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FSB hopes its latest salvo will end the battle over the closure of ‘orphan’ pension funds

The internecine war over a major project by the Financial Services Board (FSB) to cancel thousands of so-called “orphan” pension funds is continuing, with the regulatory body declaring that there is no proof that the beneficiaries of these funds have suffered any losses.

In recently filed court papers in the Pretoria high court, the FSB said that although some of the steps taken in closing down thousands of dormant pension funds may have had “no statutory underpinning”, there is no evidence of wrongdoing, bad faith or material prejudice to anybody.

The case centres on a project by the FSB to close down the funds between 2007 and 2013.

The deputy registrar of pensions, Rosemary Hunter, took her employer, the FSB, as well as the chairperson of its board, Abel Sithole, plus pensions registrar Dube Tshidi and Finance Minister Pravin Gordhan to court over the handling of the cancellations. She has argued that the closure of these funds has been done unlawfully, with potentially billions of rands at stake.

But the FSB and Sithole have denied these accusations in an answering affidavit and have asked that the case be dismissed with costs.

Among her pleas was a request to release the final report of an investigation by auditing firm KPMG into the closure of the funds. The investigation was done on the recommendation of former Constitutional Court judge Kate O’Regan, who was asked by the FSB in 2014 to examine the cancellations project.

Hunter was also seeking the final report by O’Regan, in which she determined that there was a risk that a court could find that the registrar acted beyond his powers.

But the FSB has now released the final KPMG and O’Regan reports, arguing that this makes Hunter’s requests moot.

Although the findings of the KPMG investigation raised concerns that there may have been material financial prejudice to pension fund members, the FSB board was not satisfied with KPMG’s conclusions and sought a review of the firm’s report.

An assessment of the KPMG report was conducted by law firm Jonathan Mort Incorporated and independent actuary Jeremy Andrew, and was completed in April. In June, Mort also submitted a separate inspection report on some of the deregistered funds to ascertain if there was any financial prejudice to fund members. The inspection of some deregistered funds is still continuing.

In his affidavit, FSB chair Sithole stated that in their assessment report Mort and Andrew believed that “KPMG incorrectly concluded that there was a likelihood of material financial prejudice”.

After assessing the closure of 510 funds, KPMG found that in the case of 500, the registrar did not have sufficient information available to him to conclude that these funds had ceased to exist and could be closed. It estimated that the “total indicative potential financial prejudice” was just under R2.5-billion.

But Mort’s separate inspection of nine funds – or 47% of the total indicative potential financial prejudice estimated by KPMG – found this prejudice “did not in fact exist”.

“More importantly, the inspection report concluded that there was no material financial prejudice suffered by any member, beneficiary or creditor of the funds inspected,” Sithole said.

In addition, notwithstanding the mandate given to Mort, which did not extend to an investigation of corruption, no evidence of corruption was found, Sithole said.

“I must highlight that, despite all of the investigations by Ms Hunter and her staff, Justice O’Regan, KPMG, Mr Mort and Mr Andrew, nobody has come up with any evidence or even any suggestion of dishonesty, bad faith or skulduggery of any kind and there is as yet no evidence of any kind of any actual financial loss suffered by anybody,” Sithole said in the affidavit.

Hunter has also alleged that the manner in which the cancellations project was carried out could have substantially benefited large retirement industry players, whose representatives were appointed to these funds to close them down.

But the FSB argued that even though the appointment of these representatives may not have had a statutory underpinning, the cancellation of funds did not depend on the validity of their appointment. 

In a press statement released on Tuesday, the FSB also said it rejected allegations that Ms Hunter was offered a “golden handshake” to buy her silence.

The board’s decision was based on the need to find “an amicable parting of ways” because of the fact that Hunter’s relationship with Tshidi and several colleagues had “irretrievably” broken down, “impeding the ability of the FSB to carry our its mandate”.

KPMG’s response to questions was still pending at the time of publication.

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Lynley Donnelly
Lynley Donnelly
Lynley is a senior business reporter at the Mail & Guardian. But she has covered everything from social justice to general news to parliament - with the occasional segue into fashion and arts. She keeps coming to work because she loves stories, especially the kind that help people make sense of their world.

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