Retirement Funds Industry Secret profits, silent theft

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