Muvhango Lukhaimane, Pension Funds Adjudicator

The reshaping of the regulatory landscape for financial services has been welcomed by the Office of the Pension Funds Adjudicator (OFPA).

The OPFA is collaborating closely with the newly established Ombud Council to formulate procedures and establish standards and rules of engagement. This aims to effectively achieve the overarching goals of an affordable, independent, accessible, and equitable complaint management process.

Accessibility of the OPFA by aggrieved consumers of pension fund products and services will be further enhanced by the introduction of the soon-to-be promulgated Conduct of Financial Institutions Bill, that aims to streamline conduct regulations in the financial sector and promote financial inclusion, while ensuring consumers are fairly treated and protected.

Writing in the 2022-2023 Annual Report, Naheem Essop, the OPFA’s Senior Legal Advisor  said: “One of the reasons why members are confident in investing their earnings into retirement funds is that there is a strong sense of accountability for any deviant conduct. This confidence must be attributed to generally ethical behaviour by financial institutions, a well-respected regulator and a responsive ombud. If these institutions are seen to be inefficient in fulfilling their obligations, the trust in the system is eroded and members are likely to withdraw their savings.”

Commenting on two recent developments, Essop said that the Financial Services Tribunal (FST) must be lauded for “its sterling work of providing a further efficient alternative dispute resolution mechanism to aggrieved parties and providing proper guidance on legal issues relating to pension fund disputes. The OPFA continues to draw from FST decisions and seeks to implement the learnings gained therefrom in its determinations”.

“The introduction of the refer-to-fund (RTF) process by the OPFA which allows the fund an opportunity to resolve a dispute directly with a potential complainant before the complaint is formally registered as such, allows funds to get closer to their members and understand their grievances. This has assisted the OPFA to close a notable number of cases without formal intervention because funds have grabbed the opportunity to deal with their members directly.”

Essop said some funds, however, are guilty of failing to take advantage of the RTF process as there appears to be very little or no attempt at all on their part to resolve complaints directly with their members. Other funds have been habitually uncooperative by failing to provide proper responses to complaints. Failure to provide proper responses to complaints delays the outcome of investigations and thereby erodes trust. The OPFA continues to report these habitual offenders to the Financial Services Conduct Authority (FSCA) for regulatory intervention.

With regard to ensuring retirees are financially secure at the end of their working life, Essop said the South African retirement fund system was standing on the precipice of a dynamic shift which will see the introduction of the proposed “two pot” retirement system set to take effect in the first quarter of next year.

“This system will compel members to preserve at least two thirds of their retirement benefit until retirement age in a retirement component. Members will, however, be allowed to access a certain percentage of the remaining one third on an annual basis, even whilst employed, from the savings component.

“There is a third component to the two-pot system called the vested component that will require retirement funds to value a member’s retirement interest on the date immediately prior to implementation date, which is intended to be 1 March 2024. The vested component will be subject to the current regime which allows members to withdraw their full benefit upon exit from their employer.

“Once the proposed system comes into effect, members will no longer be able to make contributions to their vested component. This will however not apply to members of provident funds who were 55 years or older on 1 March 2021. These members have the ability to continue making contributions into their vested component and this will apply until they either retire from or leave the fund they were a member of on 1 March 2021.”

Essop emphasised that the communication by funds to members around these proposed changes is crucial and forms part of a fund’s duty towards its members. It is important that members understand what they will be entitled to under the new system and what they will no longer be entitled to. The tax implications should also be communicated. “Funds should optimise the reach that they have to members by issuing communication that is complete and paints the full picture for members.”

Amendments to the Financial Sector Regulation Act, 2017 (“FSR Act”) have been proposed in the FSR Act Ombuds Revision Bill which will have a direct effect on the OPFA. It is proposed that Chapter VA of the Pension Funds Act, 1956 (“PF Act”), which established the OPFA, be imported into the FSR Act.

Along with the proposed transfer is a name change for the Adjudicator to be called the “Retirement Funds Ombud” and for the Act to be renamed the “Retirement Funds Act”.

ENDS