On a warm Autumn day in April 2007 I sat down, a little black book and a fountain pen in hand, to jot down what I would do over the next 5 years, then 10 years, then 15 years. I had recently stepped down as Pension Funds Adjudicator in March of that year despite demur from National Treasury and the Financial Services Board. My time was up. I had served my 3 years. It was time to move on.
I had been approached by life insurance companies to join them as an executive. That was hardly an option I was prepared to entertain. I had been approached by asset management companies to sit on their board of directors. I was not interested in that either (although some 2 years later I did succumb to Alexander Forbes at the urging of a very tall man for whom I have enormous respect).
Ultimately, I jotted down the following notes:
- A Memoir by 60
- Back to the Bar – definitely not Cape Town
- PhD in Tax
- Routine for Comrades (6 Silvers to go) by 50
- Blue number at 2 Oceans by 2010
Then I got distracted. I had, a few days previously, missed my Sainsbury Medal target at the Two Oceans Ultra Marathon by just over 5 minutes. What was supposed to be 4:59,59 turned out to be 5:05,19. I was brooding. I went for a full body massage. Then, as I lay there – a genuinely Thai woman at Angsana Spa walking on my back – it hit me: write a book on your experience as Pension Funds Adjudicator.
The following morning, I took out my laptop and started typing. Before I realised, it was evening again. And so, over the next 12 years, I would write a chapter per year – until now.
This is the edited Prologue to the book:
In his 1946 essay on Politics and the English Language, George Orwell succeeded in surgically peeling off the veneer of prosaic respectability from what passes for “modern” English to expose the ugly lies ignominiously hidden beneath.
Mourning the perversion of the English language – ostensibly in the name of modernism but, in truth, with a view to obfuscating and deceiving – Orwell observed that the decline of a language must ultimately have political and economic causes. That observation finds an austere ring of truth about it in the South African retirement industry’s language of choice. Indeed, the great enemy of clear language is insincerity.
The phrase “maturity value” or “actuarial value” is in many instances (fashionably blamed on market volatility or downturn by large and dominant institutions trusted to manage retirement fund investments) an insult when members of retirement funds emerge from the “investment” experience with less than they put in. There is often neither “maturity” nor “value”.
So, too, is a “smoothed bonus” or “reversionary bonus” policy when life company actuaries are at liberty to reduce (not augment as the word “bonus” suggests) members’ investment values using unexplained actuarial tools like the “Market Level Adjuster”, in itself yet another abuse of the English language intended to deceive.
So, to talk of “underwritten” retirement annuity funds in the South African context is quite misleading. To “underwrite” is to assume financial liability, to finance, to guarantee, to bankroll. Life companies or insurance companies that “underwrite” retirement annuity funds do not guarantee, bankroll or finance these funds. Instead, a good argument could be made that retirement annuity funds finance the business of insurance companies.
In fact, all insurance companies that “underwrite” retirement annuity funds do is lock members of those retirement funds into long-term edicts from which they cannot escape. This guarantees to those “underwriting” insurance companies sustained business for as long as people save for retirement.
I say these are edicts because, to say the insurance policies in which “underwritten” retirement annuity funds are invested are “contracts” would be an abuse of the English language since there is little, if any, “agreement” between the member on the one hand, and the insurance company on the other. The only agreement, according to “underwriting” insurance companies themselves, is that between the trustees of the retirement annuity fund on the one hand – themselves employees or former employees of the insurance company – and the insurer on the other.
Much of the perversion described above informed, in part, the writing of my book, The Truth About Retirement Annuity Funds in South Africa, which should be published soon. I am amazed at the ease with which “underwriting” insurance companies get away with their manifestly bad business model founded, as it is, on investment by duress. National Treasury, under the stewardship of successive Ministers of Finance from what is supposed to be a libertarian ruling party, seems to see nothing wrong with this model, while the Financial Services Board or FSB (now called the Financial Sector Conduct Authority or FSCA) can only regulate on the basis of legislation produced largely at the instance of National Treasury.
These two realities conspire to produce an intractable problem. While the executive at the then FSB, who was responsible for the regulation of retirement funds, expressed concern to me in an interview about underwritten retirement annuity fund business model, and the virtually incestuous nature of its governance, his hands were tied by existing legislation. By the new Financial Sector Regulation Act, which came into effect on April Fools’ Day in 2018, both National Treasury and the ruling party appear to have no intention of addressing this problem.
The writing of the book was informed also by an event which, at the time, seemed innocuous enough. One could simply have dismissed it (as is on’s tendency when confronted with imbecilic comment) as the idiotic musings of a simpleton not worthy of any attention.
It happened at the Sandton Gautrain station. A man travelling with his family, his 3 to 4 year old daughter perched on his shoulders, crept up to me and said, sotto voce, “
You’re the guy that fucked up the insurance industry, aren’t you?”
“I beg your pardon!” said I incredulously.
“You’re him, aren’t you”, said he, characteristically ignoring the incredulous look both on my face and in my voice.
He then slithered into the lift, wearing the smug face of one who had put power in its place, and disappeared into the Sandton concrete jungle, confident in the thought that he had made his point – whatever that was.
That short encounter convinced me that if there are people out there who believe that I “fucked up the insurance industry”, then perhaps I owe South Africa an explanation of precisely what it is that I was about. Media reports on the rulings of the Pension Funds Adjudicator tended, while well-meaning, to err on the sensational. I was touted, variously and in screaming headlines, as “Life Saver”, “Consumer Champion”, and “Change Agent”. My repeated protestations (the last in an interview in Rosebank, Johannesburg, with the late Michael Coulson) only served to encourage some financial journalists (not Michael) to talk me up as some kind of hero. I was not. I am not.
While I may plead guilty to “change agent” (in small letters) in other endeavours, that was neither the role I set out to play, nor in fact played, as Pension Funds Adjudicator. As Pension Funds Adjudicator I simply applied the law as I understood it (which in most instances was endorsed by the courts). I was no consumer crusader.
The book is the product of my experience as Pension Funds Adjudicator during the period March 2004 to March 2007, as well as from the practice of law at the Bar for almost 20 years, during which period I have acted as a Judge of the Labour Court and the High Court.
During that period I learnt of numerous problems in the retirement industry, many of which are the result of “underwriting” insurance company practices enabled in no small measure by legislative and, with that, regulatory inadequacies. Because “underwriting” insurance companies account for about 80% of market share of underwritten retirement annuity fund investment, problems wrought by such dominant players pervade and indeed define the industry.
As Pension Funds Adjudicator I was charged with investigating and resolving retirement fund related disputes. In the course of that exercise, and within just two years in office, I discovered business practices by “underwriting” insurance companies that evoked in me a sense of being raped by these behemoths. It was no rocket science, really. All one needed to do was look in the obvious places.
Yes, the rape metaphor is in my view quite appropriate considering that current legislation and governance rules by which underwritten retirement annuity funds are regulated are such that the investor is in my experience helpless against the life company juggernaut with regard to the management of his or her investment. Watching one’s investment fritter away year after year, and being helpless to do anything about it (such as taking one’s money elsewhere without incurring penalties that are unlawfully imposed) leaves one with a sense of being financially raped, even though I can only imagine the horror through which a physical rape victim goes.
In the book I hope to share some of the horrors of “underwritten” retirement annuity funds that I have witnessed during my tenure as Pension Funds Adjudicator. I shall also make suggestions on how these horrors should be eradicated – for good and forever. The starting point could well have to be change in government. The current ruling party has shown little appetite for tackling the abuse by life companies of their dominance in the retirement fund industry. And, while the new Financial Sector Regulation Act talks of “transformation” in the financial services sector, on closer scrutiny – and by its own terms – it does nothing of the kind.
A topic for another day.