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Discord in retirement reform over fund trustees’ increased liability

Windall Bekker
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There is a discord between calls to reduce retirement fund costs, according to the fifth discussion paper released towards the beginning of July by the National Treasury, and fund trustees’ increasing liability: trustees can be held liable, in their personal capacity, for certain fund-related events.   

While the proposals are an excellent initiative, sometimes there is an apparent disconnect between the theory and the realities brought about by the country’s demographics. If these proposals are implemented in their current forms, these could have a significant effect on the industry and retirement funds in general, including increasing the liability of retirement fund trustees.

As the law now stands, a fund trustee of an employer-sponsored retirement fund can be held accountable in his or her personal capacity for certain fund-related matters. We believe the current proposals mean that retirement fund trustees would be held a lot more accountable than is currently the case. Their reliance on external consultants with specialist expertise would need to increase, and this would have a corresponding effect on fund costs.

Simplification could be the way forward

Conversely, simplifying products, as proposed by the National Treasury, and the appropriate use of smoothed bonus products, would make selecting investment portfolios easier and more transparent.

The asset management industry struggles with the problem that their products are often excessively complex, with too many layers of fees and conflicting interests, which is sometimes to the detriment of the retirement fund members. Simplifying products could have a positive effect on high fees.

Compulsory preservation will put some pressure on employers

This is because many retirement fund members are blue collar workers with little or no savings to draw on in times of hardship or job losses. This could be reflected in an increased social upheaval as retirement fund members demand access to their contributions and show an ongoing reliance on state grants and handouts.

Trustees are often unaware of the personal risks and obligations inherent in their positions

Although trustees are competent in the workplace, sometimes they do not have the required skills, experience and time to manage their fund’s investments, including other matters, on a regular basis.

Happily, the management industry has a significant array of solutions to meet any retirement fund’s need, including:

  • The day-to-day running of a fund,
  • Paying out different types of benefits,
  • Dealing with the death and disability benefits that can be offered through a fund, or
  • The actual investment decisions that need to be made.

Investment decisions are becoming increasingly complex

This is in terms of current local and global markets, and changes to Regulation 28 of the Pension Funds Act that took place in 2011. Among other things, these changes increased the amount of allowed offshore exposure from 20% in total to 25%, excluding an additional 5% that can be invested in Africa.

On the back of increased political uncertainty and a depreciating rand, there is a significant trend to increasing offshore investment exposure to the maximum 25% allowed.

Market volatility has had a significant impact on investment returns in general over the past few years. Some sectors like commodities have struggled recently. The complications of investing to achieve the best performance of what ultimately remains the retirement fund members’ money – especially during volatile market times - underscores once more that fund trustees need to be aware of their responsibilities, duties and liabilities. They would therefore, in most instances, be best advised to delegate to the relevant experts while remaining aware that they remain liable in their personal capacity.


Windall Bekker is a partner at the REZCO Investment Group.


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