The publication of the names of employers that are not up to date with their retirement fund contributions is having the desired result, FSCA deputy commissioner Astrid Ludin (pictured) told the 2024 Pension Lawyers Association Conference.
Ludin was the final speaker at the two-day event held in Cape Town last week.
In August last year, the FSCA published an inaugural list of 3 262 employers that were allegedly in arrears with their contributions at the end of April 2023. In March this year, it published a communication containing the names of about 4 100 entities that were allegedly non-compliant with section 13A of the Pension Funds Act (PFA) at the end of July 2023.
Read: Arrear contributions: 10 employers should not have been on the list
The number of funds that reported delinquent employers between the publication of the first and second lists increased. Having “a public focus on employers” has been “very good” and has had “quite a bit of impact”, Ludin said. Some employers have engaged with the FSCA, something that had not happened before.
The exercise also has brought other challenges to the FSCA’s attention, such as unallocated funds. For example, she said the Private Security Sector Provident Fund has R207 million in arrear employer contributions and R208m in unallocated funds.
Many employers make payments, but the administrator is slow in allocating them, “so it’s not as simple as employers not paying”, Ludin said.
Arrear contributions not only negatively impact members’ withdrawal benefits but may also have a significant prudential impact on some funds. Therefore, the FSCA has put together a team that will look at section 13A compliance reporting, analyse the data, and engage with funds and employers.
Ludin said employers that cannot pay retirement contributions “should not be offering this benefit”. They should be transparent about this with their employees, “so those employees can plan their futures”.
The section 13A team will also focus on the integrity of employer data, including registration numbers and tax numbers. The integrity of employer data is “a critical input” into the implementation of the Conduct of Financial Institutions (COFI) Bill.
Ludin said, at this stage, the timelines on COFI “are not very predictable”, and she believes National Treasury’s expectation is that the timelines will be pushed out. From the FSCA’s perspective, “this is not a bad thing” because a lot of change is happening and retirement funds that will fall under COFI also need to prepare for the two-pot system.
The transition to the two-pot system is one of the FSCA’s focus areas, and funds can start submitting their rule amendments from 1 May.
The industry can expect the Authority to issue an update to Communication 3 of 2024 (RF), as well as other communication addressing the intersection of section 14 transfers and arrear contributions with the implementation of the two-pot system.
Read: Two pots: administrators encouraged to submit draft rule amendments
Interpretation ruling on late payment interest
The FSCA is concerned about the “confusion and uncertainty” over when late payment interest (LPI) on arrear contributions becomes due. It has engaged a Senior Counsel that has not pronounced on this issue before for an independent opinion.
The Authority and the Pension Funds Adjudicator have different views on the interpretation of section 13A(7) of the PFA. The FSCA believes LPI starts to run on the eighth day of the month following the month in which contributions were due, whereas the Adjudicator, along with certain stakeholders in the industry, believes LPI should be calculated from the first day of the month following the month in question.
The Authority’s rationale for its interpretation is set out in an article in the first edition of RF Talks, a newsletter for the retirement industry.
Ludin said the SC’s guidance is due “very soon”. The FSCA will use the opinion to develop an interpretation ruling that will be published for comment.
Focus must be on active funds
There are some 5 000 registered retirement funds, but 82% are in the process of being liquidated, cancelled, or transferred. These funds hold only 5% of the value of retirement assets but consume 80% of the FSCA’s supervisory efforts, Ludin said.
This needs to change so that the Authority can focus on “normally” active funds – those that are receiving contributions and making payments. The FSCA has identified 867 normally active funds, which includes funds in curatorship and those with a preliminary registration. Similarly, there are 170 registered administrators, but only 114 (including self-administered funds) are active.
The Authority has identified about 25 funds that require most of its scrutiny from a conduct and a prudential perspective.
Ludin said the FSCA has established a number of teams to address matters relevant to active funds and dormant funds respectively. One of the teams is focused on winding down dormant funds and administrators.
Regarding the supervision of active funds, the FSCA’s starting point is to raise funds’ general level of compliance. She said the current compliance level for the on-time submission of financial statements and valuation reports is 75%, and the Authority wants this to improve significantly.
The Authority recognises that funds are compliant if they apply for an extension, but for the FSCA’s internal purposes, it will disregard extensions when measuring the timeous submission of statements and reports.
It will be engaging with entities that administer a large number of active or terminating funds over the quality of member data.
Another area of concern is administrators that administer and manage retirement investments. In this regard, Ludin said, the Authority’s concerns were brought to the fore by the collapse of N-e-FG Administrators.
Read: Investigation into N-e-FG Administrators is ‘at an advanced stage’
The FSCA is also giving attention to the management of complaints by funds, she said.
It recently completed an in-depth review of complaint management by administrators, funds, and intermediaries. The research indicates that funds do not regard complaint management as a priority. Members tend not to contact the fund but go to the administrator, which refers them back to the fund. This is a waste of the administrator’s resources because it should be the other way round, Ludin said.
The FSCA will publish the research.
More communication
Ludin told the conference that one of the Authority’s strategic priorities is to be more engaged and more transparent and to communicate more frequently. The launch of RF Talks and the FSCA’s recent Industry Conference were evidence of this commitment.
The next three years are going to be very busy for the FSCA and the industry, Ludin said.
“In times of change, communication is extremely important, so from our side we are prioritising communication because we think it’s important that we all move along in the same direction in a consistent and coherent way, so I want to invite you all to reach out to us at any time if there’s an issue that you think needs further discussion,” she said.
