Edition: June / Aug 2017


It gets worse

Use of the EPPF for the intended Molefe payout should never have been
contemplated, let alone pursued. The fund isn’t a laundry.

Were the Eskom transaction with the Gupta-related Optimum Coal not sufficiently bizarre (see elsewhere in this TT edition), a theatre of the absurd is compounded by the series of subsequent events in rapid succession: the departure from Eskom of chief executive Brian Molefe; the award by the Eskom board to him of a R30m bonsella; the disguise of the bonsella as a “pension” through the Eskom Pension & Provident Fund; then by its reversal when Molefe returned to Eskom.

Add to these the contradictory statements from Public Enterprises Minister Lynne Brown to explain the chain through its various links. She and the Eskom board have been unable to produce a consistent spin. Then, to top it all, the EPPF became obliged to speak out on its use or abuse as the conduit for Molefe’s R30m.

Until Molefe hit the fan, the EPPF enjoyed a record unblemished by public-interest controversies. That now changes. Each time EPPF chief executive and principal officer Sibusiso Luthuli attempts to explain the purported “pension” arrangement for Molefe,– the now you see him, now you don’t, now you see him again Eskom chief executive – more smoke rises from the fire.

Luthuli . . . couldn’t say no

SA’s second largest retirement fund after the Government Employees Pension Fund, at end-June last year the EPPF had R1,3 trillion in assets under management for some 85 000 members and pensioners. Its governance is by a 14-person board where seven trustees are appointed by employer Eskom and the other seven are elected by EPPF pensioners, non-unionised and unionised in-service members.

Unlike the GEPF, the EPPF falls under the Pension Funds Act and is therefore subject to supervision by the Financial Services Board. Because the payout to Molefe falls away by his reappointment to Eskom, the FSB can be relieved that its intervention is unnecessary.

In his most recent missive, Luthuli is at pains to point out that the EPPF does not involve itself in the exit negotiations between employer and employee, or in arrangements of the employer’s business. The granting of early-retirement benefits, without penalties, can only be initiated at the request of the employer. This is usually preceded by an agreement, to which the EPPF isn’t party, between the employer and the affected employee.

Luthuli adds: “In this instance, the employer [Eskom] agreed to exit the employee [Molefe] in terms of [EPPF] rules 28 and 21(4) and notified the EPPF accordingly. On this basis EPPF actuarially calculated the exit cost which amounted to R30,1m and which the employer paid to EPPF to ensure that the fund is financially neutral. The R30,1m was not paid directly to the member.”

Okay, so check out the relevant rules. Rule 28 deals only with retrenchment. But Molefe had not been retrenched.

Rule 21(4) deals with the employer making a special payment to the fund for addition to the member’s pensionable service. But this rule also provides that it’s for the EPPF board, after consultation with its actuary, to determine “such period of past service”. Thus, in making its determination, the EPPF board must have been unfazed by Molefe’s past service of only 21 months.

Further, it’s for the employer to explain how it computed the R30,1m that Eskom paid to the fund for Molefe. The EPPF “clarification” passes the ball right back to Brown, for her to disclose whether the Eskom board decided with or without her approval to compensate Molefe for the balance of his five-year contract.

Molefe had earned R9,5m, inclusive of salary and bonus, for the financial year to end-March 2016. The R30,1m, arguably a golden handshake, pretty much equates the annual R9,5m projected for the 39 months that his contract had still to run.

Equally obscure is why, rather than how, the EPPF acted as the vehicle for the bonsella’s routing. Luthuli does his best to deal with the how, tying tighter knots as he does so. It’s for Brown to elucidate on the why, not least to remove the stain from the EPPF’s collaboration.

As this TT edition went to press, Brown was set to be grilled by parliament’s portfolio committee on public enterprises about Eskom and Molefe.

Promises, promises

Tshidi . . . often says no

In its latest annual report, the Financial Services Board identifies as “the key risk” in stakeholder relationships “stakeholders who may not fully understand our mandate and the legislative framework under which the regulator operates. About to be absorbed under ‘Twin Peaks’ to supervise market conduct, it claims to have “focused on strengthening relationships with all our stakeholders”.

So it should be, but isn’t. For instance, the category of “local media” is listed as a stakeholder. Under “what they need from us”, transparency is included. Then, under “issues raised/response” it mentions spokespeople being readily available and an enhanced website. If only it were so. In the experience of TT, a few recent examples:

  • Some spokespeople are readily available and invariably helpful. FSB executive officer Dube Tshidi isn’t amongst them. Neither is he much in evidence for the “better visibility of FSB representatives on public platforms”, part of the FSB’s proclaimed commitment;
  • For the litigation between Rosemary Hunter and the FSB, last November FSB-appointed inspector Jonathan Mort filed court papers which said that his second report should be read in conjunction with his third report which was “concerned with the treatment of unclaimed benefits in the funds listed in the KPMG summary”. Yet the FSB won’t make this third report available;
  • Following the recent High Court judgment on contingency fees in the Sable matter, summarised elsewhere, Tshidi was requested to supply a schedule of funds under curatorship and the fees arrangements for them. The purpose was to facilitate efforts by members of other funds on whether they might seek redress similar to Sable. Tshidi did not respond to the request;
  • So far as curators’ reports are concerned, the FSB website is useless. Information provided on it is sporadic and out of date. For instance, the FSB’s most recent statement on the 15-year curatorship on the Saccawu national provident fund is a media release dated 4 June 2014. There’s nothing on progress to get the fund out of curatorship, if indeed there has been progress. When asked, the FSB doesn’t respond.

The annual report also says that the FSB’s leadership ethos is based on transparency, accountability and responsibility. Thanks for that. Imagine how much worse it would be if the ethos were based on opaqueness, non-answerability and irresponsibility; especially from the new overseer of others’ market conduct.

A long life

Hunter . . . forever onward

Far from dying is the FSB’s contentious cancellations of “dormant” pension funds’ registrations.

Firstly, former FSB deputy executive officer for retirement funds Rosemary Hunter is nothing if not a fighter. Determined not to let her dispute rest until monies in cancelled funds are properly quantified, and earmarked for beneficiaries, she’s asking the Supreme Court of Appeal to overturn the rejection of her application by Gauteng acting judge H F Jacobs to appeal against his judgment (TT March-May).

In her application to the SCA, Hunter again argues for a court-supervised investigation into the cancellations project because she’d lost confidence in the willingness of the FSB and Finance Minister Malusi Gigaba “to conduct full and unbiased investigations without such supervision”.

She also enumerates areas where she contends that the judge had erred, such as his reference to there being so many disputes of fact that he saw no purpose in listing any of them. “There were no material disputes of fact relevant to the relief I sought,” Hunter argues. “The only real disputes were in relation to law, not fact, and related to the standard of proof that a fund had no assets and liabilities.”

Secondly, in April the FSB issued for comment a draft circular to clarify the requirements for cancellation of a fund’s registration. “A fund will have ceased to exist where such fund no longer has any assets, liabilities or members or litigation pending against it,” says the circular. “Where a fund intends to apply to the registrar for the cancellation of its registration . . . guidance (is) required to enable the registrar to be satisfied that a fund has ceased to exist.”

Some people might have thought, perhaps mistakenly, that this was always the case. However, the circular does specify the information that the registrar requires.

For the record

Canter . . . job well done

Good has come from Futuregrowth’s broadside last August about investment in state-owned enterprises. Chief investment officer Andrew Canter points out that Futuregrowth has had, and continues to have, productive engagements with several SOEs: “These appear to have served both investors, in assessing and monitoring issuers, and those particular SOEs, in their ability to access capital-market funding. Some other less transparent SOEs are struggling to borrow in the public capital markets.”

He insists that responsible investors should be allocating capital to enterprises with sustainable practices and governance. Rightly so.

Why then should Futuregrowth have sparked a storm? Perhaps the answer begins with the ANN7 interview where he was grilled by a panel of “experts”, including the facts-averse Jimmy Manyi.

It’s available on YouTube. For those feeling a little chilly this winter, it’s sure to get them hot if only under the collar.

Clueless savers

Consumers do not consider fees and charges to be a vital component of value for money in pensions, according to a survey of 15 000 pension-scheme members as reported by FTAdviser.

The UK study, which sought consumer views on the meaning of “value for money”, found that they were much more concerned with such issues as good returns and the security of their savings. Of the 23 attributes that members rated as important, charges didn’t make it even into the top 10.

The survey also found that members did not necessarily make the link between charges and returns, and that they had a low level of understanding pensions.

Sounds familiar.