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.

S ince July 2005 the adjudicator’s office has been receiving on average 420 complaints a month. This is an increase from the average monthly rate of 200 complaints between April 2004 and March 2005 and an average rate of 170 complaints per month between April 2003 and March 2004. In May 2006 alone, 522 complaints flooded in. Yet our staff complement has remained the same as when we were receiving 200 complaints a month. This is a cry for help.

Because we have a statutory obligation to resolve complaints expeditiously, an involuntary go-slow is not an option. And you cannot keep throwing money at the problem by hiring more and more staff. So, what do we do?

One option is to outsource some of the work for investigation to private law firms and advocates. The findings of the investigation can then be submitted to the adjudicator who will then make a determination.

But that is fraught with problems not least of which is the expense of the exercise. The kind of law firms that can do pension work do not come cheaply, and you cannot instruct an advocate directly but need to go throw a firm of attorneys, meaning you pay two (or more) people for the work of one person.

There is also the danger of a conflict of interest where a firm that has done an investigation on a complaint involving ABC retirement annuity fund can use some of the detail it picked up from the file to the prejudice of ABC retirement annuity fund in another case for the benefit of another client. A restraint agreement will not solve the problem because any agreement that says a firm cannot act for an opponent in a matter involving any of the parties to a complaint it investigated in the past would in my view be unreasonable and probably legally unenforceable.

I think the answer lies in a class action. In other words, people with substantially similar complaints against the same employer or retirement fund or underwriter or administrator can club together and bring one complaint. That way, instead of investigating and adjudicating on 20 complaints covering the same cause of complaint against one retirement fund, we investigate one complaint and make one determination.

This has a knock-on effect on the efficiency of the courts and the retirement funds and life companies that underwrite these funds. Instead of challenging 20 determinations, they challenge one. And the courts hear one application instead of 20 similar applications by the same applicant.

What’s more, the rules of the High Court do allow a consolidation of similar applications against the same opponent. It will thus be nothing new if 20 complainants can lodge one complaint against the same retirement fund and/or underwriter. The complaints must, however, be substantially similar.

In addition, pension rights are for all intents and purposes in effect property rights and are constitutionally protected. The constitution provides that a class action can be brought with a view to asserting and protecting any of the rights that fall under the Bill of Rights chapter, including property rights.

It is a mystery to me why law firms in South Africa have not taken advantage of this opportunity to do some good by representing a host of people in one case in their struggle to protect their pension benefits from the clutches of well-resources companies. Complaints involving retirement annuity funds and preservation funds (for example) present a huge opportunity to do some good and get paid at the same time.

The Department of Trade and Industry in England has recently proposed new laws aimed at enabling consumers to mount class action suits against retailers and service providers for faulty goods and shoddy services. In my recent visit to the UK Pensions Ombudsman, Dave Laverick, and The Pension Advisory Services (TPAS), Des Hamilton, I learnt that there is widespread consumer and regulatory condemnation of some of the business practices of life companies there, especially in the pension fund arena. Indications are that the proposed new laws may help aggrieved pension fund members and their dependants mount unprecedented class action suits against underwriters.

Claims by big business that these laws may be open to abuse by consumer groups to run “crusades” have been made. No doubt similar claims will be made here. But the proof of the pudding is, as always, in the eating.

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.