The battle over the cancellation of thousands of “orphan” pension funds — believed to total more than R20-billion — by the Financial Services Board (FSB) will now be taken up by the Constitutional Court.
Former deputy registrar of pension funds Rosemary Hunter claims that a mass deregistration of orphan funds — shell funds left without any members or assets or dormant funds without boards — from 2007 to 2013 was unlawful and potentially prejudicial to pensioners and other beneficiaries.
In July 2014, Hunter filed a whistle-blowing report to the board of the FSB alleging the mishandling of the deregistration process, which saw the cancellation of 4 600 funds, without — Hunter said — proper oversight by the FSB. Almost a year later, when the regulatory board hadn’t looked into her allegations, Hunter filed a second report, which also detailed the steps taken by her boss, pensions fund registrar Dube Tshidi, to frustrate her investigation and force her to resign.
Former Constitutional Court Judge Kate O’Regan — who was appointed by the FSB to look into the whistle-blowing reports — mandated that Hunter’s accusations be investigated by KPMG. The KPMG audit found that in a sample of 500 of the 4 600 funds, about R2.5-billion in financial prejudice was incurred in their cancellation. This financial prejudice arose when a fund was cancelled while it still had assets, depriving its beneficiaries of the ability to access the money owed to them.
Unsatisfied with these findings, the FSB appointed advocate Jonathan Mort to conduct an assessment of KPMG’s report. Mort said in a preliminary report that no financial prejudice existed, though his investigation is ongoing.
Despite O’Regan’s recommendation to look into any “improper, dishonest or corrupt conduct” of officials and administrators, there was no investigation into Tshidi’s alleged abuse of power and resources — leading Hunter to launch an application in the high court in Pretoria in November 2016.
FSB chairperson Abel Sithole, Tshidi, his predecessor Jurgen Boyd and the office of the finance minister are all respondents in Hunter’s case.
Citing the alleged financial misconduct of officials in the FSB, Hunter is asking for the intervention of the minister of finance and — in an unusual step — for the court to supervise his investigation.
The high court dismissed Hunter’s applications to compel the FSB and the minister of finance to procure an independent investigation into her allegations — citing the fact that the FSB had already appointed Mort to investigate the irregularities and that the investigation is ongoing.
The Supreme Court of Appeal refused her application for leave to appeal, saying that Hunter’s case had no prospects for success.
The rules for cancelling funds, as set out by the Pensions Fund Act, will be key to the dispute at the Constitutional Court next week. According to the FSB’s heads of argument, the registrar is permitted to appoint “authorised representatives” to act on behalf of funds identified as orphan. This is a “pragmatic solution” to the problem that these funds are, by their nature, presumably unspoken for.
The board’s counsel, Wim Trengove SC, contends that the Act also allows the registrar to cancel a fund based on the word of these authorised representatives, after they have assessed the state of these funds. “Section 27(1) allows the registrar to cancel the registration of an orphan fund without any application for its cancellation and regardless of the source of evidence that the fund has ceased to exist,” Trengove says in his heads of argument — contending that the requirements of regulatory oversight are up to the registrar.
Hunter’s counsel, Geoff Budlender SC, argues that Trengove’s reading of the Act disregards the duty of the registrar to check the compliance of trustees with the Pensions Fund Act. The registrar cannot cancel merely on the say-so of “unlawfully” appointed representatives, says Budlender.
The “unlawful” cancellation of funds, and the resultant loss incurred by their beneficiaries, is a systemic issue, arising from the flawed methodology in which the project was handled — and by those who administered it, says Budlender. Hunter believes that this methodology was designed to protect and advance the interests of providers of financial products and services to the affected funds.
This contention is bolstered, according to Budlender in his heads of argument, by information provided by former Liberty employee Michelle Mitchley, who revealed in an affidavit that the company had “contracted service providers who were financially incentivised to achieve the cancellation of as many funds as possible within the shortest possible time”. But Trengove points out that Mitchley had retracted and “profusely apologised” for her accusations.
There is no evidence, Trengove says, of financial misconduct by employees of the FSB and that the instances in which funds were found to be unduly cancelled — in both the KPMG and Mort investigations — were just the inevitable mistakes in carrying out the mammoth task of transferring thousands of funds.
Trengove argues that Hunter’s call for “a bigger and better” investigation is unwarranted, especially considering Mort’s ongoing audit. But Budlender says that even the investigation’s present scope is far too big an undertaking for Mort alone.
Hunter is also fighting to reverse the order of the high court that she pays the costs of her court case. Budlender points out that the cancellations of a number of funds have been set aside since her case in the high court and that, by Mort’s own admission, there are even more funds — each containing millions of rands in assets — that were wrongly cancelled.
The fact of these errors, and the subsequent effort to rectify them, demonstrates Hunter’s genuine constitutional intentions of bringing the matter to the courts, Budlender says.