a working group of technical experts from member firms to update the industry’s cost-disclosure regime.


Due to a spinal injury, I’d been laid up for virtually the whole of February. Unfortunately, this meant that our current edition had to be held back by one month. Instead of being dated March-April 2016, it’s dated April-June 2016.

It also means that, for regular quarterly publication to resume, the schedule for future editions will similarly have to move by a month e.g. the next TT edition will be dated July-Sept 2016.

The revised schedules are available on our website www.totrust.co.za under the ‘To advertise’ button.

Thanks, in advance, for your understanding.

Allan Greenblo