On 21 September 2012 National Treasury (“Treasury”) released two technical discussion papers on promoting household savings and retirement reform. These papers follow from Treasury’s broader policy framework in respect of South Africa’s financial sector, which is set out in a policy document entitled “A safer financial sector to serve South Africa better” dated 23 February 2011 (the “Twin Peaks Policy Document”).
The two retirement reform papers are part of a series of technical discussion papers which expand on issues earlier raised by Treasury in an overview document on retirement reform1 and are titled “Enabling a better income in retirement” (“Paper B”) and “Preservation, portability and governance for retirement funds” (“Paper C”). Paper B provides an overview of the current annuities market, examines the various retirement products on offer in the market and presents several options for reform. Paper C addresses Government’s major concern that South Africans do not save enough for their retirement and that post retirement savings are not properly managed, by proposing various options to encourage preservation of retirement savings and by providing proposals to increase the portability of benefits between funds and to strengthen pension fund governance.
With respect to pension fund governance, Treasury states in Paper C that many pension fund trustees may lack the competence to make investment decisions consistent with the best interest of beneficiaries as a result of the increasing complexity in the financial world which often demands high levels of expertise. Given the fiduciary role of trustees, Government has therefore proposed to make it a statutory requirement for trustees to be “fit and proper” with relevant qualifications and expertise in the management of pension funds. To this extent, the proposal is that Pension Funds Circular 1302 (which deals with good governance for retirement funds and includes a requirement for trustees to receive comprehensive training) and the “Trustee Toolkit” (an online education programme for the development and education of retirement fund trustees launched by the Financial Services Board) be made legally enforceable. A further consideration is to professionalise the role of the principal officer of a fund such that he/she will play an executive role on the board with responsibility for the day-to-day running of the pension fund.
In the Twin Peaks Policy Document, certain legislative gaps in eleven financial sector laws, including the Pension Funds Act, No.24 of 1956 (the “PFA”), were noted. The Financial Services Laws General Amendment Bill, 2012 (the “Bill”) was thus drafted to address those legislative gaps and was tabled in Parliament on 25 September 2012, after having been released for public comment in March 2012. The proposed amendments to the PFA as contemplated by the Bill include provisions to strengthen pension fund governance. Some of the key amendments to the PFA include:
- whistle-blowing protection for board members, valuators, principal / deputy officers and employees who disclose material information to the registrar;
- a requirement for board members to attain skills and training as prescribed by the registrar within a certain period;3
- extending personal liability to employers in respect of non-payment of pension contributions to a pension fund;
- protection for board members from joint and several liability if they act independently, honestly and exercise their fiduciary obligations;
- provision to appoint a deputy principal officer and to delegate the functions of the principal officer to the deputy principal officer;
- deletion of the approval requirement in section 13B in respect of persons who administer the investments of a pension fund such that the approval is now only required in respect of persons who administer the receipt of contributions and the disposition of benefits;4
- power of the registrar to replace a board member if the registrar is of the view that the board member is no longer fit and proper to hold office; and
- contravention of certain provisions of the PFA being a criminal offence.
The amendments to the PFA contemplated by the Bill address the need for improvement of pension fund governance, but further detailed regulation is to be expected to give effect to the proposals made by Treasury in the technical discussion papers, specifically the proposed skills and training requirements for the board members of a pension fund.