Pension fund fracas heads to court

Retired judge Kate O’Regan was appointed by the FSB to investigate the cancellations project, but Hunter has yet to see her final findings. (Oupa Nkosi, M&G)

Retired judge Kate O’Regan was appointed by the FSB to investigate the cancellations project, but Hunter has yet to see her final findings. (Oupa Nkosi, M&G)

The lid was blown off long-simmering tensions at the Financial Services Board (FSB) this week, when deputy registrar of pensions Rosemary Hunter served court papers on, among others, her immediate boss, her employer and Finance Minister Pravin Gordhan.

The unprecedented move by a serving government official relates to long-standing concerns that Hunter has had over the cancelled registration of thousands of pension funds by the board between 2007 and 2013, under its “cancellations project”.

At the heart of the matter is Hunter’s belief that the way in which the cancellations project was managed was unlawful and this may have prejudiced these funds’ members, former members and beneficiaries.

In many cases, these individuals would have been among the country’s poorest and most vulnerable people.

The amount involved may run to more than R1‑billion, according to one estimate in court documents.

Hunter also alleged that the manner in which the cancellations project was done advanced the interests of large financial services companies that were providing services to many of these dormant funds.

In court papers Hunter accuses the FSB’s chief executive and registrar of pension funds, Dube Tshidi, of working to frustrate her investigation into the cancellations project as well as subjecting her to unwarranted disciplinary action. Other efforts to get her to leave the FSB included the offer of a “golden handshake” of about R6‑million, which she refused.

In addition, Hunter claims the board did not properly exercise its fiduciary duties because it failed to fully address complaints about the handling of the cancellations project and Tshidi’s alleged conduct.

The FSB declined to comment on the specifics of Hunter’s allegations, but said the money was still accessible to claimants through unclaimed benefits funds (see “Unclaimed benefits can still be retrieved, says FSB”).

Hunter wants the high court in Pretoria to compel the FSB to give her a copy of a final report into the cancellations project by retired judge Kate O’Regan, as well as a copy of a report by auditing firm KPMG.

She is also seeking a full investigation into the manner in which staff at the FSB’s retirement fund division handled the governance, disposal of assets and cancellation of thousands of dormant funds, as well as into Tshidi’s alleged conduct.

Hunter argued that, unless the court grants her plea, she can’t fulfil her duties, including taking steps to address any prejudice that may occur in the cancellations project before her contract expires on July 31.

She also fears that the FSB’s board, chaired by Abel Sithole, will not act to investigate employees over their conduct before they leave the organisation.

The saga began after Hunter was appointed to her post in August 2013. She was to take over efforts to cancel the registration of thousands of pension funds, which had over the years become “orphan funds” with no boards of trustees.

The growth of these “orphans” was the result of a steady move by employers to shift from stand-alone pension funds to umbrella funds – essentially, those that incorporate the retirement schemes of multiple employers. In many cases, after the assets and liabilities relating to employed members of these funds were transferred to umbrella funds, the board members abandoned their posts, “probably assuming” the administrators would deal with the disposal of any remaining assets and liabilities.

The “orphans” consist of shell funds, which were left with no assets when they stopped functioning, and dormant funds, which had assets but no functioning boards. Many of the assets that remained in dormant funds were probably unclaimed benefits for which neither members nor their beneficiaries could be traced. These assets would have been transferred to an unclaimed benefits funds and the dormant entities cancelled.

But Hunter formed the view that certain steps taken by the registrar to deal with these funds were ultra vires – beyond his authority. These included allowing fund administrators to nominate “authorised representatives” to act in place of trustees in disposing of these funds’ assets.

The argument relates to a reading of section 26(2) of the Pension Funds Act, which was amended in 2007 to allow the registrar to appoint trustees for funds without a properly constituted board.

Hunter’s position was backed up by an independent legal opinion provided in 2014 by advocate Andrew Breitenbach.

Internal investigations by Hunter into the cancellations project suggested that, among other things, the FSB had not been given sufficient evidence – notably, adequate accounting information – by the “appointed authorities” to warrant their cancellation. Funds with assets of about R1.2‑billion had been cancelled in such circumstances.

Hunter also warned that the way the cancellations project was being conducted benefited firms providing financial products and services to these funds.

She alleged that the cancellations project was initiated by fund administrators with a large number of dormant funds on their books, including the likes of Alexander Forbes, Liberty Life and Sanlam.

She said these financial interests may include a fund’s failure to ensure that all its assets were fully accounted for. Some of these may have been invested in a portfolio managed by an entity related to the administrator.

They could also include the placement of assets of a dormant fund into an unclaimed benefits fund, with asset managers to which the administrators are related through shareholding and which are paid for their services on the basis of the value of their portfolios.

In addition, the registrar had appointed only one person as an “authorised representative” for 923 funds – despite the fact that it would have been impossible for one person to fulfil the duties of an entire board for each of the funds.

According to court papers, Hunter’s efforts to investigate the cancellations were met with hostility by certain FSB staff, including Tshidi.

Nevertheless, after Hunter submitted a noncompliance report, along with a grievance against Tshidi, to the FSB’s board of directors in July 2014, the board asked O’Regan to investigate the cancellations project. The report was produced in about December 2014.

O’Regan’s draft report found that, although it could be said that the amended section 26 of the Act “empowered the registrar to appoint boards of dormant funds for purposes other than the establishment of properly constituted boards”, there was a “substantial risk that a court may come to a different conclusion”.

Hunter was refused a copy of the final O’Regan report because she refused to sign a nondisclosure agreement sought by the board.

In January 2015 the FSB’s board, on O’Regan’s recommendation, employed KPMG to investigate a sample of the funds shut down through the cancellations project.

Hunter was not granted a copy of the KPMG report.

But meetings with the audit firm’s representatives revealed that it had found that in only a small number of fund cancellations could the registrar have been satisfied that they had no assets and liabilities and had ceased to exist.

In her affidavit Hunter said: “I fear that the board is seeking to conceal and discredit the results of the KPMG investigation when it would be in the public interest.”

Hunter’s lawyers said that neither she nor they would comment. The treasury did not respond to requests for comment.

Client Media Releases

Property mogul honoured at NWU graduation
Intelligence is central to digital businesses
One of SA's biggest education providers has a new name: Meet PSG's Optimi
A million requests, a million problems solved