A first step towards justice for South African pensioners

Between 2007 and 2013, more than 6,000 pension funds in South Africa were cancelled in a process littered with errors and oversights. Today, Open Secrets has written to five of the country’s largest pension fund administrators to demand swift action to reinstate pension funds that have been incorrectly cancelled. This is the first of many necessary steps of ensuring accountability for a shameful decade in pension fund administration that has harmed many vulnerable pensioners.

The regulatory body that is meant to protect South Africans from unscrupulous financial service providers is the Financial Sector Conduct Authority (FSCA) — South Africa’s new market conduct regulator.
On 4 March 2019, the FSCA took an important first step in ensuring that thousands of pensioners and their dependents will be paid what is owed to them. While it comes 10 years after errors were first identified, the FSCA has now issued directives (in the form of a circular, which can be found here) to all pension fund administrators (companies such as Liberty and Alexander Forbes) to urgently reinstate pension funds.
Specifically, these corporations must go to court to undo the cancellation where a fund has been erroneously deregistered before 1 April 2018. Legally, only courts can reinstate these incorrectly cancelled funds.
The circular also demands that corporations explain to the FSCA why these mistakes were made. Yet it comes late in the day, and only after various activists and organisations such as Open Secrets and the Unpaid Benefits Campaign protested and wrote to the FSCA to ask why it was not compelling companies to approach the courts to have funds reinstated urgently. This circular is an important step forward, but it is not enough.

The urgency stemmed from the nature and magnitude of the problem. In what was called the “Cancellation Project”, the Financial Services Board (FSB — which was replaced by the FSCA) and large pension fund administrators cancelled more than 6,000 funds that they saw as “regulatory dead wood”.
They did so as fast as possible, by deregistering “dormant” pension funds that had seemingly ceased to operate. While the legal duty on both the fund administrators and FSB was to take the utmost care in finding out whether the funds still had any beneficiaries, assets or liabilities before cancelling them, the approach was characterised by cutting corners and cancelling funds as quickly as possible, often through unlawful means.
As a result, subsequent investigations have said that in 98% of the cancellations reviewed, the Registrar of Pension Funds cancelled funds without having the information needed to be satisfied that the fund in question genuinely had no more assets or beneficiaries to pay.
This is not surprising when you consider that the most common approach to cancelling funds was to choose an employee at a fund administrator such as Liberty, make them the “sole trustee” for up to a thousand funds, and then ask them to submit funds for cancellation as soon as possible. The companies, who were able to charge fees in relation to these funds, never raised an objection.
But there were objections, most notably from pensions lawyer and subsequent whistle-blower Rosemary Hunter, who joined the FSB as Deputy Registrar of Pension Funds in 2013 and stopped the Cancellation Project. Unfortunately, by that time more than 6,000 funds had already been cancelled. As would emerge later, funds numbering at least in the hundreds, but probably many more, had been cancelled in error while still having assets and members to pay.
Fund administrators such as Liberty have since publicly announced that they made at least 130 errors and have “discovered” funds that still had assets and members when they told the FSB the funds did not, resulting in their cancellation.
Another prominent administrator — Alexander Forbes — obtained the deregistration of funds that it knew were still owed refunds from “secret profits” that the FSB had ordered Forbes to repay in 2006.
To illustrate the nature and extent of the problem, take a fund identified in a subsequent investigation by pensions lawyer Jonathan Mort, which was cancelled by Liberty when as much as R26-million had not been accounted for. Mort argued that but for his investigation (and by inference, Hunter’s whistle-blowing) the assets “might not have been unearthed” at all.
To be clear, when a pension fund is deregistered, it still exists in law, but cannot carry out any of its activities or fulfill its objectives, such as paying beneficiaries. Consequently, the incorrect and unlawful cancellation of a fund has a potentially significant human cost, as it may delay payment to vulnerable beneficiaries such as the elderly and orphans, or even make payment impossible.
This human element is what is missing from much of the analysis of the story of the Cancellations Project. Pensions form a vital part of South Africa’s social security system, and the ability to access income in retirement is an essential part of ensuring that the elderly can live with dignity. Both access to social security and living with dignity are rights enshrined in South Africa’s Constitution.
As a result, private companies that administer these funds should be held to a high standard of transparency and accountability in their conduct in relation to pension funds. This is also so because, as was argued by Rosemary Hunter at a recent Pension Lawyer’s Association meeting, pension fund administrators are in many ways fulfilling a crucial public function of the state when they administer pension funds (which are state-subsidised through tax breaks for contributions).
This is even more urgent when we consider that administrators profit handsomely from fees which are often linked to the assets they have under their control. It remains a crucial question as to how fund administrators may have profited from assets linked to cancelled funds over the many years in which the funds have been cancelled in error.
With this in mind, our letters to the fund administrators demand that they urgently establish measures to identify which of their funds were cancelled in error, and to indicate publicly how soon they will approach the courts to have the funds reinstated so that they can be properly wound up, and pensioners paid.
As we’ve already said, while we welcome the step taken by the FSCA in its circular, more needs to be done. It is clear that this is an issue of public importance and as it stands, the FSCA cannot confidently say how many funds have been identified as being incorrectly deregistered, nor the magnitude of the assets involved or the human cost.
It should also be demanding a full investigation and accounting by fund administrators of how assets of incorrectly cancelled funds were treated in the interim and the extent to which they profited from this process. All of these profits should be repaid and directed where possible to beneficiaries, failing which they can be used to strengthen new systems of regulation of the financial sector. The fund administrators should not and cannot profit from their wrongful actions.
The FSCA has promised to clamp down on abusive practices in the pensions industry and broader financial sector, particularly given the impact on the dignity of ordinary South Africans. Taking strong action on wrongful fund cancellations will be an essential test of their commitment in this regard. Open Secrets will continue to apply pressure to ensure that there is accountability for these corporations and justice for pensioners. DM


Fedgroup driving industry reform in unclaimed benefits sector

South Africa's leading independent financial services provider, Fedgroup, was recently awarded a tender issued by ARGEN Actuarial Solutions to administer four liquidated unclaimed funds, totalling R180 million.
ARGEN is an expert in the liquidation of retirement funds and it went through a selection exercise to select an ideal unclaimed benefit fund to house the benefits of untraced members in four of the retirement funds it recently liquidated.
The funds are IF Umbrella Pension and Provident Funds, and Dynam-ique SA Umbrella Pension and Provident Funds. Individuals who were members of those funds are encouraged to contact Fedgroup should they feel benefits may be owed to them.
Fedgroup was invited to tender against many of the large industry incumbents and won based on its proven record and value proposition.

As a specialist operator in the field, with significant experience, expertise and a proven track record in the administration of beneficiary funds, which fulfil a similar mandate to unclaimed funds, Fedgroup is emerging as a prolific driver of much-needed industry reform.
Unravelling the backlog requires specialised skills
Providing these administrative services also requires a mindset that is vastly different to retirement fund administration. "At Fedgroup, we understand that beneficiary and unclaimed fund administration should focus on a different need-state and an ethic of care. Both also require a strategy vastly different to retirement fund administration," says Walter van der Merwe, CEO of Fedgroup Life.
Within the broader retirement fund industry, the Financial Sector Conduct Authority (FSCA) continues to grapple with legacy issues surrounding a lack of industry best practices and good corporate governance of unclaimed benefits.
The issue was recently thrust back into the popular discourse when activist and former deputy registrar of retirement funds at the Financial Services Board (FSB), Rosemary Hunter lost a Constitutional Court appeal against a high court ruling. The appeal sought to compel the FSCA to take action against various private and public sector funds that are sitting on R42 billion in unclaimed benefits in South Africa.
Ethical considerations
Concerns have also been raised regarding a perverse industry incentive to keep benefits in the unclaimed fund for as long as possible to incur more admin and investment fees. As such, the likes of Hunter and other responsible corporate citizens within the financial services sector have sought to find ways to drive a paradigm shift that will improve compliance throughout the industry.
While the main purpose of an unclaimed fund is to provide a vehicle to safeguard benefits and to trace members or beneficiaries in an effective and efficient manner, a major challenge is a lack of incentive on the part of insurers and administrators. The process to adequately and comprehensively trace beneficiaries and dependants and pay out unclaimed benefits can be administratively onerous, time-consuming and costly.
Moreover, many unclaimed benefits comprise small amounts, under R5 000, and the process of finding someone is intensive and success is not guaranteed. Extremely tight margins in the administration of unclaimed funds also makes providing these services a highly specialised endeavour.
Outsourcing administration eases the burden
"We are, however, able to realise efficiencies from the economies of scale offered by greater volume, through expert and experienced staff, and the application of the appropriate technology. This is driving a shift towards to the outsourcing of administrative services among actuaries, auditors and fund liquidators," explains Van der Merwe.
He adds Fedgroup is ideally positioned and equipped to address the industry's unique challenges, thanks to the company's extensive industry experience, its passionate staff, who are committed to providing beneficiary care of the highest order, and its administration system. Fedgroup's technology was developed from the ground up as an efficient, streamlined and intelligent bespoke industry solution. The functionality and capabilities of the system offer this relatively small financial services provider a key strategic advantage and differentiate it from the incumbent providers.
"Combining these elements with our track record in beneficiary care has helped to elevate our offering within the unclaimed fund space, as our value proposition increasingly resonates with industry stakeholders that want to change the status quo and ensure these funds have their intended impact," believes Van der Merwe.
"We believe the ARGEN business is an example of how the broader industry now regards Fedgroup as a specialist operator in this field, thanks to our technological capabilities, administrative excellence, and the pioneering role we are taking in providing fund administration as a service. We hope that it will create even greater opportunities to get more of that R42 billion to people who need it most," concludes Van der Merwe.



Justice still needed for poverty-stricken pensioners after deregistration blunder

“I have saved enough to retire peacefully. But now I will turn in my grave because I will die in poverty.”
This was said by Douglas Maila, a member of the Unpaid Benefits Campaign, at a protest outside Alexander Forbes demanding that it pay pensioners the benefits they are owed. Maila’s experience of contributing a portion of his salary every month for years, only to retire and face great difficulty accessing what he is owed, is shared by millions of workers whose pensions sit in "unclaimed" benefits funds worth over R42bn.
The unpaid benefits crisis in SA worsened with the Financial Service Board’s (FSB) "cancellations project", which entailed the mass deregistration of over 5,000 pension funds between 2007 and 2013. This allowed the regulator to clear its books of funds thought to have no assets, boards or members. It was later discovered, however, that many of these funds still held assets, owed money to beneficiaries and should never have been cancelled.
In a 2014 investigation that analysed a sample of 510 funds deregistered during the cancellations project, KMPG found that the registrar of pension funds did not have the requisite information to reasonably order 500 of the cancellations. Even more damning is KPMG’s estimation that R2.5bn was unaccounted for in these 500 funds alone.
It remains to be seen how the new regulator — the Financial Sector Conduct Authority (FSCA) — will address this problem. Last week, Francois Groepe of the SA Reserve Bank said that SA has for too long prioritised prudential regulation at the expense of market conduct regulation and that not enough has been done to address exploitation of the most vulnerable by private financial institutions.
The administration of pension and provident funds is are a crucial area for strong regulatory oversight and intervention. For many workers, contributing to a pension fund is compulsory, in line with their sectoral determination.
On April 1 2018, the FSB took up its new mandate as the FSCA, promising stronger oversight of the financial sector and more proactive and intrusive regulation to protect SA consumers.
Why then have funds that were wrongfully deregistered during the cancellations project still not been reinstated in court? Until this happens the beneficiaries of these funds remain unable to access their pensions. A first step towards the FSCA fulfilling its promises is to ensure these funds are lawfully reinstated and paid to beneficiaries as a matter of urgency. 
The administration of pension and provident funds is  a crucial area for strong regulatory oversight and intervention. For many workers, contributing to a pension fund is compulsory, in line with their sectoral determination.
Despite being important vehicles of income security for the poor, pension funds are often administered by private companies such as Liberty Corporate and Alexander Forbes. This is particularly concerning because these companies are able to profit from this role through charging administrative fees that are often based on total asset value. This creates a clear disincentive for fund administrators to actively find and pay beneficiaries in the context of unclaimed benefits funds.
Many of the decisions to deregister funds during the cancellation project were based on information provided by private fund administrators that turned out to be incorrect (by their own admission).
Liberty was responsible for administering 80% of the funds deregistered during the cancellations project. In 2017, it approached the high court to review the cancellation of 25 funds, presumably pressured by FSB whistle-blower Rosemary Hunter’s court case, which was ongoing at the time. These 25 funds, which owed R90m to over 300 beneficiaries, were successfully reinstated by the court, and Liberty proclaimed its intention to apply for judicial review of a further 105 funds it believes were unlawfully cancelled.
Since the Constitutional Court’s dismissal of Hunter’s case, Liberty has gone quiet. Open Secrets contacted Liberty to determine the status of the review application. Liberty’s response indicates that it is backtracking on its decision to apply to court to reinstate funds and will instead pursue "internal processes" with the FSCA.
This is alarming, as there is no clear legal reason to abandon the strategy of approaching the courts to urgently reinstate the funds’ registrations. More than a decade has passed since the cancellations project began and it is urgent that the relevant administrators reinstate erroneously cancelled funds through judicial review in terms of the Promotion of Administrative Justice Act.  
Open Secrets has written to the FSCA urging it to issue a directive to Liberty and other administrators to review potentially unlawful cancellations in court, so that beneficiaries may receive their pensions as soon as possible. An internal process is no longer appropriate, nor is it lawful. The scale of likely financial prejudice in the cancellations project demands the transparency of a court process where the conduct of both the companies and the regulator can be publicly examined.
Issuing this directive would be a step towards rectifying the regulator’s neglect of unpaid pensioners and so many other South Africans who bear the brunt of an often unchecked financial sector. We urge the FSCA to act and live up to its promises.
• Khan is with Open Secrets, a nonprofit organisation that pursues accountability for private sector economic crimes through investigations, advocacy and the law.



Labour impressed by number of Ex-mineworkers registered for unclaimed benefits in Namakwa district

The Department of Labour, Northern Cape appreciate the overwhelming turn-out of ex-mineworkers in the Namakwa District, who heeded the call to come and make applications for unclaimed benefits. The four days registration campaign managed to net 807 applications.
“As the Department we appreciate the overwhelming turn-out we experienced in the Namakwa District so far from potential applicants for ex-mineworkers unclaimed benefits. The new strategy deployed by our team to issue Bank forms during mobilization has also been fruitful in areas like Garies, Komaggas, Nababeep, Kleinsee and Steinkopf where there are no banking facilities. Labour reiterates its call for calm as we plan to cover the length and breadth of Namakwa District and serve all applicants. We also acknowledge the gallant effort made by our team to ensure that thousands of potential applicants are assisted during that extended period,” said Zolile Albanie, Chief Director: Provincial Operations.
The campaign, which is aimed at ex-mineworkers who left employment in the mines prior to 01 April 2002, has been successfully rolled out in the Namakwa District from 19 – 22 November 2018 targeting areas in the Namakwa District (Pofadder 19/11/2018, Garies and Komaggas 20/11/2018, Okiep and Steinkopf 21/11/2018 and finally Port Nolloth 22/11/2018.
The Department of Labour as the agent charged with responsibility of tracing and paying these ex-mineworkers urges all potential applicants to bring along any or all of the following documents for verification:
·          Identity document
·          Access card (from previous mine employer)
·          IRP 5 (from the previous mine employer)
·          Old Blue card
·          Previous salary advice
·          Or any proof of mine employment (including “Makhulu’s kop” card, Dompas or TEBA record)
This registration is done in line with the Peoples’ Assembly which was held in Mbhizana, Eastern Cape. A motion was tabled in the National Assembly on 19 September 2007 for Parliament to establish a committee that will look at issues of ex-mineworkers. The campaign spotlight will soon be focusing on the ZF Mgcawu District, dates and areas to be targeted will also be publicised soon.
“To date the Unemployment Insurance Fund has already made pay-outs of benefits in excess of R2.8 million in the Northern Cape province since the launch of the registration campaign in Frances Baard, John Taolo Gaetsewe and some parts of Pixley Ka Seme Districts,” concluded Albanie
The Department further remind ex-mineworkers and potential applicants who missed the opportunity during the campaign to visit the Springbok Labour Centre for their applications. The Department of Labour reiterate that the above mentioned services are rendered free of charge and potential applicants and the general public must be wary of any information and always verify it by calling this number 0800 843 843.



Transnet owes pensioners about R100bn

While the case has careened through the courts, the number of pensioners has declined from 80,000 to 50,000.

Transnet pensioners have fought a decade-long battle to get their former employer to cough up an estimated R100 billion in benefits as a result of a 1989 promise made in the dying years of apartheid as Transnet assumed the legal responsibilities of SA National Transport Services.
This staggering sum of money is sufficient to sink the economy should Transnet lose the case, says Advocate Anton Alberts, chairperson of the Freedom Front Plus, which has campaigned on behalf of pensioners. “Transnet is holding the country to ransom. If they lose this case, SA is finished. We will straight away be downgraded to junk.”
Not that Transnet would have to pay out R100 billion in one go. But it would have to fork out several billion rands a year to top up the pension funds, putting additional strain on its already tattered balance sheet.
While the case has careened through the courts, the number of pensioners has declined from 80,000 to 50,000. According to some estimates, they are dying off at the rate of 300 to 400 a month. The question some pensioners are asking is whether there will be any pensioners alive to witness the successful conclusion of the case.
The case originates with a promise made by management in 1989 to top up the pension funds by 70% of the rate of inflation plus 2% each year, as was the case in the years prior. This promise was upheld until 2003 when all but the 2% annual payments were stopped. With inflation running at about 6%, this meant pensioners’ benefits were sliding back at the rate of about 4% a year. The pensioners’ lawyers, based on 2013 figures, claimed 80% of pensioners were receiving less than R4,000 a month.
“Some pensioners have nothing left at the end of the month after paying their medical bills. Now it seems that Transnet is reneging on its responsibility,” says one of the pensioners, Nicky Oelofse.

Transnet has fought the case every inch of the way, first by contesting the right of pensioners to be recognised as a class of claimants with substantially similar arguments. The case has been mired in technical argument and exceptions raised by Transnet, all of which were struck down in the Constitutional Court in April. The ConCourt case dealt mainly with exceptions raised by Transnet, rather than the merits of the pensioners’ claims.
Time running out
Pensioners saw this as a major victory and it looked for a time as if they were close to settling the case a few months ago, as Transnet itself reported to Parliament. But this turned out to be false. This means the case must go back to the High Court for argument. This is likely to happen next year, by which time a few more thousand Transnet pensioners will likely have died.
In a recent update to Transnet pensioners, Alberts said negotiations with Transnet over a settlement had failed, and the case would now proceed to court: “I will also speak with (public enterprises) minister Pravin Gordhan to ascertain why Transnet did not heed his instructions to settle the matter on an equitable basis. It is clear that something is seriously wrong with the board of directors. If Transnet loses the court case they will cause harm to the country’s economy to the point of being downgraded to junk status. Minister Gordhan knows the country can’t survive such an event. Clearly, the board of directors is not acting in your or the country’s interest.
“We will now also have to look at other methods to increase pressure on Transnet. Now more than ever we must not lose faith, but make the pressure on Transnet unbearable.”
Lawyers for the pensioners proposed a settlement they believed was affordable to Transnet and would not place the company or the economy at risk. This involved:
  • A base uplift of approximately 42% for all pensioners
  • Annual increases of 70% of the consumer price index (CPI); the percentage increased on a yearly basis subject to affordability
  • A once-off bonus of R20 000
  • Transnet funding the shortfall by way of a ‘top-up’ annually for about nine years
  • The rules of the funds being amended to address not only governance issues but also the vexed 2% rule.
Alberts says the counter-offer from Transnet was virtually a non-offer. The only points where the two offers matched were the yearly increase of 70% of inflation and bonus payments.
One of the sticking points was the pension funds’ offer to use an R4.5 billion actuarial surplus to top up the fund. “That’s crazy,” says Alberts. “That surplus belongs to the pensioners, not to Transnet, and now the company wants to make a gift of something that does not belong to it.”
With that, negotiations broke down and the lawyers are back in the saddle.
An actuarial valuation in 1989 found that the affected funds were underfunded by R17.6 billion. The then National Party government acknowledged that the debt would have to be paid, but failed to act on this.
SA has a terrible history of corporate raids on pension funds, often by grabbing actuarial surpluses through devious means. Transnet’s pensioners claim with some justification that they are the ones left with the bill for years of abysmal management and corruption at the company.
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