Issue: September-November 2011


An unholy mess

Thankfully, however, big strides have been made in cleaning up the PSSPF. There's a way still to go.

It's with good reason that the Pension Fund Adjudicator once identified the Private Security Sector Provident Fund as the worst in SA. The report of the interim board, appointed by the Registrar almost two years ago, is a litany of horror stories; so much so that it should be made publicly available on the Financial Services Board website as a case study for trustees to learn precisely how a fund should not be run.

Submitted to the Registrar in August when the term of the interim board expired, the report details exhaustive remedial efforts to purge the legacy of the previous board. Its's replete with details of governance, administration and legal compliance all gone seriously wrong.

It isn't exactly complimentary of previous service providers either. In particular, NBC hardly emerges with colours flying for the wonky administration platform largely to blame. Neither can employers take pride in their lackadaisical provision of contribution schedules, to the extent that they actually made obligatory payments at all.

Those who ultimately suffered, mainly from shambolic record keeping, were of course the PSSPF members and their families reliant on withdrawal benefits and processing of death claims. When the interim board took over, there were about 1 000 backlog complaints with the Adjudicator.

During its term the interim board responded to 850 backlog complaints, more than 600 new complaints During its term the interim board responded to 850 backlog complaints, more than 600 new complaints

The interim board is not yet comfortable with the level of benefit administration, says chairman Jonathan Mort: "The benefit administration problems are on the way to improvement but cannot yet be said to have been resolved adequately."

The interim board is not yet comfortable with the level of benefit administration, says chairman Jonathan Mort: "The benefit administration problems are on the way to improvement but cannot yet be said to have been resolved adequately."

If that doesn't strike a chord in the comfortable theorising about mandatory preservation of retirement savings, nothing will.

Inhospitable remarks

There's a little storm at trade union-based Hospitality & General Provident Fund. It arises from the fund's annual report being "modified" by auditors BDO on grounds that investments had been incorrectly accounted for i.e. not on the market-value basis that the FSB requires. Further, fund rules don't allow for the R8,4m "debit reserve account".

The fund trustees and administrator Borwa Financial Services shot back a lengthy response. They say that, if you are up in the equity market and then two weeks later the market falls, and you must liquidate on that date, "it will be disastrous and any liquidator would have to hold on until the market improves".

Moreover, the HGPF is an umbrella fund. This makes it impossible to liquidate because 840 employers would have to agree simultaneously to terminate. So long as a fund has strong cash flows, they say, it can effectively "go on forever".

What country risk?

For all the hammerings over corruption and incompetence, compounded by the nationalisation furore, the absence of a "political discount" in SA markets is striking. Using a sample of foreign exchange, rates and equity financial indicators, there's no evidence in macro-level asset prices that reflects rising SA political and policy risks.

The exercise was undertaken at end-July by Gordon Smith, head of investment strategy at MMI (into which RMB Asset Management has been merged). To take one indicator: a comparison of the BHP Billiton and Anglo American share prices.

Although Anglo is by far the more SA asset-sensitive general miner, and has underperformed Billiton over an extended period, coincidentally or otherwise its share price has actually outperformed Billiton since Jacob Zuma became SA president. More generally, SA has also outperformed both its emerging-market peers as well as global equities.

Smith also finds no evidence of any deterioration in SA's sovereign risk. The rand has been anchored by terms-of-trade dynamics. Credible monetary policy also continues to attract yield-desperate bond inflows. The local currency would probably be stronger were it not for the size and persistence of Reserve Bank intervention to dull its ascent.

...AGL has actually outperformed BIL in the Zuma period

...While SA has solidly beat global equities...

But there is a caveat. "Asset prices may be overly complacent and need to price in higher political risk on a gradual, incremental but sustained basis", he cautions. "More likely, any disastrous policy actions – such as nationalisation or asset seizures – would represent an ‘all bets off ' moment where investors would demand dramatically higher SA risk premiums relative to current benign settings."

Rulings in summary

From the Pension Funds Adjudicator:

  • A pensioner's monthly pension payments form part of his joint estate. His former spouse can claim a portion of it on that basis, not as a ‘pension interest' under the Divorce Act;
  • Because a complainant had not consulted the rules of a fund, and had not given it full details when he enquired about the payment of his spouse's pension, the fund could not be held liable for payment of damages;
  • A fund may make deductions from the member's fund value, where a housing loan has been granted to him, when the member has defaulted in the repayments. But this may be done only as a last resort and once the trustees are satisfied that no other arrangements can be made.

SA v Oz

While many larger SA pension funds are in search of ‘targeted investments' that include infrastructure developments, their Australian counterparts lack similar enthusiasm. This is despite Australia, like SA, facing huge infrastructure backlogs. One reason resonates for SA.

It's identified by Mark Schneider, of Investec in Sydney, quoted in the FT: "Often when governments are trying to bring private funding into deals, they haven't necessarily understood that there has to be a return over the government bond rate. Otherwise the project is just not going to work. They haven't been prepared to structure deals with an adequate return."


It's commonly thought that beneficiary funds are only for lower-income earners. They aren't, and pension fund trustees had better understand how they can ensure the upkeep and education of minor children once a member dies.


Krepelka . . . consider beneficiary funds

Beneficiary funds are in fact a cost-effective alternative to a testamentary or inter vivos trust for minor children, irrespective of the member's income, points out Fairheads chief executive Richard Krepelka. Now governed under the Pension Funds Act, they're umbrella funds that allow individual members' accounts to benefit from economies of scale.

All that an individual retirement-fund member need do is stipulate on his nomination form that the fund's trustees consider a beneficiary fund when allocating death benefits to minor dependants. He should also remember to appoint and stipulate a guardian for his minor children in the event of his death.

Members have a right to know their retirement fund's policy regarding beneficiary funds, including the appointed service provider.