April 3, 2010
By Laura du Preez
Retirement funds, their regulators and the government are struggling to contain a number of problems that have flared up in the otherwise well-regulated retirement industry as a result of an outdated and fraying Pension Funds Act.
At the Pension Lawyers Association conference held in Stellenbosch this week, speakers highlighted problems with employers who are not paying their dues, the difficulties of awarding death benefits when beneficiaries are fighting over the spoils, and trustees who are not fit for the job.
Another smouldering issue is the backlog of complaints at the Pension Funds Adjudicator's office, which has not improved, the conference heard.
Although the government is working on a major overhaul of the retirement savings system, there have been many delays, and proposals have yet to be finalised, which means new legislation could still be some way off.
This week, Finance Minister Pravin Gordhan appointed the outgoing Ombud for Financial Services Providers, Charles Pillai, to the difficult position of Pension Funds Adjudicator (PFA).
Pillai, as the first ombud for financial advice, has served for the past six years and, since 2005, has been the ombud to whom financial services complaints that do not fall within the jurisdiction of the other ombuds or adjudicators may be directed in terms of the Financial Services Ombud Schemes Act. He took over the adjudicator's position on Thursday.
The board of the Financial Services Board has appointed the current deputy ombud, Noluntu Bam, as the new Ombud for Financial Services Providers, also known as the Financial Advisory and Intermediary Services (FAIS) Ombud.
Gordhan says Pillai served as the FAIS Ombud in an exemplary manner, and his dedication and commitment contributed significantly to building up that office. He says Pillai has a sound understanding of the approaches to dispute resolution.
As the 2010/11 budget for the office of the adjudicator has provided for two deputies, it is expected that Pillai get deputies who can sign determinations appointed to alleviate more quickly some of the pressure on the adjudicator.
Gordhan also thanked the acting adjudicator, Elmarie de la Rey, for improving the functioning of the office during her six-month term that ended this week. De la Rey was appointed acting adjudicator when Mamodupi Mohlala left to take up the post of director-general in the Department of Communications.
De la Rey told the pension lawyers conference that she had signed 500 determinations in her six months at the PFA's office but had not made any inroads into the backlog of complaints.
She did not say how big the backlog had grown - at the end of the last financial year, in March 2009, the office had a backlog of 8 851 cases. However, she told Personal Finance the office is receiving an average of almost 500 complaints a month. Some complaints are being settled through conciliation.
De la Rey told the conference the backlog is a concern because justice delayed is justice denied.
She says that, over the past six months, the adjudicator's office has dealt with a difficult move, low staff morale and skills, and fallout from the scorecard Mohlala implemented in September last year.
When she took over, De la Rey says, 10 percent of her staff had either been suspended or retrenched but were still being paid, the office was facing four Commission for Conciliation, Mediation and Arbitration cases, the Cape Town office had been closed, staff were working in cramped conditions and were expected to draft an unreasonable number of determinations each month. In addition, the office faced 250 cases being taken on review.
Morale and skills have since improved, she says, with an increase in the number of determinations being signed off each month. However, there is an urgent need for deputy adjudicators with the ability to sign off determinations. Legislation providing for the appointment of deputies was approved in 2007, but no deputies have yet been appointed.
Procedures compared
The pension lawyers conference also heard that problems at the adjudicator's office may be related to the way the office is set up in terms of the Pension Funds Act.
John Myburgh, a former judge of the High Court and Judge President of the Labour Appeal Court, who is the chairman of the board of the Ombudsman for Banking Services, told the conference that the procedure for resolving pension complaints provided for in the Pension Funds Act is "out-of-date, ineffective and time-consuming, leading to protracted delays in finalising complaints".
He says the PFA is empowered to resolve complaints only through written determinations with reasons, and his view is that this is onerous, time consuming and requires much skill.
He compared the adjudicator's office, which is set up by law, with that of the Ombudsman for Banking Services, a voluntary scheme to which the banks subscribe.
Myburgh says the Ombudsman for Banking Services did not issue a single determination in the 2008/9 year, but resolved 3 336 cases with 22 staff and with a budget of R14.7 million. The turnaround time for complaints was 77 days.
The PFA, by contrast, had in the same year resolved 2 468 cases with a staff of 66 and with a budget of R33 million. The turnaround time for complaints was 240 days or eight months. Some complaints took significantly longer to resolve.
Some 4 408 unresolved complaints were carried forward, exacerbating the backlog the office has.
Myburgh says the PFA needs an alternative dispute resolution or mediation process to speed up the resolution of retirement fund complaints.
The adjudicator's office did launch a conciliation process in August 2008, and 1 164 suitable cases were selected for this process over the six months between September 2008 and March 2009. About 60 percent, or 689 cases, were resolved through conciliation, the 2008/9 annual report for the adjudicator's office reveals.
He says the banking ombudsman sends all complaints to the banks first before investigating. If the case is not resolved, the matter is investigated and an assessment made. Based on this assessment, the ombudsman's office may suggest a way in which the bank can settle the case. About 95 percent of cases are resolved in this way.
If the complainant wants to submit additional information, he or she can do so at this stage. This is assessed and the complainant advised if the ombudsman does not take the matter further.
If the bank does not accept the assessment, the banking ombud prepares a provisional recommendation. Only if this is not accepted is it referred back to the ombudsman for a determination, Myburgh says.
INVESTMENT RULES MAY CHANGE
A regulation under the Pension Funds Act that governs how funds can invest has become outdated as investment instruments and techniques have developed. The way in which funds can invest is regulated to protect your savings.
In an attempt to update this regulation, draft amendments to regulation 28 under the Act were recently released for comment.
One of the proposals is that retirement annuity (RA) funds will have to ensure that the investments in each individual RA policy comply with regulation 28.
This has led to speculation about the potential impact on RAs, the Association for Savings & Investments South Africa (Asisa) says. RA members who are, for example, fully exposed to equities, may have to adjust their underlying investments to ensure an exposure of only 75 percent.
But Peter Dempsey, the deputy chief executive officer of Asisa, says it is important to note that the proposed amendments are still only draft ones released for discussion.
The aim is of the proposals is to protect RA fund members from the effects of poorly diversified investments and portfolios that do not match their risk profiles, he says.
Even if the amendments go ahead, Dempsey says, RA members will still enjoy the benefits of RAs, such as the tax advantages, possible premium waivers in the event of disability and protection against most creditors.
  
 
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