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Senior employee breaks silence on how the regulatory agency was allegedly ‘grossly negligent’ when closing orphaned pension funds
‘Unlawful” and “grossly negligent” – that’s how a senior executive of the Financial Services Board (FSB) has described her own organisation’s behaviour in closing thousands of “orphaned” pension funds.
Rosemary Hunter was appointed to the FSB by Finance Minister Pravin Gordhan in 2013 to oversee pension funds.
As deputy registrar of pension funds and deputy executive officer: retirement funds and friendly societies, she is one of the FSB’s most senior employees.
After a two-and-a-half-year battle inside the regulator, she has decided to make her concerns public.
On Tuesday, she filed a notice with the North Gauteng High Court to force her employer to make public two potentially damning reports on the way in which it relied on major pension fund administrators to expedite the closure of so-called orphaned funds – one by former Constitutional Court Justice Kate O’Regan, and a forensic investigation by auditors KPMG.
Between 2007 and 2013, the FSB closed roughly 9 000 pension funds. Hunter alleges that instead of diligently following legal process, the regulator cut corners by handing control to major pension administrators, who closed pension funds en masse.
In one example Hunter refers to in court papers, 923 pension funds were closed at the discretion of a single employee of a major pension fund administrator. In another example, on a single day in August 2012, a request was made to cancel 668 pensions funds. Records show the FSB waited on average just three days before approving requests.
“Under the circumstances, it would have been impossible for FSB staff to have conducted investigations,” states Hunter.
Hunter alleges that in many instances, it was unlikely that any real effort was made to trace the beneficiaries of these pension funds.
“I fear that it is probable that the members and beneficiaries of a significant number of funds ... may have been unlawfully deprived of retirement fund benefits,” she states in her affidavit.
Instead, Hunter alleges the FSB’s actions favoured the major pension fund administrators who could charge additional fees to these new funds, saying: “This has resulted in considerable benefit to the fund administrators and related service providers of financial products and services.”
South Africa has a vast problem with unclaimed pension money.
This only became apparent after the FSB embarked on a mass cancellation of defunct pension funds – causing unclaimed assets to pool into specially designated funds.
In 2008, shortly after the cancellation project began, there was R6.2 billion in various unclaimed benefit funds. By the time Hunter joined the FSB in 2013, the figure had risen to R15.8 billion. On Friday, the FSB confirmed that the current figure was about R20 billion.
The FSB points out that beneficiaries can still claim from these funds.
“All assets found in the funds were transferred to unclaimed benefit funds, where they can still be claimed by their rightful owners,” said spokesperson Tembisa Marele on Friday.
However, the responsibility of tracking down the fund and submitting a claim now rests with the beneficiaries, many of whom may be completely unaware they are owed money.
The FSB maintains that no prejudice was caused by the way in which they closed the orphaned funds.
Dube Tshidi, the registrar of pension funds, has called Hunter’s campaign a “theoretical, legal-technical and futile exercise”.
In a submission to Justice O’Regan, he said the expedited process had been “sensible, pragmatic and somewhat robust”.
Instead of the industry gaining from the process, Tshidi claims they aided the FSB at “significant cost” to themselves.
Despite this, Hunter claims Tshidi and the FSB board undermined her attempts to investigate the issue.
“Although all of my conduct in relation to the cancellations project was intended to ensure compliance ... it was met with considerable resistance,” she states in her court papers.
Hunter’s accusation – which the FSB has not had a chance to answer – is that the FSB is trying to bury the findings of the two reports, as well as her own internal reports.
Marele responded: “The investigation is not yet complete, but a preliminary report from Justice O’Regan is available to all parties concerned, including Ms Hunter, with the proviso that they sign confidentiality agreements.”
Hunter has been called to disciplinary hearings, and was at one point offered a R6 million “golden handshake” to leave quietly.
In addition to this, Hunter claims that at a board meeting on October 14 2015, she was accused of being “divisive” and was “cautioned against making any public disclosures of defects in the conduct of the cancellations project lest this result in a ‘run’ on pension funds and a risk to the financial stability of their banks” – a risk that she dismisses.
On Friday, the FSB confirmed that it would oppose Hunter’s application.
