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Retirement Funds Industry Secret profits, silent theft?

Retirement Funds Industry Secret profits, silent theft?. Presentation to Portfolio Committee on Finance Financial Sector Campaign Coalition 20 June 2006. Purpose & content of presentation. Financial Sector Campaign Coalition Background to Financial Sector Campaign

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Retirement Funds Industry Secret profits, silent theft?

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  1. Retirement Funds IndustrySecret profits, silent theft? Presentation to Portfolio Committee on Finance Financial Sector Campaign Coalition 20 June 2006

  2. Purpose & content of presentation • Financial Sector Campaign Coalition • Background to Financial Sector Campaign • Nedlac Financial Sector Summit Agreements 2002 • Commitment to Retirement Funds Reform • Current Retirement Funds practices • Secret profits • Role of regulators • Disclosure, penalties • Remedies

  3. Financial sector transformation • Financial Sector Campaign Coalition (FSCC) • Coalition of 52 civil society organisations • ANC, SACP, COSATU, SACC, SACCOL, SAFOBS, Black Sash • SACP Red October Campaign 2000 • Make the banks serve the people • Single issue campaign • transformation of the financial sector so that it serves the needs of all South Africans

  4. Financial Sector Summit agreements • Nedlac Financial Sector Summit 2002 • Government, Business, Labour & Community constituencies : • Package of 13 financial sector transformation agreements • Retirement funds trustee training • Financial Sector Charter was one outcome of FS Summit agreements • Signed by 11 financial sector trade associations • Including retirement funds industry

  5. Secret profits, silent theft? • Revelations of secret profits and unscrupulous practices in the industry negates the commitment to transformation • Variety of unscrupulous business practices involved • Secret profits from “bulking” of bank accounts • Nothing wrong with bulking, but everything wrong with secret profits • Imprest funds • Profit-driven advice • Very worrying, especially where fund administrators do trustee education • Practices widespread in retirement funds administration • Appropriate spotlight on Alexander Forbes as biggest & influential • Smaller firms also admit wrongdoing • Extent of activity unknown

  6. Regulation & disclosure • We support call by Registrar of Pension Funds • “full and frank disclosure of all practices that amount to the making of secret profits or gaining an improper benefit” • Name and shame companies that fail to disclose • We welcome statements by Deputy Minister of Finance • Secret profits from bulking "is tantamount to taking away benefits from pension fund members without their knowledge or approval" • We commend Portfolio Committee for holding public hearings

  7. Regulation & penalties • Are Financial Services Board settlement agreements appropriate? • Do these agreements go far enough to stop unscrupulous practices & deter others? • If poor people were caught “taking away benefits” it would be called theft • They would be prosecuted to the full extent of the law • Repaying hundreds of millions & donating a small “fine” is tantamount to a slap on the wrist for a multi-billion rand company • Alexander Forbes admits “taking away” benefits of R386 million • Equivalent to stealing 75 million loaves of bread or 75 000 cellphones • Poor people are jailed for stealing 1 loaf of bread or 1 cellphone • Is there one law for the rich and another for the poor?

  8. Regulation & penalties • Need full public disclosure of all settlement deals with retirement fund administrators • Newspaper adverts claim Alexander Forbes donated R12m to FSB trust for • Consumer education, including Retirement Fund Trustee training • Donations must not be a “Get Out of Jail Free” card • Consumer education is not Retirement Fund Trustee Training • Full details of all Trustee Training must be provided to Nedlac in terms of its Financial Sector Summit agreements mandate • INSETA is responsible for Retirement Fund Trustee Training standards • All trustee education must comply with INSETA standards

  9. Remedies • Support calls for Judicial Commission of Inquiry into Retirement Funds Industry • Terms of reference must be wide • to expose extent and nature of practices • to ensure remedies prevent repetition • Justice must be seen to be done • The law must take its course • Repaying secret profits & FSB donations cannot replace prosecution • Government must speed up Retirement Funds law reform process • Introduce appropriate penalties for those who contravene law

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