The number of retirement funds that pay their board members has increased significantly over the past two years, according to PwC’s seventh Retirement Funds Survey.
The latest survey is based on the responses from 60 funds, 25% of which have assets greater than R10 billion, 68% have assets greater than R50 million but less than R10bn, and the remainder have assets of less than R50m.
Of the 60 participants, 27 were stand-alone funds and 33 were specialised funds (umbrella, preservation, and retirement annuity funds).
The 18-page report covers the following areas:
- The governance features of funds;
- The remuneration of board members, pensioner representatives, sub-committee members, and principal officers;
- Work arrangements;
- Investment management; and
- Cybersecurity, including cyber insurance.
Compensation is now the norm
The average number of board members has decreased from nine to eight in the 2020 survey, and, on average, two of those members are independent, down from three in 2020.
In 2020, 47% of the participants reported that some or all board members were compensated. In 2023, this figure increased to 74%. However, 58% said only independent or professional board members were compensated, while 16% reported compensating all board members.
Of the 26% of participants that did not compensate board members, the main reason was that board members were employed by the employer or sponsor and no additional remuneration was considered necessary.
For 51% of the funds surveyed, the level of remuneration for board members is set by the participating employer or sponsor. The remaining 49% said this decision is taken by the board or a board sub-committee.
Not all increases keep pace with inflation
The report sets out how the average and maximum remuneration of participating funds’ board members has changed since 2020 in terms of annual retainers, fixed fees per meeting, and rate per hour.
The average annual retainer for the chairperson of a stand-alone fund in 2023 is R375 550 (specialist fund: R422 463), while the average retainer for independent/professional board members is R301 046 (R301 190). A principal officer’s average retainer is much higher, coming in at R730 904 (R1 043 721).
Although the average remuneration of board members and principal officers has increased steadily since 2020, the rate of increase was below inflation, with only principal officers and the chairpersons of specialist funds keeping in trend with inflation, PwC commented.
The average rate per hour for independent/professional board members has increased by 5.9% for stand-alone funds and 5.5% for specialist funds.
The average rate per hour for a board chairperson has increased by 8.1% for stand-alone funds and 13.3% for specialist funds.
Similarly, the average rate per hour for the principal officer has increased by 15.7% for stand-alone funds and 27.1% for specialist funds.
Investment management
More than 32% of respondents said the fund’s investments are managed by more than 20 asset managers, and more than 95% are administered by a professional service provider. Only 25% of funds surveyed indicated they have less than 10 asset managers.
“The challenge to boards would be to decide on the optimal number of asset managers to employ, given the costs and governance efforts required, weighted against the investment diversification that can actually be achieved,” said Nolwazi Radebe, PwC South Africa’s retirement funds associate director.
“One of the board’s responsibilities is to ensure that proper internal control systems are employed by or on behalf of the fund. This could be performed through the review and monitoring of the underlying asset managers’ International Standard on Assurance Engagements 3402 reports and/or internal audit report.”
Mitigating the risk of cyber attacks
Eleven percent of survey participants said their fund and/or service provider had a cybersecurity threat and/or attack during the most recent financial year of the fund, while 11% did not know.
Sixty-six percent of survey respondents said their fidelity insurance includes cybersecurity or data protection, with 36% indicating that the cover is uncapped. Of the 30% whose cover is capped, the maximum amount ranged from R100 000 to R5 million.
