WORDS ON WEALTH
Martin Hesse
In 1991, after Robert Maxwell’s suspected suicide on his luxury yacht Ghislaine (named after his equally infamous daughter), it came to light that the British media mogul had plundered the retirement savings of his employees to shore up his failing Mirror group. His theft from the staff pension fund was partly repaid from public funds, with the result that pensioners received about half of the pension benefits owing to them.
There have been instances in South Africa of employers clinging on to surpluses produced by their staff pension funds, but no recent cases come to mind of a company raiding its own staff fund for its own purposes, to the detriment of the fund members.
This is because the Pension Funds Act, promulgated back in 1956 but amended frequently since then, provides strong protections for members of pension funds, effectively ring-fencing their savings from external interference, even from the employer sponsoring the fund.
There are strict requirements pertaining to the governance of funds and the types of assets in which a fund can invest on behalf of its members. The board members of the fund, or trustees, must “act with due care, diligence and good faith”. They “have a fiduciary duty to members and beneficiaries in respect of accrued benefits or any amount accrued to provide a benefit, as well as a fiduciary duty to the fund, to ensure that the fund is financially sound and responsibly managed…”
Regarding investments, the fund is restricted in its exposure to higher-risk assets. Regulation 28 of the Act’s regulations states that a fund can be invested up to 75% in equity (shares), but the majority of this should be shares listed on an exchange. Only 10% of the fund’s assets can be in private, or unlisted, equity, which carries a far higher investment risk. (This will increase to 15% from January next year.)
Fund members have recourse to the Pension Funds Adjudicator if they have problems with their fund. The majority of complaints to the adjudicator concern processing issues: employers not paying over the contributions of their staff members or members waiting inordinately long to receive their benefits.
Rarely do funds in South Africa have problems on the investment side where retirement savings have, say, been overly invested in high-risk investments (in contravention of Regulation 28).
But that has happened in the retirement funds administered by N-e-FG Administrators of Vanderbijlpark, part of the N-e-FG financial group, and it appears that the investments have failed.
A few months ago I reported on N-e-FG Administrators (recently renamed Phahamisa Administrators) being placed under statutory management by the Financial Sector Conduct Authority (FSCA). I focused on non-retirement-fund investments that had gone awry.
But I have since discovered that high-risk assets were also the destination of people’s retirement savings, including those of the N-e-FG group’s own staff.
In all, savings of almost half a billion rands, including those in N-e-FG’s two umbrella funds (one pension, one provident), are in the balance.
Statutory manager’s report
According to a report issued on September 29 by Krishen Sukdev, the statutory manager, “assets were to be invested on behalf of retirement funds and other members as per investment mandates. The monies were paid from N-e-FG Administrators acting on the advice of N-e-FG Fund Management.”
Sukdev continues: “It has come to our attention that the assets were not invested as per the investment mandates but were rather invested in high-risk assets outside the given mandates and whose current status and value is unknown at this stage. We also note that incorrect asset statements were continuously provided to members and stakeholders, effectively providing misleading information on where the assets were invested and the current values.
“Currently there is uncertainty in respect of the value of residual assets and their recoverability. There is therefore a very serious risk of a substantial or total write-down of the assets.
“In the interim we are quantifying the losses and embarking on a plan to recover monies, including examining other mechanisms such as professional indemnity claims, negligence claims and legal action against identified parties.”
FSCA responds
Replying to my questions last week, the FSCA said it first became aware of challenges with the payment of benefits by the funds in question on August 29 during a meeting with the boards of the affected funds, and formally through the statutory manager on September 29 when the boards put a moratorium on the payment of benefits.
On what proportion of the retirement fund assets were in high-risk alternative investments, the FSCA said: “We do not have the actual amounts as yet; the statutory manager and the business rescue practitioner are still investigating.”
The FSCA said that once the statutory manager had quantified the actual losses to members, “he will undertake a recovery process together with the funds and the business rescue practitioner to see how much of the lost assets can be recovered. Unfortunately, members can therefore not access their savings at this stage while this process is underway.”
Umbrella funds are retirement funds which house a number of employers, in contrast to so-called stand-alone funds. The FSCA says there are 55 employers in the N-e-FG umbrella provident fund and 20 employers in the N-e-FG umbrella pension fund. Most of these appear to be in the Vanderbijlpark area.
Let’s hope that there is something left of their employees’ savings.
PERSONAL FINANCE