Pension fund management is a subset of corporate management; it is the mirror image of corporate management in a company, which consists of a set of relationships between the company's management, board of directors, shareholders and other stakeholders. The same principles that apply to business assets in general also apply to the management of pension assets.
CHAPTER ONE
- INTRODUCTION
- BACKGROUND OF THE STUDY
- MOTIVATION FOR THE RESEARCH
- VALUE OF THE RESEARCH
Many commentators claim that pension fund governance is largely ignored by most. I believe this research is invaluable to the pension fund industry and indeed to my organization.
CHAPTER TWO
LITERATURE REVIEW
A PERSPECTIVE ON RETIREMENT FUND GOVERNANCE
Fund management consists of all relationships between various entities and persons participating in the operation of the pension fund. Therefore, they are subject to a potential conflict of interest between parties participating in the management of the fund.
A SOUTH AFRICAN CONTEXT
The rules state the fund's objectives and how these are to be achieved. The board should ensure that the fund's assets and deposits are invested in accordance with the fund's rules.
SOME INTERNATIONAL PERSPECTIVES
A clear understanding of the role, responsibilities and powers of the board of trustees is essential for the effective functioning of the board. Assessments of the performance of the board as a whole should take into account measures based on the mission statement and strategic objectives and the board's own governance policies.
GOVERNANCE AND COMPLIANCE
- Thc Financial Services Board
- Governance and compliance
The trustees of the pension fund's board of trustees are responsible for identifying the legislative provisions applicable to the fund, conducting an audit of the fund and determining where action needs to be taken. Therefore, the trustees' responsibility to the members is first to ensure that the fund operates according to the principles of good governance.
RETIREMENT FUND GOVERNANCE REGULATION
- Retirement Fund Governance Regulation in the international context
Arrangements should be put in place (including, where necessary, priority creditors' rights for pension funds) to ensure that contributions owed by the employer to the fund are paid in the event of its insolvency. Reporting channels should be established between all persons and entities involved in the administration of the pension fund to ensure efficient and timely transmission of relevant and accurate information.
Retirement Fund regulation in the South African context
- Retirement Fund Governance model
The question can be raised as to which pension fund governance model is appropriate to improve the effective regulation of pension funds. It is submitted that no single model can be identified as universally dominant and fund governance concerns must be addressed with reference to the specifics, relationships and operations that characterize a particular fund. In general, good governance is for the governing body to have only strategic and monitoring responsibilities.
PENSION FUND GOVERNANCE REVIEWS
However, funds will be encouraged to use external consultants because reviews require a wide range of expertise, such as legal, actuarial, audit, administration and in-depth knowledge and the use of independent parties can provide greater assurance to those conducting the reviews. request. To assure the Board of Trustees that processes are adequate to ensure that the fund complies with;.
Future Movements
The strategy must state the percentages of the fund's assets that can be invested in different asset classes, as well as the extent of discretion given to asset managers. The asset manager's performance must be monitored regularly as set out in the strategy. The board must provide members with an easy-to-understand summary of the investment strategy.
The investment products offered to members must match the risk profile and age of the members. Trustees will need to properly document their decisions about each of the stages of the investment process in an investment strategy document.
CHAPTER THREE
Sample description
The survey deliberately excluded chief officers and focused only on company trustees and members, as this would elicit responses from the actual people who are expected to make the decisions. The survey itself was conducted from October 2003 to January 2004 and reflects the responses of 214 administrators from a range of industry sectors.
Instrumentation/Research tools
Procedures used
CHAPTER FOUR
REPORT ON FINDINGS.l
FUND ADMINISTRATION
Question two asked respondents whether the administrator's performance was monitored on a periodic basis against predetermined and agreed criteria. The responses depicted below indicate that the majority of funds meet the six-month deadline for submitting annual accounts. One of the requirements in the Pension Fund Act is that adequate compensation and negligence cover must be taken care of by the fund's administrator.
In addition, administrators are expected to testify in the administrators' report in the annual financial statements that they are satisfied with the extent of the administrator's coverage. This survey asked about the extent of cover received by the administrator and whether respondents considered this to be adequate or not.
THE BOARD OF TRUSTEES
The background of the fund chairman may indicate the extent of the employer's influence on the fund or the extent of the fund's independence. However, as the bar chart and frequency table below show, the majority of responses indicated that most funds are run by employee-elected trustees. 73% of trusts surveyed said their trusts did not provide formal trustee training, compared to 27%.
Of the 214 funds surveyed, 103 indicated that they had a formally documented code of ethics, 75 indicated that they did not and 33 were unsure and 3 responses were missing. The question to verify if the funds have a fiduciary cover for the trustees as provided by the legislation 89% of the funds indicated that they have the very important cover, only 3% said no, 6% were not sure while 2% no answer .
LEGAL COMPLIANCE
The average response to this rating was 5.88, with 16% rating their compliance below the 5% average. The FSB has placed considerable emphasis on the compliance issue for funds operating under rules and rule changes that have been approved (section 13A). The overall level of compliance in submitting rule changes appears to be high at 71% (Compliance).
INVESTMENT MATTERS
Question twenty of the questionnaire asked respondents to rate their involvement in designing their fund's investment strategy on a scale of 1-10. Here too, the general view is that the only member communication takes place through the year-end member statements, which do not necessarily articulate the investment strategy. I would also like to note that it is the Financial Services Board's requirement that fund strategies be communicated to members.
A very disappointing 97% said their funds had not formally communicated the investment strategy to their members, 2% did not respond, while only 1% felt it necessary to do so. 81% of respondents indicated that they were not familiar with these standards, 10% did not answer the question while only 9% said yes.
REPORT ON FINDINGS. 2
Summary Frequency Table (Pension Fund Management Survey Data1 Highlighted cells have counts > 10. Marginal summaries are not highlighted) FSB Submission I Compliance. Summary frequency table (Pension Fund Management Survey Data1 Highlighted cells have counts > 10. Marginal summaries are not highlighted). Summary Frequency Table (Pension Fund Management Survey Data1 Highlighted cells have counts > 10. Marginal summaries are not highlighted) LevOfldemnity.
Summary Frequency Table (PENSION FUND MANAGEMENT SURVEY DATA1 Marked cells have counts > 10. Marginal summaries are not marked) NoOfTrustees j Compliance | Compliance j. Summary Frequency Table (PENSION FUND MANAGEMENT SURVEY DATA1 Marked cells have counts > 10. Marginal summaries are not marked) IndepTrustees j Compliance. Summary Frequency Table (PENSION FUND MANAGEMENT SURVEY DATA1 Marked cells have counts > 10. Marginal summaries are not marked) Meet/Annum in Compliance.
Frequency Summary Table (PENSION FUND MANAGEMENT SURVEY DATA1 Marked cells have counts > 10. Marginal summaries are not marked) NoticePeriod J Compliance I Compliance i.
CHAPTER FIVE
- Fund Administration
- Board of Trustees
- Legal Compliance
- Investment matters
With the change in the composition of trustee boards, the education of trustees is becoming more and more important. Disappointingly, when asked whether the identified risks are addressed, most respondents indicated that the risks were not addressed or that they were not sure, and some did not answer at all. Section 13A provides that "Notwithstanding any provision of the rules of a registered fund to the contrary, any contribution payable in respect of any member of the fund to the fund shall be paid directly to the fund by or on behalf of the member within seven days after the end of the period for which the contribution is paid, and the board of directors deposits the contribution in the name of the fund with an institution registered under the Banking Act of
The results of this survey were quite disappointing, with the majority of respondents saying that their funds do not comply with Rule 28, not familiar with GIBS, the fund's investment strategy not formally. There are some issues that the FSB needs to step up on (such as rule changes, turnaround times) and it may be that some sections of the Pension Fund Act need to be reviewed to tighten up the management of the funds.
APPENDICES
In accordance with these rules, the management of the Fund rests in three Trustees of the Fund appointed by the Employers, namely Jan and Laurie Korsten and Riaan Els. CAF (Pty) Ltd (a company also controlled by Laurie Korsten) remained the investment manager of the Fund until the Fund was placed under curatorship during 1997. During December 1997, the curator instituted action against Old Mutual for damages suffered by the Fund.
The Cape High Court dismissed the fund's claim last year on the basis that Old Mutual did not cause the damage suffered by the fund. The court also held that none of the amounts transferred to CAF (Pty) Ltd, including approx. R23 million transferred by CAF (Pty) Ltd to bank accounts in the name of the Foundation was effectively under the control of the Foundation.
RETIREMENT FUND GOVERNANCE TN SOUTH AFRICA
