The Financial Services Tribunal (FST) has set aside decisions by both Liberty, the pension fund administrator, and the Pension Funds Adjudicator (PFA), and recommended that the FSCA should consider taking regulatory action against the fund, its trustees and the administrator.
Background
The applicant contested the quantum of the retirement benefit paid out to him. He was a member of the Amalgam Defined Contribution Pension Fund from 1 September 2005 to 30 September 2012. A section 14 transfer to the Corporate Selection Umbrella Retirement Fund No 2, administered by Liberty, was effected on 30 September 2012. The applicant remained a member of the new fund until he reached retirement age on 28 February 2019.
At the time of the section 14 transfer, the employer sent an email, dated 29 July 2012, to Liberty explaining that it could not afford the contributions to the provident fund and asked Liberty to communicate this to the employees. It also suggested to Liberty that it should ask the employees whether they wished to continue contributing to the fund or explore other options.
“There is no indication that Liberty responded to the email or even discussed the employer’s concern with the employees,” the FST said.
“The nub of the employee’s complaint is that the amount of pension benefit paid out to him was not commensurate with his expectations. He asserts that the payout is woefully small compared with what would be expected if both he and the employer contributed their fair shares in accordance with the fund’s special rules.”
After failing to have his complaint resolved via the employer and Liberty, he referred the matter to the PFA, who agreed that the pay-out was correct and was made in terms of the fund’s rules.
Despite its stated intention, the employer continued to contribute from 1 October 2012 to 1 September 2014. This included the employer’s contribution in respect of the risk and administration expenses.
Liberty decided to recover the risk and administration costs from the employee’s contributions. According to the FST, this is in contravention of the rules of the fund as contained in the Participation Certificate.
Rules applicable to the employer
The FST notes that the rules of an umbrella fund are generic in nature. Each employer, while adhering to the general rules of the fund, is expected to have its own set of special rules contained in what is termed a Participation Certificate. This document sets out the parameters governing the employer’s and the employees’ participation in the fund.
During the hearing, Liberty’s representative was requested to furnish the tribunal with the rules applicable to the employer. “We expected that the rules that would be provided to us would be rules as per the employer’s Participation Certificate. The employer-specific rules were, however, never furnished to us.”
The FST further notes that it appears that the PFA was in possession of the employer’s special rules but did not consider the employer’s obligations in concurring with Liberty on the matter.
“An administrator of a pension fund is obliged to monitor compliance with the provisions of the above-mentioned provisions and to bring any non-compliance to the attention of the board of trustees and the regulatory authorities. The noncompliance by the employer was brought neither to the attention of the board of trustees of the fund nor to the FSCA as the regulatory authority.”
Tribunal findings
“An issue of serious concern is that for almost four years of the non-compliance by the employer, Liberty did absolutely nothing to ensure that the employer complied with its obligations. Not only did Liberty not do anything to ensure the employer complied with its obligations, it also did not inform the applicant that the employer was no longer making contributions to his retirement fund or that it was debiting the risk and administration expenses, which had to be borne by the employer, from contributions by him, contrary to the rules contained in the Participation Certificate.”
In addition, it appears that the amount paid out to the applicant at retirement was calculated on contributions made from 1 October 2012 onwards “and does not seem include the amount transferred from the Amalgam Defined Contribution Pension Fund.
“If such amount was included in the retirement benefit paid to the applicant, this would have been reflected as a credit on the spreadsheet. It would have been reflected as an amount brought forward from Amalgam Defined Contribution Pension Fund.”
The tribunal further notes: “We are of the view Liberty’s actions are so egregious and unconscionable that they should be brought to the attention of the FSCA for further investigation and the necessary regulatory action.”
Pension Funds Adjudicator’s role in the matter
“The Pension Funds Adjudicator failed the applicant by not subjecting the contributions schedule, which formed part of the documents filed of record, to due diligence and analysis. That office accepted, without any analysis, submissions made to it by Liberty, resulting in it making a determination which perpetuated the injustice meted out to the applicant.
“The Pension Funds Adjudicator further failed to see that the employer had ceased to make contributions in October 2014. This failure led to the startling conclusion in paragraph 5 of the determination that the employer’s ‘underpayment of your contributions towards risk costs and administration expenses has no effect on your benefit as you exited service …’.
“It is concerning that the Pension Funds Adjudicator’s determination contains very patent errors. The Pension Funds Adjudicator, for some or other reason, in the determination records that the complaint relates to the quantum of a ‘withdrawal benefit’, and the words ‘withdrawal benefit’ are repeated in the determination. The error is perpetuated and compounded by referring and quoting Rule 7.1 of the rules of the fund, which deals with withdrawal benefits which are payable upon dismissal or resignation, instead of Rule 6.1, which governs the payment of a ‘retirement benefit’ to a member of the fund on retirement.”
FST’s recommendations
The tribunal is not able to calculate fully the extent of the loss that the applicant may have suffered “as a result of the dereliction by Liberty and the employer from their responsibilities. However, what cannot be disputed is that applicant has been treated unconscionably by his employer, Liberty and the trustees of the fund.”
It recommended that an independent person with the necessary expertise in the administration of pension benefits be appointed to assist with the calculation of the benefits due to the applicant.
In addition, the tribunal recommended that its decision be brought to the attention of the FSCA to determine whether there is cause for a possible inspection of the fund and/or need for regulatory action against Liberty, the trustees of the fund and the employer.
“We recommend further that the regulator should examine the reasonableness of charges in the form of risk costs/premiums and administration expenses/management fees and decide whether the time has not come to cap such charges. As happened in the current matter under consideration, the charges/expenses, if left to the discretion of the administrators, can deplete a person’s retirement savings. The excessive uncapped charges make a mockery of saving for retirement, and retirement savings can accordingly give a false sense of security after a life-long carefully planned retirement.”
