May 16, 2009
 By Bruce Cameron
What is it about retirement savings that allows so many people, employers, trade unions and companies to treat them as an easy source of wealth? And what is it about the Financial Services Board (FSB), with its raft of legislation to hand, that makes it too often appear to be unable to prevent the plunder and/or excesses?
And while I am asking questions, what is it about the office of the Pension Funds Adjudicator (PFA) that apparently renders it unable to get on top of what seems to be a growing backlog of member complaints?
One of the reasons given in the past for the backlog was that the adjudicator had to sign off on every determination. Legislation was amended more than a year ago to allow for the appointment of decision-making deputies, yet not one has been appointed.
It is not that the office of the PFA and the FSB are doing nothing. The issue, in my view, is that they are not doing enough to ensure the safety of our retirement savings.
Retirement fund service pro-viders and others will treat the FSB - and therefore our retirement savings - with increasing contempt if the regulator does not take quick and the harshest possible action every time those who are supposed to be the custodians of our savings do not maintain the highest standards of due care, morality and service.
Every one of us who is a member of a retirement fund is paying the FSB to protect our interests.
Last year the FSB received R219 million in levies. It also collected a further R23.4 million on behalf of the PFA.
The fees are being increased this year by a whacking 23 percent. Each retirement fund will have to pay a levy of R1 053 a year (currently R675.56), and each of the almost 10 million fund members will pay an annual levy of R8.70 (currently R5.57).
I don't want to make the FSB the villain of this column. The villain is Glenrand MIB, which is treating about 200 retirement funds and their 80 000 members appallingly.
The FSB needs to use the full force of its significant powers to show it means business, ensuring all players in the retirement- industry comply properly with the spirit and the letter of the law.
For example, if ever there was a company that should have its licence suspended, it is Alexander Forbes. It was the main offender in the secret profits bank account-bulking scandal. In the 1990s, it facilitated the stripping of the surpluses of a number of retirement funds, to the disadvantage of pensioners and members.
Alexander Forbes did this despite legal advice that what it was doing was not lawful.
Alexander Forbes has repaid almost R400 million of the secret profits (under pressure from the FSB, and some funds have challenged whether it has paid back enough). But when it comes to the asset-stripping, Alexander Forbes is playing complex legal games to avoid meeting the demands of the curator of the affected retirement funds.
Administrative mess
But let us look at the latest debacle: the move by Glenrand MIB Holdings Limited to place its retirement fund service provider, Glenrand MIB Benefit Services, into liquidation and thereby escape the awful administrative mess it has created.
By placing Glenrand Benefit Services into liquidation, Glenrand Holdings is seeking to avoid any further liability to put right what its wholly owned subsidiary has already been paid to do. In doing so, it could avoid meeting settlements already reached with funds, at least two of which were sanctioned by the High Court.
The result is that the funds will have pay at least twice for the same administration service. The funds have or are likely to face other costs. They include:
Legal costs in an attempt to resolve the problems caused by Glenrand, including having to make what are extremely difficult and time-consuming claims against the professional indemnity insurance held by Glenrand MIB Benefit Services; and
The high costs of liquidation, which will further reduce any claims the funds have.
And to make matters worse, in a number of cases Glenrand overcharged funds for the work it failed to do. Again, this is money that will be extremely difficult to recover fully if the Glenrand subsidiary is liquidated.
All these costs reduce the retirement benefits of the 80 000 fund members.
The reaction of the FSB to the liquidation move was initially and unacceptably to place full responsibility on the trustees of the affected retirement funds, telling them they had and have the ultimate duty to sort out the Glenrand mess.
The FSB says it can do nothing to intervene to stop Glenrand liquidating its subsidiary. It is probably right in saying it cannot do anything now, but it bears a lot of the responsibility for what occurred. In my view, it did not intervene early or firmly enough.
After a routine inspection in 2007, the FSB established, in the words of Marius du Toit, the FSB's chief actuary, that Glenrand Benefit Services "failed to perform its duties". (Du Toit is standing in for Jurgen Boyd, the FSB deputy executive in charge of pensions.)
The FSB threatened Glenrand Benefit Services with a full-scale inspection, which can lead to an offending party being placed under judicial management.
Du Toit says the FSB required Glenrand to present it with a solution. The solution Glenrand provided was to call in Absa Actuaries & Consultants to clean up the mess.
The worrying part is that Glenrand asked the FSB for its blessing to involve Absa. The FSB did so without demanding a copy of the Glenrand/Absa agreement or, even worse, setting its own terms for how and by when the administrative nightmare should be corrected.
Now we have the Glenrand holding company saying it cannot afford to continue with the FSB-blessed Absa operation despite having spent only half of the R44 million it set aside to sort out its own mess.
The FSB is a publicly funded organisation. It needs to investigate problems immediately and consistently, and tell the public what the problems are and how they are going to be fixed. It should not allow any escape hatches that allow companies such as Glenrand to abuse retirement savings.
I asked Glenrand Holdings chief executive Andrew Chislett why consumers, when they see how Glenrand is prepared to leave retirement fund members - and pensioners in particular - in the lurch, should trust the company in any other facet of its business operations. The main business of Glenrand is providing short-term broking services to individuals and companies.
His answer: "We obviously do not think it reasonable to suggest that clients of our short-term broking operation should consider this a concern that impacts service delivery to them. All client affairs are paramount, and our short-term broking operation is entirely separate."
Judge for yourself!
Cameron is the author of Retire Right (Zebra Press), which is now available in its second edition.
  
 
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