Liberty and Alexander Forbes named in complaint against FSB
FINANCIAL giants Liberty, Alexander Forbes and others are accused of colluding with the Financial Services Board (FSB) to close thousands of pension funds illegally, to the detriment of savers and their families, many of them working class and poor.
The allegations, previously not aired in public, are contained in an affidavit by the board’s head of pensions, Rosemary Hunter, who is taking her employer and Finance Minister Pravin Gordhan to court while still employed at the FSB.
Ms Hunter says it is clear from the speed with which the companies acted that they made little or no effort to find absent beneficiaries. In one example she cites, 668 funds were closed within three days. In another, a single Liberty employee closed 923 funds between 2012 and 2013.
Ms Hunter also makes a specific claim against Alexander Forbes, in which she says that 29 orphan funds that were still owed money from "secret profits" in the "bulking" scandal in 2008 were closed without receiving this income. The "bulking" scandal arose when the firm took a share of its pension fund clients’ interest income and was required to pay it back.
Neither Liberty nor Alexander Forbes is a respondent in the application, as Ms Hunter’s grievance is with the role of the FSB, which should protect savers from abuse by institutions.
Her argument is that the FSB acted illegally in closing the funds between 2007 and 2013 without making the necessary efforts to trace the beneficiaries. Although the money from the closed funds has been transferred to unclaimed benefit funds managed by the same financial institutions, this is often to the detriment of the possible claimants as funds are typically depleted by the fees charged for administration.
In her affidavit, lodged with the High Court in Pretoria last month, Ms Hunter argues that pension fund administrators colluded with the FSB in the "cancellations project", and that the project was designed to "advance the interests of the administrators".
The FSB had abandoned its responsibility to protect savers in order to allow the financial institutions to behave with impunity.
The funds in question — about 4,500 — are "orphan funds" without boards of trustees, which collapsed or became defunct when employers consolidated standalone funds into umbrella funds after a 1998 change in the Pensions Fund Act.
The missing beneficiaries are people who are difficult to trace, mainly poor families in rural areas and neighbouring states.
While some funds had no assets or liabilities by 2007 and could be closed, others had both. In these cases, the FSB usually assigned a single individual — usually from a large financial institution — to act in place of the absent boards. This, says Ms Hunter, was beyond the powers of the FSB.
While fund administrators cannot deduct fees from a pension that no longer receives contributions unless the rules explicitly say so, once the unclaimed monies are placed in an unclaimed benefit fund, fees can be deducted. Administrators can also benefit from commissions earned from the asset managers with whom they place the funds.
Neither company answered questions from Business Day on whether they had taken independent legal advice on whether the FSB-initiated process was legally compliant or whether their own efforts in tracing beneficiaries were sufficient. Both said they had complied with the FSB’s processes.
Neither Liberty nor Alexander Forbes would answer questions on what portion of the unclaimed benefits had been invested with their own asset managers.
Alexander Forbes CE Deon Viljoen said on Wednesday that the company was "in ongoing discussions with the FSB to agree the most suitable and appropriate mechanism to deal with these funds".