PENSIONS: Some progress

Finance minister Malusi Gigaba admitted that the stalemate continues in pension industry negotiations — the parties at Nedlac have yet to agree on the future of provident funds.
For now, members of provident funds can take out their pension pots in a lump sum, though government and business would like to see pension and provident fund rules aligned so that everyone would have to buy a regular annuity. But labour has dug in its heels.
This stalemate notwithstanding, there has been some progress in the pensions industry.
Changes to offshore regulations were quietly slipped into the budget.
Soon, pension funds and retirement annuities will be able to increase their exposure to offshore assets from 25% to 30%.
Rowan Burger, managing executive at MMI, says this will give investors the opportunity to diversify from a highly concentrated local market, where Naspers alone can account for 25% of the index.
It is quite a bold move when a stronger currency makes offshore assets look cheaper in rand terms.
Burger says "project bonds" outlined by Gigaba will provide a new asset class for retirement funds. They will give institutional investors the chance to participate in infrastructure projects through listed tradable securities that aim to offer superior risk-adjusted returns.
They will be underpinned by the cash flow of infrastructure or energy projects, for example.
David Gluckman, head of special projects at Sanlam, says that for the first time treasury has put a stake in the ground on retirement fund consolidation.
The Financial Services Board has been directed to continue the policy of reducing the number of retirement funds to fewer than 200, compared with the currently active 1,650.
The subscale funds are likely to join umbrella funds offered by the likes of Sanlam, Old Mutual and Alexander Forbes.
Michelle Acton, principal consultant at Old Mutual Corporate Consultants, says it is interesting that the proposals include even those funds that are exempt from annual audits because they have less than R6m in assets.
And all funds should have independent trustees.
"They can ensure that there is a fair balance between the interests of the members and the management trustees," Acton says.
"Ironically, when these small funds fold into umbrellas they no longer have the right to vote for trustees. But the aim is for the governance of retirement funds to be in line with the King4 standards."
Unclaimed benefits are a serious issue, with more than R40bn lying waiting for former members to take their share.
Treasury officials speak of consulting with Nedlac to look at a more efficient way to find beneficiaries. They talk of centralised data, not yet explicitly about a centralised government-run fund.
Treasury also wants to strengthen measures to deal with criminal and unethical practices and expects funds and administrators to improve disclosure. And the same rules need to apply to state entities such as the Government Employees Pension Fund (GEPF). This is by far the largest fund in the country, but raises governance questions by not giving its members the right to elect trustees.
The Budget Review reports that the GEPF now has 1.3m members and 437,000 beneficiaries, mostly pensioners. Its total contributions were up R5bn to R65.4bn. Membership was flat but beneficiaries increased by 3.3%.
It plays a huge role in the creation and preservation of wealth in the public sector, paying benefits of R88.3bn last year.
The portion of benefits that went to resignations was 34%, down from 44% the year before with more stability in the workforce. The full GEPF actuarial review will only be issued next year.
The fund’s assets are divided between equities (R927bn), bonds (R538bn), money market (R71bn), property (R59bn) and unlisted investment (R97bn).


Class-action silicosis case likely to take six months to settle as three new companies join the matter

Hopes of a quick resolution to the occupational lung disease (OLD) class-action, which includes thousands of former miners afflicted with silicosis, have been tempered, with expectations of a settlement to take to the courts expected in the next six months instead of early this year as three new companies join the matter.
Speaking on the sidelines of the African Mining Indaba, Graham Briggs, the former CEO of Harmony and now chair of the working group on OLD, said the lawyers and parties involved in the class-action were hammering out a complex settlement, with a lot of details needing to be resolved before the matter could be returned to court for ratification.
There were hopes last year that an agreement for which six mining companies have made provisions totaling R5bn could be in place by the end of December, which was then rolled over to the end of March this year.
"Realistically speaking, I’d say it’s going to be six months before we have something finalised that we can take back to court," Briggs said. "We are close, but the devil is in the details and there are a huge number of moving parts."
The six mining companies are Harmony Gold, Gold Fields, African Rainbow Minerals, Sibanye-Stillwater, AngloGold Ashanti and Anglo American. Just recently, Pan African Resources, DRDGold, and Randgold & Exploration have joined the matter.
In the 12 months to end-October 2017, there were 7,756 compensation payments made to former miners with OLDs, worth R226m, compared to 1,628 compensation payments worth R79m in the same period in 2015.
The funds were paid from R3.5bn in unclaimed funds held in the Department of Health’s Medical Bureau for Occupational Diseases (MBOD) as six doctors and senior managers from gold mines were seconded to the fund, stepping up the tracking and tracing of former miners in SA and neighbouring countries, leading to the increase in claimants.
The mining companies will pay a lump sum into a trust that will embark on work to locate, verify and assess former miners with silicosis, which is caused by breathing in silica dust generated during gold mining, and occupational tuberculosis. Once confirmed, the trust will make a payment to the former miner, or their family if the miner, who had a confirmed OLD, had died, Briggs said.
Mining companies would not pay the full R5bn into the trust, but rather a portion of it to fund the trust’s work; then they would make payments as claimants came into the system over the next 12 years or so and the trust made cash calls on companies, Briggs said.
The number of former miners who could approach the trust is unknown, he said, suggesting the number may be lower than the 100,000 some market commentators have said. "With our outreach programme and analysis done by actuarial people, we have been surprised how few people there are relative to the numbers that have been put out there, but we don’t know exactly."
Briggs said the once-off payments would be made in addition to funds sick workers received from the MBOD.