Issue: June/August 09


Ready, aim...

New law puts principal officers in the firing line. SAMANTHA DAVIDSON of Shepstone & Wylie discusses their heightened responsibility.

Davidson...’fit and proper’ test

Davidson...’fit and proper’ test

In an attempt to clamp down on pension fund fraud that has cost members billions of rands in lost benefits, government has introduced a number of far-reaching clauses in the latest Financial Services Laws General Amendment Act.

Some of the more significant amendments relate to the appointment and role of the principal officer (PO); the establishment of private unclaimedbenefits funds and the introduction of beneficiary funds to be governed under pension fund legislation.

The custodian of any pension fund is the PO. Together with the trustees, he or she is responsible for the good governance and compliance of the fund. Under the new amendments, the role of the PO is crucial in ensuring that there are no fingers in the till.

Accordingly, they give the Registrar of Pension Funds the power to veto a board of trustees’ choice of PO if the Registrar believes the person is not “fit and proper” for the job. In exercising his discretion, the Registrar will consider such factors as competence, diligence, previous conduct in business matters, convictions for fraud and dishonesty.

The amendments also introduce a “whistle blowing” obligation on POs (and auditors) to report to the Registrar any matter which may prejudice the fund or its members.

The creation of privately run unclaimed-benefit funds is a proactive step to remove the potential for fraud that exists where pension fund monies remain unclaimed for many years or are even abandoned. Most benefits are considered unclaimed if they have not been paid within 24 months of the benefit becoming due.

In the past, this money often reverted to the fund. Now the value of the unclaimed benefit will be ring-fenced and may be transferred to an unclaimed-benefits fund from which claimants are able to claim their money at any time in the future. Claimants need to approach their original pension fund which will direct them to the correct unclaimed-benefits fund.

As has comprehensively discussed in TT, following the Fidentia debacle, the use of trust funds for payment of death benefits allocated to minor beneficiaries has been severely curtailed. The newly-created ‘beneficiary funds’ fall under the regulatory control of the Registrar.

Perhaps an irony in government’s attempt to clamp down on fraud, and the exploitation of pension funds, is that its own employees’ pension fund is not subject to the Pension Funds Act.