Issue: Oct 2010/Jan 2011
Editorials

FUNDS ADMINISTRATION

Another disaster

No sooner is Glenrand MIB sorted, at huge cost and disruption, than along comes Pioneer Employee Benefits, now in liquidation. Ask who’ll accept responsibility.

Bryan Hirsch

Hirsch . . . high regard

Strong brands don’t automatically ensure strong pension-fund administration. It requires deep pockets, long-term commitment, specialised managerial competencies and – perhaps most of all – a technology platform that’s up to the job. Or the consequences, when monies in and out cannot be reconciled, can be devastating.

Clients are left in confusion, unable to ascertain with certainty the payments due to and from fund members in a situation made the more complex by individual investment choice. The service provider can suffer serious reputational damage, and then some; like litigation and claims on fidelity insurance that might or might not fully pay out.

Even the Financial Services Board could be in for a drubbing, accused of too easily handing out administration licences under s13B of the Pension Funds Act and then being too slow off the mark in its supervisory role.

As if the calamity at Glenrand MIB wasn’t enough, at least one other administrator is apparently in deep trouble. Clients in the Abacus pension and provident umbrella funds, having been administered by Pioneer Employee Benefits (PEB), are hopping mad.

“What most irks me is that Pioneer has simply walked away,” says one. “We’d only got involved because of our high regard for the Pioneer financial planners who’d been our pension consultants.”

In fact, PEB is bust and has been put into liquidation by shareholders Pioneer Financial Planning (PFP) and Sasfin. PFP held 70%, with PFP’s Bryan Hirsch also serving as PEB executive chairman. Sasfin held 30%, wound down from its original 40%, and hasn’t had a director on its board since 2006.

For a little history, Sasfin found itself in the employee-benefits business as part of its Frankel Pollak Securities purchase in 2000. Hirsch and his team came with Frankel Pollak to run the business. In mid-2004 it was bought out of Sasfin to operate under the Pioneer name.

We’ve had no involvement in the management since then,” insists Sasfin chief executive Roland Sassoon. “When we sold Pioneer the business, it was in good health. There were the normal warranties, giving them a period in which to bring claims. There weren’t any, or hints of any. The difficulties were after our time. They came as a shock.”

Hirsch, the most lucid and high-profile of financial-planning commentators, admits to a situation that is “bloody awkward”. He withdrew from the Pioneer pensions business about two years ago, he says, and its twice been outsourced.

This doesn’t necessarily relieve him and his erstwhile PEB co-directors of personal liability: “I’m aware that certain allegations are being thrown around and threats are being made. I’m not sure the allegations that Pioneer has walked away, and left clients in the lurch, are correct. I’ve endeavoured to check these statements with Pioneer. Those I’ve been fortunate enough to speak to have denied the allegations.”

In a written statement, Michael Young of law firm Young-Davis says that he’s acting for the Pioneer International Group with whom PEB “was indirectly connected” through PFP. He notes that some two years ago PEB decided to exit the pension-fund administration business:

“To ensure administrative continuity PEB, with the sanction of the FSB, arranged for a new administration manager to take over the administration of the various funds previously administered by PEB. The new administration manager was licensed to act as such by the FSB and the takeover was approved by them.

“To facilitate the takeover, PEB worked closely with the FSB. This takeover process and its implementation was done at no additional cost to the funds concerned, including Abacus whose trustees approved the takeover.”

The Abacus umbrella funds, administered by PEP, had their own boards of trustees. So far as can be ascertained, the provident fund had 26 member funds and the pension fund 10. Clients included Fluxmans Kallmeyer & Strine, Transpaco, Smollan Holdings and Sasani Africa. “I have no doubt that there are unhappy customers,” says Hirsch.

They might become unhappier still. While they can’t get clear financial statements, but are at least getting a proportion of monies that become due and payable to members, they’re waiting for the database to be rebuilt. They know that it has to be rebuilt. What they don’t know is who’s to pay for it.

A separate discussion awaits on how that protective s13B fell down. It was gazetted in March 2002 precisely to tighten the conditions for administration of pension funds and precisely to avoid misfortunes like these.

MORE TO COME?

Another respected consultancy in employee benefits, whose operation of umbrella funds is relatively small, is also said to be having problems with its administration. But so vigorous is the denial from the company’s spokesman that to identify it would be premature, lest fuelling a rumour causes it to eventuate.

He admits that there’s recently been an FSB investigation, and hastens to add: “These investigations take place routinely. I’m unaware that ours took place because of any suspected problems and would be surprised if there’s anything unusual.” He’s also unaware, seemingly, that certain clients are “highly nervous” (to quote one, on condition of anonymity) and are shopping for an alternative administration service.

Most definitely in the firing line, however, must be Akani. Until February 2008 it administered the defined-contribution Municipal Councillors Pension Fund for which, in September, the FSB appointed an interim board.

“Following complaints by various stakeholders and members of the MCPF, the Registrar called for an inspection into the affairs of the MCPF,” says an FSB statement. Whilst no evidence of fraud or misappropriation of fund assets were found, the inspectors concluded...that there were material governance failures and that the fund’s previous administrators maladministered the fund.”

Akani isn’t mentioned by name. But a memorandum earlier this year by one of the stakeholders, Swartland municipality executive mayor A T van Essen, is explicit. It contends that, on termination of the Akani administration contract, the handover of data from Akani to Absa was “less than ideal” – to such an extent that Absa still could not verify councillors’ contributions (and hence entitlements) with any degree of certainty.

The memo further contends that the last audited MCPF financial statements were to end-June 2006. Also, it says, membership data had been lost. And, although there had been a High Court application compelling Akani to “facilitate an orderly handover of the MCPF administration”, six months later nothing had yet been heard.

The result was “a great deal of dissatisfaction amongst councillors...(and) many no longer wish to remain members of the fund.”

The MCPF was established 22 years ago. Its membership comprises some 7 000 councillors from almost all of SA’s 283 municipalities.