Pension industry taken to task by regulator

By Janice Roberts


Many pension funds claim they conform to the Treating Customers Fairly (TCF) principle despite giving customers a raw deal, says Pension Funds Adjudicator Muvhango Lukhaimane in a review of the industry.

“I am astounded at the number of times funds quote compliance with TCF in response to an action that took place in a retirement annuity fund.

“At this rate, implementation of TCF might just as well cease as I am sure the public is confused because 100% of the time, the customer has not been treated fairly at all,” she said.

The Financial Services Board introduced TCF as an outcomes-based regulatory and supervisory approach designed to ensure that specific, clearly articulated fairness outcomes for financial services consumers are delivered by regulated financial firms.

TCF aims to raise standards in the way firms carry on their business by introducing changes that will benefit consumers and increase their confidence in the financial services industry.

Ms Lukhaimane said the lag between TCF being talked about and its implementation will result in fund members losing confidence that it will improve their current lot.

She said in 2014/5, the 29,4% increase in complaints lodged with the Office of the Pension Funds Adjudicator (OPFA) from the previous year was viewed as a poor reflection of the service that complainants received.

However, in the nine months to December 2015, the number of complaints received already represented a 10% increase on the previous year.

Ms Lukhaimane said the health of the pension industry can be measured by the number of complaints received.

She said this led her to believe that the industry viewed the regulator as a toothless body or as being sympathetic to the myriad excuses proffered by funds for non-compliance whilst receiving fees.

Members of funds continued to experience low level of service from their funds, be it provision of benefit statements, explanation of fund information, delay in requests for transfer to other funds or inordinate delays in the payment of retirement and death benefits.

“Most members that complain about payment of benefits or non-payment of contributions by their employers often have no written communication from the fund or administrator regarding the status of their membership.

“The number of complaints that reach our office when a claim has prescribed also points to lack of knowledge by fund members of their rights to enforce claims.

“These are referred to the Financial Services Board for further investigation where the complainant is adamant that a benefit is owing, as this will assist with the tracing of members entitled to unclaimed benefits,” Ms Lukhaimane said.

“Whilst the claims might have prescribed, in order to clear the unclaimed benefits issue funds at least need to look up the members in case they are owed a benefit – after all this is their rightful money.

“So, let us all have the attitude of the Mineworkers Provident Fund and diligently go through our records; and not the one from Sentinel that views this as a nuisance.

“Bear in mind that we are dealing with mostly uneducated and not so knowledgeable members, given the history of this country and the historical treatment of employees in some of the sectors concerned.”

Ms Lukhaimane said the Service Level Agreements that funds signed with administrators and consultants often included “responding to complaints” as one of the performance criteria.

“Yet from the complaints received by my office, I am not certain that these agreements are worth the paper they are written on. Neither is it clear how funds monitor the administrator or consultant’s performance.”

She was also critical of tracing agents that submitted a one-page complaints to her office for a fee of R350 with no supporting documents.

“These tracing companies are taking money from former members with a promise to trace their unclaimed benefits, yet all they do is submit their name, with no other information to our office for investigation.

“When these complainants are contacted, often they do not have supporting documents establishing membership nor the name of the fund they wish to claim from, which means we cannot investigate further.

“Funds and employers are, therefore, requested to refer members and former to our office.”

Ms Lukhaimane said funds were supposed to publicise the OPFA as a free complaints’ resolution office, which they were not doing frequently enough.

Many complaints came to the office through companies such as Clientele, Legalwise and Scorpion Legal Protection which merely completed a complaints’ form from the OPFA’s website. This was completely unnecessary as the OPFA offered a free service.

Ms Lukhaimane said the OPFA continued to be overwhelmed by complaints against sectoral determination funds such as the Private Security Sector Provident Fund and the Contract Cleaning National Provident Fund.

“Despite numerous referrals to the Registrar of Pension Funds that there has been clear violation of the Pension Funds Act by both the board of the Private Security Sector Provident Fund and its administrator, Absa Consultants and Actuaries, the situation has neither improved nor is there an indication of the Registrar imposing any penalties as per her powers on either party.

“Yet the detriment to members and their beneficiaries continues as evidenced by the never ending stream of complaints.

“I must hasten to add that employees within the private security and contract cleaning industries are marginalised and often paid less than satisfactory wages whilst working extremely long hours under strenuous conditions, only to be robbed of their pension contributions by employers that do not pay over the required contributions; funds that do not monitor employers’ compliance; and administrators that often fail to provide early warning information like benefit statements as a matter of course.”

Ms Lukhaimane said mostly bank employees complained about withholding of benefits in terms of the Act in case a member had caused damage/loss to his/her employer through fraud, theft or misconduct.

“Mostly banks and the administrators of their funds are quick to withhold benefits only to release them when an employee lodges a complaint with our office.

“What is of concern is that whereas the fund would have agreed to withhold at the instance of the employer (bank), it only checks whether such withholding is in compliance with the Act when it receives the complaint from our office; which is clearly a violation of the Act.

“In the majority of instances, the fund would find that the actions that the member is alleged to have engaged in, do not comply with the requirements of the Act, thus releasing the benefit and settling the matter,” Ms Lukhaimane said, adding consideration was being given to imposing punitive measures against funds that failed to observe the prescripts of the Act.

Sections of the employee population had also moved to a stage where funds that followed paternalistic ways of management were no longer funds of choice. In the local authority arena, a moratorium enforced in terms of the rules of funds has been in place for a considerably long time, much to the detriment of a section of employees/members.

“A defined benefit fund is clearly not compatible with a cost-to-company remuneration package nor is it suitable for contract employees or mobile ones.

“This is one instance where employment practices have moved well ahead of fund rules and provisions; and if the latter is not revisited to be in line whilst employees are prohibited from transferring to compatible funds, the country faces a situation where employees in the local authority sector who voluntarily or involuntarily change jobs will end up with insufficient retirement income, as they would have contributed far more to the fund than they would have received as benefits.”

Ms Lukhaimane added that the OPFA was awaiting the implementation of the Retail Distribution Review as members of retirement annuities continued to suffer exorbitant causal event charges.

The purpose of the Retail Distribution Review seeks to ensure insurance distribution models are aligned to achieving TCF outcomes.

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