By Abdul Milazi, Sunday Times

South Africa

November 18, 2007

Insiders express concern about lack of trustee experience 

Pension fund expert Henry Dul says that about R75-billion in annual pension contributions by 9.2 million members is effectively placed in the hands of a few thousand people who don’t know all that much about the sector — and who are too busy or ignorant to become more involved.

Insiders at South Africa’s R1.3-trillion pension fund industry, which has been rocked by a mismanagement scandal, are concerned that poor trusteeship is widespread.

Imagine running a R1-trillion company in your spare time. That is exactly what is happening at the majority of South Africa’s more than 13000 pension funds, according to pension-funds expert Henry Dul, the director of Independent Trustee Services.

The recent Fidentia scandal has prompted the government to introduce hard-hitting measures to curb mismanagement , including penalties of up to R5- million a day for offending companies. 

The measures were introduced in amendments to the Pension Funds Act, which drastically increased the power of the registrar to deal with poor governance, conflicts of interest and non-compliance. 

“Running a pension fund requires a certain level of skill and dedication, yet in reality senior executives are running these funds in addition to their jobs and giving rather more responsibility than they should to administrators,” said Dul. 
This effectively places the estimated R75-billion in annual contributions by 9.2 million members in the hands of people who don’t know all that much about pension funds and who are too busy or ignorant to be more involved.

“Unless the industry does more to ensure that funds are properly managed, it is only a matter of time before more scandals emerge,” Dul added.

The recent Joint Municipal Pension Fund debacle, in which it lost R1.9-billion in 2002 when its broker, WJ Morgan & Associates, invested its money in maize futures. 

Also, as the Pension Funds Circular PF 130 recommends that the competence and performance of trustees be evaluated regularly, Dul believes it may make candidates more reluctant to take on the position, requiring some extra inducement. 

David Weil, an independent trustee and the managing director of Investment Consultancy and Trustee Services, recommends that companies should have at least one independent trustee.

“A vast expanse of material and knowledge is required of a trustee, putting a lot of pressure on someone who has a full-time job,” said Weil.

Employees were often intimidated by their fellow trustees, who are their superiors, he added. “Challenging your superior at these board meetings is a career-limiting move.”

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