Sakkie Hurd, Independent Trustee and Principal Officer

In my previous opinion piece, I noted that the impact of a transfer to an umbrella fund on the stand-alone fund and its continued existence to closure has not been fully appreciated and considered by boards. The process followed by the stand-alone fund and its board of management/ trustees, and also the role of their advisers shows little or no (and there may be exceptions) attention to fully documenting a formal plan with milestones and deliverables on the closure of the fund to cancellation of registration. What is important though is not to leave the closure to another party or simply leaving closure to the administrator.

So the questions are: who is responsible for the plan, and when and how must such a plan be constructed, and how should it be implemented? The answers should be obvious, but let me expand on some of the key aspects, whilst acknowledging that no two funds will be exactly the same.

It is important to note that the development of the plan is the responsibility of the board. This plan will need to be coordinated between what could be two different administrators – the stand-alone fund’s administrator and the umbrella fund’s administrator. What gets interesting is typically the umbrella fund consultants will not deal with the closure of the stand-alone fund, and the stand-alone fund consultants won’t be earning the same fees as before, so may be less interested. (And this may be within the same consulting/administration service provider!) So it’s best to develop the plan with all the stakeholders right upfront. In fact, developing the plan must be simultaneous with the process of decision-making regarding the move towards participation in an umbrella fund. The conversation should be: “we are considering transferring our members to an umbrella fund, let’s detail a plan on how best to get there, including the closure of the stand-alone fund”.

The plan must be comprehensive, detailed and documented, and be both backward and forward looking. The backward-looking component should include a detailed overview of the fund over its lifetime, and the forward-looking component would cover the period from the date of decision to move to the umbrella fund to the date of submission of an application to cancel the registration of the fund.

In this article, I will focus on the backward-looking component.

In considering the backward-looking component the focus of the board should be to confirm the statutory position of the fund and that actions and decisions of the past have all been fully implemented, accounted for and documented. It’s a tidy up exercise that sets the fund up for a ‘clean’ transfer to the umbrella fund.

This might sound obvious, but the unexpected is always a factor.

Let me illustrate this with two situations I have encountered:

• The fund outsourced pensioners to an insurer in years gone by, believing that the fund had no further liability, and thus no mention is made in subsequent year’s documentation, including the annual financial statements. The reality comes to bear whilst being investigated that there was an outsourcing, but to a fund owned policy. There was never a conversion to individual policies as provided for in the rules! This now requires that the outsourcing to individual policies be undertaken. At the same time the full consideration was paid to the insurer, but the take-up was different, and now the fund owns surplus assets that are to be repatriated to the fund and have to be accounted for and allocated.
• The fund has ‘long lost’ assets that, over time, were no longer accounted for. A current case in point is an investment made by a pension fund into a specific insurance portfolio in 1993. Over time the portfolio was not closed nor accounted for when the fund merged with another fund and a series of name and administrator changes occurred. This came to light in 2024 when the insurer enquired as to what should be done with the assets.

The principal purpose of the backward-looking review would be for the Board to be able to certify that all statutory and legal requirements of the past have been attended to and have been finalised to conclusion. This would include (but not limited to):

• matters relating to transfers (in and out),
• pensioner outsourcing,
• financial statements
• statutory valuations and exemptions,
• investments, and
• accounting for ‘excess or unallocated’ assets and dealing with these.

Again, these might sound obvious, but experience has taught me otherwise. Taking the time to make sure that all past decisions have been acted upon to their conclusion will save time in the long run.

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

ENDS