A n editorial of a leading retirement industry publication has poignantly captured the fate of retirement funds in these words:
“Retirement funds are like beached whales. Every man and his dog can take a bite. The funds are easy meat because the biters are as astute as the bitten are defenceless, except for their thick skins. Between the biters and the bitten are supposed to be trustees, poor things. They’ve hardly a hope in hell, and sometimes don’t even know about the bites until they’ve been savaged.”
This is an indictment not so much of retirement funds as the regulation thereof. It is hopelessly lacking. Consider, for example, the new regulations to the Long-Term Insurance Act recently signed into law by the Minister of Finance. The regulations legalise so-called “causal event charge”, a pseudonym for what life companies variously referred to as “early termination charge” and “premium reduction fee”. And this, the new regulations say, is to be allowed “whether or not the actuarial basis [for such a charge] has been expressly incorporated in the policy”!
But this is precisely the practice that has given rise to so many complaints as regards the charging of unauthorised penalty fees in the event of members reducing or stopping contributions.
Instead of addressing the problem by simply making express provision in the policy for such a charge in the event of any of these events occurring, it appears life companies have successfully lobbied for a semblance of legality to what has hitherto been an undesirable business practice of springing surprise charges on unsuspecting members of underwritten RAs. The mind boggles as to how the legalisation of this practice could possibly have come to pass when it has generated so many complaints by underwritten RA fund members.
In simple terms, life companies can now levy a penalty every time a member of an underwritten RA either stops or reduces contributions, whether or not such a penalty is authorised by the policy or any other relevant document.
Thus, far from facilitating the protection of RA fund members’ interests, National Treasury appears to have turned members into beached whales, thereby making underwritten RAs a more dangerous, opaque and parasitic avenue through which to save for retirement than they ever were.
Another beached whale of a different sort is the Office of the Pension Funds Adjudicator that I have had the honour of leading between 17 March 2004 and 30 April 2007. It was established with a view (at least ostensibly) to disposing of complaints quickly, fairly and without charge. “Quickly” was a non-starter for the year ending 31 March 2007 after the FSB refused to release funds for the appointment of staff necessary to deal with an avalanche of complaints. “Fair” is a pipe dream since the office has no equity jurisdiction. The only empirical certainty about the office is that it renders a free service to the public.
But what good is a free public service when a motley of features conspire to render it ineffective? For instance, the office does not control its own budget and so must dance to the tune of the FSB if it is to remain sustainable since the FSB holds the purse strings of levies paid by retirement fund members for the adjudicator’s use.
Recent events, culminating in my departure, demonstrate only too starkly that a refusal to dance to the FSB’s unmelodic tune results in the office’s statutory functions being impeded. As a result, its independence is immediately compromised.
While its primary mandate is to deal with retirement issues, it is by legislation expressly barred from dealing with the most contentious retirement issue in recent years – surplus apportionment. It is not immediately clear why this exclusion was thought necessary.
Most dishearteningly, the office’s rulings effectively stand or fall at the whim of large companies. On current legislation, all they need do is virtually show up in the high court, mumble a word or two about the adjudicator’s jurisdiction, and have the adjudicator’s ruling set aside. This is so because the complainant invariably has no money to fight the company in the high court; and it has been ruled that the adjudicator has no business getting involved at the high court stage.
Thus, without opposition in their curial joust, large companies contrive to have the adjudicator’s rulings set aside in the high court. In these circumstances, it is difficult to conceive of the adjudicator’s office as anything other than a beached whale.
The challenge to National Treasury is to show that it has the courage to stand up for what is just. There are at least ten steps in which it can do so.
First, make the adjudicator’s rulings subject to a review, not a fresh application. Second, prevail on the justice ministry to allow the funding of deserving cases on complainants’ behalf by the Legal Aid Board. Third, outlaw underwritten RAs. Fourth, allow the adjudicator’s office to control its own budget. Fifth, appoint a Ministerial Legal Task Team to overhaul the entire Pension Funds Act to keep pace with constitutional and other developments.
Sixth, codify all retirement legislation under one Act. Seventh, set out in clear and unambiguous terms a list of undesirable business practices together with a clear stiff sanction for each and strictly apply those sanctions. Eighth, make clear legislative provision for RA members freely to transfer between funds prior to retirement without incurring penalties for so doing. Ninth, facilitate a professional working relationship between the adjudicator’s office and the FSB. Tenth, confer equity jurisdiction on the adjudicator’s office.
In my view, it is by these standards that National Treasury’s commitment to a just and equitable regulation of the retirement industry must be judged. These standards are easily implementable without much fuss even by a most unwilling authority with a conscience. They cost National Treasury nothing in money terms and I am quite certain large companies’ patronage is not even a consideration for National Treasury.
I can only hope and pray that the single biggest contribution we have made – that of instigating a legislative amendment to enable RA fund members to transfer from one RA to another before retirement age without incurring a penalty – will finally become reality and remain so.