Lize de la Harpe, Senior Legal Advisor: Sanlam Life & Savings: Regulatory Unit
The recently published King V Code on Corporate Governance 2025, which is set to take effect for financial years commencing on or after January 2026, applies to all governing bodies, including the board of trustees of a retirement fund. Unlike previous versions, King V has created a hard line on tenure to be regarded as an independent member of an organisation (including a board of trustees). Let’s unpack.
Duties of trustees
Before we discuss the impact of King V, we need to take a step back and recap on the overall duty of the board of trustees.
The object of the board as set out in section 7C(1) of the Pension Funds Act, is to direct, control and oversee the operations of a fund in accordance with the applicable law and rules of the fund.
Section 7C(2) of the Pension Funds Act, 1956 states that in pursuing the object of the board, the trustees must take all reasonable steps to ensure that the interests of members are protected at all times, act with due care, diligence and good faith, avoid conflicts of interest and act independently.
Independent trustees
While the composition of the board (appointment, term of office, removal and the like) are set out in the registered rules of the particular fund, section 7A of the Pension Funds Act states that every fund shall have a board of trustees consisting of at least 4 members, at least 50% of which shall be member elected, unless the fund obtains an exemption from this requirement in terms of section 7B.
Guidance Note No. 4 of 2018 provides details of the conditions that may be imposed by the FSCA on a fund that applies for an exemption in terms of section 7B. It states that the FSCA may require at least 50% of the members of the board of trustees to be independent board members. It then goes on to state that every independent trustee must continuously demonstrate the ability to exercise an independent discretion. In addition, independent trustees must be free from any relationships that could, in the opinion of a reasonable and informed external party, be considered as something that would affect their ability to perform their functions in accordance with section 7C(2) of the Pension Funds Act and should not have been employed by or derived any income from the sponsor in the last 5 years.
Corporate governance in the context of retirement funds
The core of the members’ rights lies with the governance of the retirement fund. It is when the board administers the fund properly that the rights and the interests of the members are protected.
PF Circular 130, issued by the Registrar of pension funds in 2007, sets out general guidelines for the good governance of retirement funds. In essence, it sets out 13 main principles of governance which include aspects such as the composition and competency of the board and the management of conflict of interest.
PF130 recommends that at least 50% of the board of trustees should be independent. It goes on to state that independent board members should not be employees of the employer participating in the fund and neither should they be controlled by, or in common control with the employer, the administrator or the sponsor of the fund. The independent board member should preferably not provide any other services to the fund or the employer or the sponsor, other than serving as a trustee to the fund.
As stated above, the recently published King V applies to boards of trustees of retirement funds. Principle 5 of King V deals with the composition of the governing body and includes recommendations regarding independence and conflicts of interests. Paragraph 42 lists several factors which may indicate that a member cannot be regarded as independent. One such factor is where the member has served for longer than nine years.
It is important to note King V does not state that a longer tenure is outright prohibited. When determining whether a trustee can be categorised as independent or not, the board must evaluate all relevant factors and circumstances holistically. If the board is satisfied that such trustee is independent despite a tenure of more than 9 years, it should provide a rationale for its conclusion.
Conclusion
The independence of a board member is crucial for effective corporate governance. As one can see from the wording of Principle 5 of King V discussed above, independence must be assessed on a “substance over form” basis. Funds are thus encouraged to review their board composition in line with the principles set out in King V, read together with PF130 and Guidance Note No. 4 of 2018.
ENDS
