CURRENTS: Editorials: October 2019 / January 2020


Take another look

Too much noise. Too little attention to routines.
What’s best for retirement-fund members too infrequently revised.

Regulation 28 sits there, like a big clunk, cast in concrete and limiting the choices of savers to invest their own money. But they do have choices, fundamentally whether or not to join a retirement fund at all and whether to accept membership as a condition of employment.

Ostensibly positioned as the state’s instrument to nanny retirement funds into prudent diversification of portfolios, Reg 28 should be subject to more comprehensive reviews than the last time in 2011. Because some important circumstances have changed, and experiences have accumulated, it should change to accommodate them.

The hoariest restriction is on the asset allocation which places a 75% ceiling on exposure to equities. One size doesn’t fit all. While it’s prudent for savers nearing retirement to be invested in conservative portfolios, it’s imprudent for younger members of funds who have much longer pre-retirement investment horizons.

They needn’t be sheltered from perhaps 30 years of equities’ volatility. Over time, it evens out and equities historically outperform other asset classes. To prevent younger members from a 100% exposure to equities prejudicially constrains 25% of their portfolios from aggression during their kickstart years.

Then too, the demography of the JSE is changing. In 2011 it had over 400 listed companies. By July this year, the number had contracted to 357. And within this number the paucity of choices for retirement funds is further exacerbated in terms of market capitalisation and liquidity, not to mention pedestrian performances in a stuttering economy.

Favour goes to the shares of companies whose revenues are significantly earned abroad. This is the best that asset managers can do once they’ve already hit the 25% ceiling that Reg 28 allows. The ceiling itself squeezes funds into the tightly-concentrated JSE, restricting their broader geographic diversification that should be a hallmark of prudence.

But under the present Reg 28, asset-allocation prudence can go to 100% in cash and 100% in government bonds. The former is the sure way to lose against inflation. The latter is hazardous without government debt under control.

Bring on greater direction of funds’ cash flows into such alternatives as private equity and infrastructure projects that Reg 28 allows, it’s said. But the opportunities will need to be available, or created, and there’d still need to be balance in portfolio constructions.

Amidst the noise over prescribed assets that government doesn’t simply kill, the rand hedge-reliant JSE and the politically-battered levels of confidence, retirement funds could do with a signal that there’s a guardian angel in Pretoria who hasn’t forgotten about their members.

The regulatory clunk of concrete should be modernized so that members are encouraged to remain in their funds rather than divert to individual options which allow greater discretion.

Head for court

Cohen . . . battle continues

With the Financial Services Tribunal having thrown back the ball to Pension Funds Adjudicator Muvhango Lukhaimane, over the R40,5m award she’d made against actuary Viv Cohen in determining a complaint by the Amplats Group Provident Fund, she was left with a decision on what to do next (TT July-Sept).

It was never going to be easy. The tribunal had said that the jurisdictional process to reconsider a determination was a “mystery”, even to it. Lukhaimane’s initial response was to ask relevant parties for their proposals.

“After not receiving any further filings from the parties, we closed the Amplats complaint with a note to them that not all is lost,” she says. “The tribunal has shed some light on where liability lies and therefore they should proceed to recover the funds.”

It cannot end there. A hole remains in the assets of the Amplats fund. Somebody will have to pay; if not Cohen (unlikely, on a read of the tribunal’s finding), then perhaps an insurance policy (of the fund or for its trustees, depending on how the matter is resolved), or maybe even Sanlam as the fund’s administrator (so far exonerated).

The only course, it seems, is for the matter to proceed in the High Court. There a trial will have to start afresh, for all the parties to be heard, as if there had never been a determination by the adjudicator nor a decision by the tribunal.

To the extent that the tribunal had shed “some light”:

  • As Cohen had not performed a duty under the Pension Funds Act, the complaint by the fund against him did not fall under the jurisdiction of the adjudicator;
  • It was irregular for the adjudicator to have obtained evidence without due notice to the parties.

Now the “mystery” compounds:

  • If appeals against determinations by the adjudicator must still go to court, is the tribunal undermined in its purpose for cost-efficient redress?
  • If there isn’t a “complaint” to be reviewed by the court, as in this Amplats matter, then how is the issue before the court to be defined? Who’ll be suing whom, for what, if respective parties blame one another for the loss caused to the fund? And who’ll ultimately be liable for costs of the litigation that the tribunal was supposedly to have averted?

The only point not in dispute is the fact of the loss, yet to be finally quantified, whether by flaws in oversight or administration or combinations of both in different weightings. There’d need to be applicants and respondents — between the fund’s board, its individual trustees, Sanlam and Cohen – for the litigation even to start.

Out of court

The long-awaited trial in the R70m claim by the PEP Limited Provident Fund against the Financial Services Board, allegedly for negligence by the regulator having caused the loss to the fund (TT April-June), is being negotiated for settlement.

Disappointing will be confidentiality of the settlement terms. Then details will somehow have to be disguised from disclosure in the annual reports of both the fund and the Financial Sector Conduct Authority, successor to the FSB. This is hardly the purpose of annual reports.

Frustrating will be secrecy over negligence admissions, if any, by the regulator; neither their nature nor whether any monies paid in settlement are covered by insurance (which can affect FSCA levies). Also, the absence of a judgment makes a precedent impossible to establish.

Infuriating is the overall lack of information about the Trilinear debacle. Since it broke seven years ago, and was followed by certain arrests, there’s been nothing in the public domain about the progress of liquidations and recoveries or even of criminal prosecutions.

Change at the top

There’s to be a new chief executive at the Financial Sector Transformation Council. The contract of Isaac Ramputa, which runs until end-October, hasn’t been renewed.

Based on a revised job spec that’s been compiled, the search is on for his successor. Until an appointment is made, chief operating officer Busi Dlamini will act in his stead.

The role of the council is to oversee implementation of the gazetted Financial Sector Code. It commits the industry, from life offices to banking institutions, to B-BBEE transformational objectives in terms of specific criteria. An injection of excitement wouldn’t be out of place.

Ramputa, acknowledged as a skilled negotiator for having bridged disparate views of constituents as the council took up its role, is a seasoned trade unionist. Fortunately, he won’t be lost to the industry. Amongst other offices he’ll continue to hold are chairman of the ASISA Foundation and president of Batseta.

Ramputa . . . solid service

Transnet saga

That the Transnet pension funds aren’t supervised by the FSCA means that their members cannot seek interventions from the regulator. It’s for the funds’ trustees to act vigorously, where they should,  and for members to join in class actions, as they have in a matter that drags on (TT July-Sept ’16); most recently in yet another legal technicality that delays payments due to pensioners from their former employer since 2003.

Unrelated to this is a different scrap. As revealed by the amaBhungane centre for investigative journalism, it arises from a settlement by which Regiments Capital has agreed to pay the Transnet Second Defined Benefit Fund some R500m to compensate the fund for fees irregularly earned.

The allegation was that Regiments, appointed with influence of the Gupta family on the fund’s board, had “churned” bonds in the fund’s portfolio by buying them for itself and selling them back to itself at a lower price, taking profits on the difference at the fund’s expense.

It resonates with the front-running process for which stockbroker Greg Blank was sentenced to eight years’ imprisonment in 1992. Regiments, an authorised financial services provider, is regulated by the FSCA.

Next step in the scrap is how Regiments will pay. The proposal is that it transfers to the fund a batch of Capitec shares held in a vehicle, Coral Lagoon, significantly owned by Regiments.

But Capitec is fiercely resistant on grounds that, although uninvolved, the bank’s B-BBEE status will then be jeopardised. Capitec had issued 10m shares to Coral “with the sole purpose of creating an enduring B-BBEE transaction,” it said.

Now there’ll be argument on whether the transfer from Coral to the Transnet fund is permissible and, if it is, whether the fund is entitled to sell them. Alternatively, it could continue to hold them. In this case, presuming it can be shown that the Transnet fund’s board and members are overwhelmingly black, there’s no apparent reason for the B-BBEE stake in Capitec simply to shift from one empowerment vehicle to another.

However, it could open a can of worms over pension funds’ recognition as B-BBEE shareholders. Let the can be opened.

Namibia too

SA isn’t alone. From neighbour Nambia it’s reported that the Government Institutions Pension Fund, which handles the savings of public servants, has money missing. Julius Kandjeke, the auditor-general, puts the amount at N$600m (roughly the same in SA rand) but the GIPF has put it at N$386m.

Whatever the amount, prosecutor-general Martha Imalwa believes that the monies are irrecoverable because of insufficient evidence. The amounts are said to have been lost mainly through loans granted from 1995 to 2004 but not subsequently paid back. Beneficiaries of the loans, in the fund’s “development capital portfolio”, were allegedly politically-connected individuals.

“Someone should be held accountable,” Kandjeke is quoted as having said. Forceful stuff.

Good move

Members of retirement funds will now be able to secure longevity protection within a living annuity. This follows the FSCA announcement of an exemption from its criteria for living annuities in the default-investment strategy.

It’s welcomed by Just SA chief executive Deane Moore: “This exemption expands customer choice and will help to improve the financial outcomes of people in retirement.” 

Kandjeke . . . pensions gone