Justice still needed for poverty-stricken pensioners after deregistration blunder
“I have saved enough to retire peacefully. But now I will turn in my grave because I will die in poverty.”
This was said by Douglas Maila, a member of the Unpaid Benefits Campaign, at a protest outside Alexander Forbes demanding that it pay pensioners the benefits they are owed. Maila’s experience of contributing a portion of his salary every month for years, only to retire and face great difficulty accessing what he is owed, is shared by millions of workers whose pensions sit in "unclaimed" benefits funds worth over R42bn.
The unpaid benefits crisis in SA worsened with the Financial Service Board’s (FSB) "cancellations project", which entailed the mass deregistration of over 5,000 pension funds between 2007 and 2013. This allowed the regulator to clear its books of funds thought to have no assets, boards or members. It was later discovered, however, that many of these funds still held assets, owed money to beneficiaries and should never have been cancelled.
In a 2014 investigation that analysed a sample of 510 funds deregistered during the cancellations project, KMPG found that the registrar of pension funds did not have the requisite information to reasonably order 500 of the cancellations. Even more damning is KPMG’s estimation that R2.5bn was unaccounted for in these 500 funds alone.
It remains to be seen how the new regulator — the Financial Sector Conduct Authority (FSCA) — will address this problem. Last week, Francois Groepe of the SA Reserve Bank said that SA has for too long prioritised prudential regulation at the expense of market conduct regulation and that not enough has been done to address exploitation of the most vulnerable by private financial institutions.
The administration of pension and provident funds is are a crucial area for strong regulatory oversight and intervention. For many workers, contributing to a pension fund is compulsory, in line with their sectoral determination.
On April 1 2018, the FSB took up its new mandate as the FSCA, promising stronger oversight of the financial sector and more proactive and intrusive regulation to protect SA consumers.
Why then have funds that were wrongfully deregistered during the cancellations project still not been reinstated in court? Until this happens the beneficiaries of these funds remain unable to access their pensions. A first step towards the FSCA fulfilling its promises is to ensure these funds are lawfully reinstated and paid to beneficiaries as a matter of urgency.
The administration of pension and provident funds is a crucial area for strong regulatory oversight and intervention. For many workers, contributing to a pension fund is compulsory, in line with their sectoral determination.
Despite being important vehicles of income security for the poor, pension funds are often administered by private companies such as Liberty Corporate and Alexander Forbes. This is particularly concerning because these companies are able to profit from this role through charging administrative fees that are often based on total asset value. This creates a clear disincentive for fund administrators to actively find and pay beneficiaries in the context of unclaimed benefits funds.
Many of the decisions to deregister funds during the cancellation project were based on information provided by private fund administrators that turned out to be incorrect (by their own admission).
Liberty was responsible for administering 80% of the funds deregistered during the cancellations project. In 2017, it approached the high court to review the cancellation of 25 funds, presumably pressured by FSB whistle-blower Rosemary Hunter’s court case, which was ongoing at the time. These 25 funds, which owed R90m to over 300 beneficiaries, were successfully reinstated by the court, and Liberty proclaimed its intention to apply for judicial review of a further 105 funds it believes were unlawfully cancelled.
Since the Constitutional Court’s dismissal of Hunter’s case, Liberty has gone quiet. Open Secrets contacted Liberty to determine the status of the review application. Liberty’s response indicates that it is backtracking on its decision to apply to court to reinstate funds and will instead pursue "internal processes" with the FSCA.
This is alarming, as there is no clear legal reason to abandon the strategy of approaching the courts to urgently reinstate the funds’ registrations. More than a decade has passed since the cancellations project began and it is urgent that the relevant administrators reinstate erroneously cancelled funds through judicial review in terms of the Promotion of Administrative Justice Act.
Open Secrets has written to the FSCA urging it to issue a directive to Liberty and other administrators to review potentially unlawful cancellations in court, so that beneficiaries may receive their pensions as soon as possible. An internal process is no longer appropriate, nor is it lawful. The scale of likely financial prejudice in the cancellations project demands the transparency of a court process where the conduct of both the companies and the regulator can be publicly examined.
Issuing this directive would be a step towards rectifying the regulator’s neglect of unpaid pensioners and so many other South Africans who bear the brunt of an often unchecked financial sector. We urge the FSCA to act and live up to its promises.
• Khan is with Open Secrets, a nonprofit organisation that pursues accountability for private sector economic crimes through investigations, advocacy and the law.