The significant size and influence of the retirement fund industry on South African society has resulted in the duties and responsibilities of retirement fund trustees receiving significant attention from all sectors of society.
Trustees can find guidance in South African law, corporate governance frameworks – such as PF 130, King IV – and a number of voluntary frameworks, such as CRISA and UN-PRI.
The duties and responsibilities of a trustee are to place the interests of the retirement fund first, always acting in the retirement fund’s best interests.
This article provides high-level guidance for retirement fund trustees and retirement fund members to help them understand the duties and responsibilities of trustees.
Where can a trustee find out more about their duties and responsibilities?
The sources of retirement fund trustee duties and responsibilities in South Africa are:
The Pension Funds Act 24 of 1956. Also of importance to Trustees are the Financial Services Laws General Amendment Act 45 of 2013 and Regulation 28.
Good governance frameworks, such as: Financial Sector Conduct Authority (FSCA) PF Circular no.130
King IV Report on Corporate Governance for South Africa (King IV)
Voluntary frameworks such as: Code for Responsible Investing in South Africa (CRISA)
Financial Sector Code on Black Economic Empowerment’s Schedule 1: Voluntary Dispensation for Top 100 Retirement Funds, including Umbrella Funds
Common law developed in court cases concerning trustees’ duties and responsibilities
What the Pension Funds Act says:
Section 7C of the Act spells out that the primary role of a trustee is to act in the interest of the fund and its members, putting the fund’s interests first. This includes placing the interests of the fund and its members ahead of the trustee’s own interests – and also that of any other fund stakeholder – who may have nominated the trustee to assume their trustee role, such as the employer or a labour union, for example.
“In pursuing this object, the board (of trustees) shall:
a. take all reasonable steps to ensure that the interests of members in terms of the rules of the fund and the provisions of the Pension Funds Act are protected at all times;
b. act with due care, diligence and good faith;
c. avoid conflicts of interest;
d. act with impartiality in respect of all members and beneficiaries.”
Section 7D sets out the numerous duties of trustees. Worth highlighting is that b) proper control systems would include identifying and reducing (or eliminating) risks to the fund. Also salient is e) to obtain expert advice, as it forms the basis for the use of experts to manage the fund’s investments. The introduction of Regulation 28 provides direction to trustees to compile a written fund strategy. It sets a higher standard against which trustees can be held accountable:
The duties of the board (of trustees) shall:
a. ensure that proper registers, books and records of the operations of the fund are kept, inclusive of proper minutes of all resolutions passed by the board (of trustees);
b. ensure that proper control systems are employed by or on behalf of the board (of trustees);
c. ensure that adequate and appropriate information is communicated to the members of the fund informing them of their rights, benefits and duties in terms of the rules of the fund;
d. take all reasonable steps to ensure that contributions are paid timeously to the fund;
e. obtain expert advice on matters where the board (of trustees) may lack sufficient expertise;
f. ensure that the rules and the operation and administration of the fund comply with the Pension Funds Act, the Financial Institutions (Investment of Funds) Act and all other applicable laws.
The Financial Services Laws General Amendment Act 45 of 2013 has imposed additional duties on trustees. These include:
The duty to acquire and maintain skills levels gazetted by the registrar;
Deal with “whistleblowing” by immediately informing the registrar;
Reporting reasons within 21 days of removal of a trustee;
Legal requirements to act independently and in the best interest of the fund;
Legal duty to ensure that the fund is in a sound financial position, and that fund rules are complied with;
Through disclosure informing all fund members of their rights and responsibilities;
Following procedures laid out in the rules of the fund to delegate, in writing, functions to a person or committee. The delegation must note whether in an executive or advisory role, and occur without the board abdicating responsibility.
Good corporate governance for retirement funds
King IV, which came into effect on 1 April 2017, includes a supplement focusing on retirement funds. It assumes the application of its 17 principles of good governance on an “apply and explain” basis. According to King IV, trustees should consider these principles in conjunction with CRISA, as well as the FSCA PF 130 (PF 130) as these are seen as complimentary to King IV. PF 130 sets out 13 principles of good governance for retirement
funds, and addresses the governance structure, governance of fund operations, and the management of stakeholder relationships.
There are two voluntary frameworks that should also be considered by trustees when assessing their responsibilities:
Schedule 1: Voluntary Dispensation for Top 100 Retirement Funds including Umbrella Funds under the Financial Sector Code (FSC) includes a voluntary scorecard against which retirement funds should report. It is likely that this reporting will become mandatory after the next revision of the FSC.
CRISA, consisting of five principles, came into effect on 1 February 2012. Accordingly, “Institutional investors and their service providers need to disclose in their annual reports, on their websites and through other means of communication with their stakeholders to what extent they are applying CRISA and if they do not apply, why not.” CRISA is aligned to the voluntary adoption of the United Nations Principles for Responsible Investment (UN-PRI), where signatories subscribe to six UN-endorsed principles for responsible investment.
What experts say: “As institutional investors, we have a duty to act in the best long-term interests of our beneficiaries.”
United Nations Principles for Responsible Investment (UN-PRI) signatories
- Pension Funds Act, Section 7C and 7D: https://www.fsca.co.za
- FSCA Circular PF 130: https://www.fsca.co.za
- Mahony, Practical Governance: Retirement Funds. p179-186
- Understanding South African Financial Markets (5th Edition), ‘Retirement Funds’, p. 165-167
- FSTC: https://fstc.org.za/fs-code-voluntary-dispensation.php
- CRISA: https://www.iodsa.co.za/page/CRISACode
- UN PRI: https://www.unpri.org/