Transformation: Editorials: Edition: April / June 2019

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Retirement funds must get to grips with a new set of disclosure requirements.
Here’s help for trustees.

The amended Financial Sector Code (FSC), gazetted and now effective, is at present a voluntary dispensation for compliance by retirement funds. This is because many aspects of the B-B BEE requirements cannot be relevant to them.

For example, the funds have little or no influence over their membership demographics. Neither do they usually have a large number of employees. But they do make decisions, amongst other things, on the appointments of private-sector service providers.

Nonetheless, because the funds hold over R4 trillion in members’ savings, the Financial Sector Transformation Council (FSTC) points out that they play a vital role in transformation itself. Accordingly, funds will be measured against particular metrics such as procurement and member education.

Says the Codes of Good Practice at s9(1): “The B-B BEE annual reporting by retirement funds should include a narrative on the B-B BEE score achieved and future plans for improving the score. The (FSTC) will measure transformation on an annual basis. This may include relying on surveys that are available in the public domain. If sufficient disclosure by pension funds does not materialise, then consideration will be given to revising this dispensation.”

The FSC document is not the easiest of reads and the schedule on retirement funds isn’t either. To help trustees through the detail, TT requested that certain terminologies be clarified. Trevor Chandler, special advisor to the Association of Savings & Investment SA (ASISA) and the FSTC, was happy to oblige.

TT: For compliance, what is the approximate dividing line between “large retirement funds” and funds not considered sufficiently large?

Chandler: We include the top 100 funds measured by assets. The definition includes all types of funds including umbrellas but excluding retirement annuities.

Where does “management control” reside in a fund? Presuming it to be in a fund’s board, then how does it reconcile with the right of members to elect up to 50% of board members e.g. if no trustees elected by members are black, or if there are no black candidates for election? Will the fund be penalised for not being adequately transformed and, if so, how will it be penalised?

Management control vests mainly with the board, but also with the principal officer and other employed executives in the few instances that this exists. Funds are penalised only through the allocation of fewer points on the management-control scorecard. You’re correct that the fund does not have control of the people that either the member or the employer puts forward. Principal officers will need to sensitise trade unions, employers and others to this dynamic.

Chandler . . . key terms explained

Is the fund’s principal officer included or excluded under the definition of “management control”?

The principal officer would be seen as equivalent to the chief executive officer in a corporate.

When it comes to amounts spent on “approved training” and “member education”, what if no amounts are spent by the fund itself for these purposes e.g. where trustees and/or members attend courses offered by service providers who pay for them? Will the fund be expected to report on these and be credited/penalised accordingly?

Funds are not scored on their skills-development spend for staff or financial education of members. They simply need to disclose information on training that was provided. This could include sponsored training.

They are not penalised in any way if they do not spend. Of course, rules of the Financial Sector Conduct Authority around gratuitous support must be considered. But this is beyond the scope of the Code.

Do funds usually record the racial profiles of their members? If not, any advice on how they might cost-effectively go about creating records that separate black from non-black members and men from women?

No, funds don’t usually record such profiles. But the data is often available from employers. Again, this is merely a disclosure requirement and not something that’s scored.

On “preferential procurement”, specifically on funds’ allocations of assets for management, would only the 48 asset managers listed in the latest 27four BEE.conomics survey qualify as “black-owned”? For reference, which other surveys are available in the public domain?

There are no other surveys of which I’m aware. However, the FSC rules are based on the FSC level and not only on ownership. There are many asset managers with good broad-based statuses e.g. Level 2 or Level 3. B-B BEE is about a wide range of balanced scorecard measures.

The FSTC says that, if “sufficient disclosure” by pension funds does not materialise, then a revision of the voluntary dispensation will be considered. Some guidelines of “sufficient”? Some indications of possible revisions?

It’s too early to comment. Now that the Batseta Council of Retirement Funds is a formal part of the FSTC, it would have to agree on compulsion. Decision-making at the FSTC is by consensus.

EDUCATION GUIDANCE

Previous TT editions have dealt with the FSC scorecard for trustee and consumer financial education.

For practical detail, retirement funds and service providers are referred specifically to the guidance note for criteria and measurement of this aspect. The note GN500 is available on the FSTC website.