The Financial Services Board will try to nudge small, employer-sponsored funds into umbrella funds — but if that fails, the regulator will consider "a much more blunt instrument", Olano Makhubela, the deputy executive registrar for retirement funds at the FSB, told the recent Pension Lawyers Association conference in Cape Town.
National Treasury has instructed the FSB to reduce the more than 1,650 active retirement funds to less than 200.
Makhubela said it may mean policy makers would have to prescribe the number of members and assets under management that funds needed to have to be viable.
He also said the FSB was looking to improving its monitoring of retirement funds by requesting funds to submit monthly cash flow statements that could provide an early warning system by enabling the FSB to detect problematic changes at an early stage.
The FSB is also considering asking Parliament to cut the six-month time period that funds are allowed to submit returns to three months, allowing the FSB to scrutinise and detect problems earlier.
"The moment you receive financials late it is a sign that there are problems with that institution. It is better for members and the industry if we can take corrective action in time," he said.
Makhubela warned that these were issues that smaller funds especially needed to consider. Larger funds and commercial umbrella funds are typically better positioned to comply with stricter requirements.
Fund trustees at the conference were warned about the legal complexities facing them in new regulations under the Pension Funds Act that oblige them to provide a default investment strategy, default preservation in the fund when you resign — your savings will be paid out or transferred to another fund only if you specifically request this, to accept your savings from the fund of an employer you are leaving and default annuities or monthly pensions on retirement.
The new regulations are aimed at ensuring you are encouraged to save as much as you can for retirement, but Carlyle Field, a partner at Shepstone & Wylie, said preservation within the fund and the portability of savings to a new fund would be very difficult for funds and their trustees, and would require changes to their rules.
Clarity from the regulator on certain aspects of the regulations was still awaited, he said.
Kobus Hanekom, contracted principal consultant at Simeka Consultants and Actuaries, said standalone funds also need to consider that the FSB is proposing to remove the audit exemption for small funds.
The Budget Review also stated that all retirement funds would soon have to include a minimum number of independent trustees, Hanekom said.
He said funds would have to comply with increasingly strict governance and ethical requirements and requirements for treating customers fairly; and would have to comply with more aspects of the financial sector charter...