Issue: December 2012 / February 2013


Everybody agrees

Too much talk and too many good intentions for too long. The horses at the water must be made to drink.

National Treasury and the Financial Services Board are hot on the need for training of retirement-fund trustees. They say so in no uncertain terms, as well they should.

There’s no reason more forceful than the recital of it in National Treasury’s latest batch of discussion papers: “Policymakers around the world have robustly debated the efficacy of a retirement-fund governance model which relies heavily on the expertise of pension-fund trustees. In a financial world of increasing complexity that demands high levels of expertise, it is widely believed that many trustees may lack the competence to make investment decisions consistent with the best interests of beneficiaries.”

That’s expressing it politely. Not only investment decisions but governance decisions apply too.

It’s common cause that most member-elected trustees of occupational funds are voted on the basis of popularity (to the limited extent that fund members bother to vote). Skills for the job are coincidental.

For their part, employer-nominated trustees are there because their company puts them there. This can be because they’re financial or HR officers, and so assumed to be more competent than anybody else, but not necessarily having a sufficiently specialist knowledge of retirement funds (which often they don’t).

Both the member and employer categories are weak without the training. The interests of beneficiaries consequently suffer.

Moreover, to the extent that employer trustees have superior financial skills to shop-floor employees, the 50/50 balance of representation (under the Pension Funds Act) can be undermined by an imbalance of influence. What’s more, there’s potential for interest conflicts; for instance, in employer trustees showing bias towards service providers who’re customers of their companies.

Funds of trade unions are another story. The Trilinear debacle (TT Sept-Nov ’12) is the latest scream of warning.

What’s to be done?

“Given the pivotal fiduciary role that trustees play,” says National Treasury as a policy proposal, “it is critical that they have appropriate professional qualifications and experience to deal with the complexities surrounding pension funds.”

So on the way is a statutory requirement that trustees pass a “fit and proper” test, requiring that they undergo “some form of training” to ensure that they’re “empowered with the requisite skills and information to carry out their duties continually and consistently”. They’d need to qualify within six months of assuming office.

Mokupo ...project gains traction

Now comes the hard part:

  • How much time is needed for proper training;
  • How to get employers to allow trustees sufficient time off from work to join training courses, and to assure trustees that the time off won’t prejudice their career prospects;
  • How to incentive aspirant trustees to attend training courses and incumbent trustees to attend refreshers;
  • How, and how much, to pay trustees if they are to be paid additionally to their day jobs;
  • How to reduce ‘churn’ so that trained trustees aren’t regularly replaced by novices;
  • How the training programmes of the FSB can be coordinated or integrated with those of private-sector service providers, the former having a statutory duty and the latter having a commercial or corporate social-investment interest (not to be confused with marketing).

A big boost to training, without charge and without the constraint of classroom schedules (but obviously also without the advantages of personal interface), is the FSB’s excellent online educational programme. This e-learning ‘trustee toolkit’ methodically takes trustees – in fact, anybody involved or interested in the retirement-fund industry – through just about all they need to know for implementation of the comprehensive circular PF 130 on the good governance of retirement funds. This circular is itself to become a legally-enforceable directive.

The toolkit programme is the baby of Wilma Mokupo, head of pensions (prudential) at the FSB. Highly user-friendly, it provides for self-assessment and a certificate on its completion. It might not be a guarantee of the “fit and proper” qualification, but it will certainly help.

According to the latest FSB annual report, recently published for the year to end-March, since going live last June over 1 700 people had registered for the programme. Of these, 73 had completed the final assessments and received their certificates.

Just for getting a comparative sense of the distance to go, National Treasury estimates that there are now about 3 500 active retirement funds. By law, each must have a minimum of four trustees. It means that there are, at present in the SA marketplace, at least 14 000 trustees (some sitting on more than one board, many boards having more than four trustees).

The number of funds is rapidly contracting from the 15 000 or so a decade ago. As they increasingly consolidate, it’s reckoned that there could be as few as 600 funds (umbrellas and standalones) within the foreseeable future.

It will make policing a whole lot easier, training a whole lot more focused, professionalism a whole lot more achievable and – unless ways are found to resolve it within the umbrella structures, assuming there’s a wish to resolve it – member participation a whole lot more remote.

For the institution-sponsored umbrellas, training is not an issue because professionalism of trustees is an attribute they boast. For standalone funds, however, it’s a serious challenge. Either they rise to it or their independence will be lost.