Complaints about pension funds hit record high
Municipal sector a standout culprit for not paying over retirement contributions
The office of the Pension Funds Adjudicator (PFA) received 11,399 new complaints over the past year from aggrieved members of pension funds and the beneficiaries of deceased members.
This is a 16% increase on the previous year, and the highest number of complaints received in a financial year since the PFA’s office opened 20 years ago.
In her latest annual report, Muvhango Lukhaimane, the PFA, says most complaints related to the failure of funds to comply with the law governing funds and delays in the payment of benefits to members or their beneficiaries. This, she says, is a “grave indictment” on the pension fund industry’s commitment to treating customers fairly.
In many respects, non-compliance was concentrated in the large funds, namely umbrella funds, funds set up for industry sectors, such as the Private Security Sector Provident Fund, and industry funds, Lukhaimane says.
The non-compliance had to do with funds failing to collect member contributions from employers and their failure to act against an errant employer or responsible person, she says.
Along with the failure to provide basic information to members, such as benefit statements, the levels of non-compliance in large funds called into question the regulator’s policy to consolidate funds, “as it is apparent that the more removed a fund and its administrators are from the ordinary member and employer, the less compliance there is to basic regulatory requirements”, she says.
Such compliance matters should be tackled by the Financial Sector Conduct Authority (FSCA), Lukhaimane says.
Abel Sithole, the FSCA commissioner, says the unprecedented number of complaints to the PFA is of concern and require the regulator’s “undivided attention”.
Failure to pay contributions, delays in the payment of benefits to beneficiaries, lack of adequate documentation and records management, and poor or delayed responses from funds to the PFA have a direct impact on the welfare, and at times the right to dignity, of pension fund members, Sithole says.
In her latest annual report, Lukhaimane picks out the municipal sector for its failure to pay member contributions to the relevant pension funds. “A number of municipalities in the Free State and North West provinces were unable to pay contributions to funds, thereby putting members’ risk benefits at risk for extended periods of time.”
As a result, the PFA has granted determinations against municipalities that include the attachment of council property to satisfy the debt.
Earlier this year, the PFA found that the Kopanong Local Municipality in the Free State had failed to pay an estimated R58m in contributions to the SA Local Authorities Pension Fund. The council had deducted pension fund contributions from employees’ salaries over the past six years and failed to pay them over to the fund.
It’s clear that market conduct remains a burning issue as funds and administrators continue to grapple with such issues as non-payment of contributions, late payment, and non-payment of benefits.Finance minister Tito Mboweni
Lukhaimane says there has also been little improvement in the conduct of large pension funds mentioned in previous annual reports. She says that while the FSCA has appointed “statutory managers” to take over the running of the Private Security Sector Provident Fund, the backlog in responses to complaints and the conflicting information from its administrator, Salt Employee Benefits, mean that her office was often unable to finalise complaints timeously.
The Soweto City Council Pension Fund was also picked out for its failure to provide members and former members with adequate information relating to top-up benefits to qualifying members. The fund is the subject of an investigation by the FSCA.
In the year under review, 10,287 complaints to the PFA were finalised — 16% more than the previous year. The annual report says the PFA issued 5,316 formal determinations finding in favour of complainants in 88% of cases. Almost half (49%) of all complaints were finalised within six months.
Almost 2,000 complaints to the PFA were deemed out of jurisdiction, of which 1,355 were referred to other entities — mostly to the FSCA and the Government Employees Pension Fund. A relatively small percentage of complaints were referred to other financial services ombuds, which shows that consumers are largely aware of where to lodge complaints, the annual report says.
There was a 64% increase in the number of complaints settled without the adjudicator needing to deal with the complaint.
On the topic of delays in the payment of benefits, which was among the most common complaints against funds, Lukhaimane says it is concerning that even when funds and administrators were notified of complaints lodged against them, most errant funds made no effort to make payment.
Only a few funds, notably the large insurer-underwritten umbrella funds and the Contract Cleaning National Provident Fund, attempted to make good before the finalisation of the complaint, she says.
Their doing so led to the increase in settlements in those matters where there were no outstanding contributions.
Finance minister Tito Mboweni says that from the complaints disposed of by the PFA, “it is clear that market conduct remains a burning issue as funds and administrators continue to grapple with such issues as non-payment of contributions, late payment, and non-payment of benefits”.