Issue: June/August 09
Liberty Life

Does SA need a separate pensions regulator?

Baron Furstenburg, head of pension reform strategy at the Liberty Group, opens the debate.

Furstenburg...reform issues abound

Furstenburg...reform issues abound

From the social security and retirement reform points of view, most of last year was spent in trying to find ideological common ground between National Treasury and the Department of Social Development. Add to the mix the newly-created Department of Economic Development and whatever the National Planning Commission will have authority over, and the cocktail becomes even more interesting.

Now append to the politics the technical issues and legislative implications. It then becomes clear that debate around pension reform and design of the social security system is sure to continue for quite some time. Nevertheless, there are a number of intriguing questions hidden in the detail. Many may need to be answered in the wake of more detailed proposals from government, which we await with bated breath.

One of those questions is whether SA needs a specialised pensions regulator housed outside the Financial Services Board. This might not be as extraordinary as it sounds, although we’ve become accustomed to the FSB as the regulator for the non-bank financial sector.

Some argue that a pensions regulator requires staff with specialised regulatory, legal, actuarial, accounting and pensions skills. This, in combination with the fact that pensions usually affect millions of a country’s citizens whose savings are most often held effectively in trust, may imply that a separately resourced and focused regulator is the best way to go about protecting the interests of fund members.

Examples from abroad

Looking at other jurisdictions, there’s certainly precedent. In the UK, for one, the primary financial-sector regulator is the Financial Services Authority. It has wide-ranging powers and oversight over banks, insurance companies, stock exchanges, credit unions and the like.

But occupational, work-based pensions are regulated by the Pensions Regulator (, a statutory body that reports directly to the Secretary of State for Work & Pensions. It currently has about 330 staff members. Much like the Registrar of Pension Funds at the FSB, it is funded by a levy on scheme members.

Chile, the “pioneer” of pension reform in the 1980s, also has a single pensions regulator called the Superintendencia de Pensiones. The Chilean system is highly regulated, yet innovative both from regulatory and privatesector perspectives. The list of separate pensions regulators extends to Kenya, Nigeria, India, Ireland and Italy.

The issue of financial supervision is often complex. A number of different models are found. In some jurisdictions, such as China and Zambia, pensions supervision is combined with insurance supervision. So there are examples across the entire spectrum from single regulator to specialised and multiple regulators.

Arguments from all sides

Some could argue that, in the SA context, the question of whether to have a freestanding pensions regulator is moot. The Registrar of Pensions’ department at the FSB has about 90 specialised staff and already supervises the pensions industry. We are accustomed to regulation by the Registrar. What use would it serve effectively to strip his office out of the FSB?

An economist might argue that there are economies of scale to housing the Registrar of Pension Funds within the FSB, and therefore imply a lower cost. A further argument could be made that we have seen, in legislation affecting the financial sector, a proliferation of regulators and quasi-regulators: the Registrar of Banks, the National Credit Regulator, the various Registrars housed in the FSB, the FAIS Ombud, the Pension Funds Adjudicator etc. So there is really no need for another separate body.

Others might argue that, under a system of auto-enrolment and/or compulsion, there’ll be more millions of citizens coming into the social security and retirement net. We’d then need a regulator that stands tall, is adequately funded and safeguards the primary savings of the nation. For some countries, it was a sufficiently important issue for them to have devoted significant resources to the establishment of such a body.

Let’s at least have the debate.