The FSCA says “inevitable but not systemic” mistakes were made when, starting in 2007, it embarked on a project to deregister thousands of retirement funds.
The Authority released its report on the Cancellations Project on 28 March.
The project was the subject of litigation from 2015 to 2018, amid allegations of irregularities and corruption on the part of the retirement funds industry and officials of what was, before April 2018, called the Financial Services Board (FSB).
Rosemary Hunter, who had been the FSB’s deputy registrar of pension funds, took her case against the FSB all the way to the Constitutional Court. She sought to compel the regulator to conduct a thorough investigation into the cancelled funds. The Constitutional Court ruled against her in September 2018.
The FSB commissioned three independent investigations into the Cancellations Project, by Justice Kate O’Regan (in September 2014), KPMG (in December 2014), and pension lawyer Jonathan Mort (in January 2016).
“Given the enormity of the Cancellations Project, mistakes were inevitable but not systemic, and where they were uncovered, they were rectified,” the FSCA said in the report.
“The culmination of the investigations, which ended with the Mort investigation, found neither evidence of any material financial prejudice having been suffered by any member, beneficiary or creditor, nor did he find evidence of corruption.”
The FSCA’s report summarises the findings of three investigations, as well as the Constitutional Court’s remarks on the conduct of the FSB.
Open Secrets and the Unpaid Benefits Campaign (UBC) launched a court application against the deregistration process in December 2021. The application was withdrawn in August 2022 after the two organisations signed a settlement agreement with the FSCA.
Open Secrets and the UBC issued a brief statement in September 2022 to explain why they settled with the FSCA: “Before we litigated against the FSCA, fund administrators had only reinstated 48 of the thousands of cancelled funds, and all done by one fund administrator, Liberty Life. This is 48 funds in the more than 10 years since the Cancellations Project.
“In the seven months after Open Secrets and UBC launched the application against the FSCA, the FSCA did more than it had in the last 10 years. In this time, Liberty reinstated the remaining funds it had identified as needing to be reinstated. As a result, hundreds of beneficiaries can now access their benefits, and we now know a little more about how/whether the FSCA has been exercising its powers in the public interest.”
How many funds were reinstated after cancellation?
Of the 6 757 funds that were cancelled, only 76 funds had to be reinstated, the report said.
Of the 76 funds that were reinstated, 39 funds were cancelled after the publication of their intended cancellation in the Government Gazette. These funds remain categorised as “query funds” on the FSCA’s system and will be cancelled once their outstanding business has been finalised.
The other 37 reinstated funds were subsequently cancelled following the deregistration applications, which were submitted by the representatives of the funds to the Registrar. Of these reinstated funds, 32 funds remain categorised as “query funds” on the FSCA’s system and will be cancelled once their outstanding business has been finalised.
Three of these reinstated funds have been liquidated in terms of section 28 of the Pension Funds Act (PFA), and their registrations were cancelled again in terms of section 28(15) of the PFA. The remaining two funds have been re-classified as active funds.
The FSCA said the main reasons for reinstating funds were:
- The assets of cancelled funds were discovered in the suspense accounts of the administrators.
- Former administrators identified funds as dormant, whereas only the administrators had changed. The reason for this error was that the records of the former administrators did not distinguish between section 14 transfers and section 13B changes in administrators.
- A surplus was detected after the assets and liabilities of a dormant fund had been transferred to the transferee fund and the registration of the dormant fund had been cancelled. The registration of the dormant fund had to be reinstated to enable the FSB to approve a surplus apportionment scheme. In other instances, a surplus was detected only after the last member of a dormant fund had been paid out and the fund’s registration had been cancelled.
- The FSB Appeal Board ruled that the registration of four funds had to be reinstated. The reason for seeking reinstatement was to obtain a refund of assets from an administrator because of bulking, or the section 13B administrator had identified the fund as having outstanding business. In these cases, information came to light following the cancellation of the fund that remaining assets were due to members. The funds had to reinstated to enable the administrators to finalise the distribution of these assets.
Origins of the Cancellations Project
In the 1990s, thousands of occupational retirement funds were converted from defined-benefit to defined-contribution schemes. In the 2000s, there was another shift from single-employer or stand-alone retirement funds to umbrella funds. As a result of these changes, thousands of stand-alone funds became orphan funds (they did not have boards of trustees). Some of these orphan funds were shell funds, while others had assets and/or liabilities, the report said.
“The FSB was not aware of the full extent of this issue until the amendments to the PFA in 2004 and 2005 which required all retirement funds to submit annual financial statements to the FSB.
“In 2005, the FSB noted that only 7 684 of the 13 735 registered retirement funds submitted annual financial statements, and only 4 384 of the 13 132 registered funds submitted financial statements in 2006. The FSB picked up a few discrepancies in these annual financial statements and noted that numerous retirement funds were seemingly no longer active.”
The FSB undertook a verification exercise to identify the active retirement funds. This exercise indicated that only 4 057 of about 10 132 registered funds were active.
The purpose of the Cancellations Project was to identify inactive funds that no longer had any members, assets or liabilities and to cancel their registration, the FSCA said.
“As the custodian of public data on retirement funds, it was incumbent on the FSCA, and the then FSB, to clean up its records so as to accurately reflect registered active retirement funds and thereby restoring the integrity of its register and ensuring the effective supervision.”
Company like Sasol never transfer workers pension funds from 1980 to1992 when workers chosen Providers funds. This company never pay its commited company portion to any employees who retired of which is froude, but busy paying bribes the Lawyers and Judges and Mps, and the union like Cipawu as well as Cosatu, that is the reason government is quite about this matter