Lesser appreciated impacts of the industry move toward umbrella funds
4 Jul, 2024

Sakkie Hurd, Independent Trustee and Principal Officer


The industry and society at large is well aware of the move from stand-alone funds to participation in umbrella funds. This trend has been well documented in various publications and also by the Authority in annual reports, and also by National Treasury. This trend is not set to change in the future, and will probably only show a decline when an equilibrium is reached where the benefits of moving to an umbrella fund no longer outweigh the benefits of retaining a stand-alone fund. This article is not intended to weigh or debate the benefits of moving, but to focus on some of the lesser considered impacts of such a move.


General experience over 25 years in the private retirement industry shows that the enthusiasm, planning and energy, and mostly correctly, is focused on selecting the umbrella fund to participate in and then the whole process of actually moving and then embedding such participation. This is good news for the members who will benefit from the  decision to move. Sadly, my experience is that little or no consideration is formally given to dealing with the stand-alone fund that now finds itself with no active contributing members and the result of this process has led to a multitude of so-called ‘orphaned funds’ that remain as registered retirement funds. It must be acknowledged that the move to umbrella funds is not the only factor leading to ‘orphaned funds’ but is certainly a major contributing factor. Whilst the move to umbrella funds is a significant factor to consider, the same principles apply to the results of merger and acquisition activity and the ‘merging’ of one fund into another as a result of this activity.


Probably, in my opinion, the process followed by the fund and its board of management/ trustees and also the role that has to be played by their advisers has not been fully appreciated and considered by the board, and particularly the impact of such transfer on the stand-alone fund and its continued existence to closure.  There is seemingly a perception that once the transfer has been approved, and the assets transferred, there is nothing more to do, and this misconception is a challenge. In reviewing the many instances and funds in my experience, little or no (and there may be exceptions) attention is given to fully documenting a formal plan with milestones and deliverables on the closure of the fund to cancellation of registration. Board members are seemingly either oblivious of their responsibilities in terms of Section 7 of the Act or take an easy option of inserting a rule that the board in place at the date of transfer remains the board until the funds registration is cancelled. What is important though is not to leave the closure to another party or simply leaving closure to the administrator.


There are however a myriad of statutory and administrative requirements requiring that the fund continue to be managed and administered as a legal entity until such time as the registration of the fund is cancelled after following due process. During this process the board remains in place and is required to continue as a board with all its duties and responsibilities, including but not limited to holding meetings as required by the fund’s rules (Including minutes and resolutions), complying with all statutory requirements, and dealing with all matters relating to the termination of the fund. This process requires a detailed and comprehensive plan presented to and approved by the board prior to the move to the umbrella fund, and then monitored on an ongoing basis whilst the process is underway. Where the board feels that is does not have the expertise to compile and manage such a plan, the board should exercise its responsibilities by sourcing the appropriate advices and support, which may or may not rest with the employee benefits consultant appointed by the board. The board must assess this requirement as a critical part of their plan


Not to be overlooked or understated is the role the principal officer of the fund has to play in this process.  The principal officer of the fund has a critical role in the process as it is this appointee which is that instance which has to ensure that the decisions of the board are given effect to. Too many instances are evident where the principal officer does not display an inherent understanding of her or his role prior to the transfer to an umbrella fund, and particularly the role to be played subsequent to the transfer until cancellation of registration. It is true that in many instances the principal officer might be an employee of the employer in a single employer standalone fund, but that does not absolve the appointee from her or his duties. Ultimately the board confirmed to the Authority that the appointee was fit and proper to be appointed in the role. Principal officers must understand that they are appointed by the board in that role until they are formally relieved of the role by the board, or they have resigned from then role and the board has appointed a new principal officer and advised the Authority as such. Simple resignation from the employ of the employer does not constitute a resignation from the appointment as principal officer.


Sadly such plans and detail are not always evident and funds are left to flounder in purgatory until such time as the Authority has to step in, many times (or mostly) at the request of the administrator, and appoint a board, colloquially referred to as a Section 26(2) board. The persons appointed to such a board have an unenviable task of unravelling the affairs of the fund, in many instances some years, and have to rely on records that might (or might not) exist as to the trustees plan, decisions and resolutions in managing the termination of the fund.


So what should such plans, at a minimum, include:

  • How the board will remain compliant with the rules of the fund and the Act.
  • How the termination will be funded.
  • Compiling and submitting all statutory requirements.
  • Maintaining pension fund trustee liability cover.
  • Dealing with all aspects relating to past members, including dealing with any unclaimed benefits, death claims, pensioners (where and if applicable).
  • Time frames, milestones and reporting.


Trustees must take cognisance that by not dealing with all these matters they expose themselves to future litigation which may be in their personal capacity.


In our next article we will be delving into some of these key aspects of such a plan.


This article is not intended as advice, nor should it be construed to be such.




@Sakkie Hurd, Independent Trustee and Principal Officer
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