The competence of retirement fund trustees
Employees who are members of any retirement (pension or provident) fund may find it depressing to learn that their fund has been misappropriated, with the possible result of not getting benefits when leaving the fund or retiring. Among many other potential outcomes, inefficient governance may result in the retirement fund suffering financial losses from bad investment choices, market crashes in the areas of investment, asset mismanagement and higher operating expenses compared to the standard industry benchmarking.
This is why the annual member benefit statement interrogation becomes more important to understand the growth of your benefit and the costs associated with the running of your respective fund.
Retirement fund members rely on trustees to make prudent investment choices on their behalf. Trustees are charged with a fiduciary duty of running the fund prudently and managing the administration thereof while ensuring regulatory reporting takes place.
All funds are managed and administered in accordance with the Pension Fund Act 24 of 1956, the fund regulations and all relevant legislation.
However, the Pension Fund Act lacks provisions that clarify requirements or address the method and nomination of trustees, and it also does not expressly address the fiduciary obligations and responsibilities of trustees of registered funds. These fiduciary responsibilities are often relied on from a common law perspective, while some funds build these duties into their rules to ensure the prudent management of the funds.
Guidelines
Through circular PI/PF/02/2004, the Namibia Financial Institutions Supervisory Authority (Namfisa) issued guidelines for composition and election of boards of trustees, with boards preferably consisting of at least four trustees who are ‘fit and proper’ to be trustees. In a standard private standalone fund, a minimum of 50% of these trustees are usually employee-elect, and the remaining 50% must be employer-appointed. Among other considerations, these still function as guidelines and do not amount to prescriptive measures.
Good governance is essential to a retirement fund that runs well, as well as improving investment returns and protecting benefits. It is necessary for pension funds to maintain a funding level of at least 100%, allowing for the fund to meet any financial obligation as these may arise.
Although being a trustee is a noble undertaking, many trustees might not realise right away how much liability, responsibility and work they are exposed to and are taking on. This is true even though, in most cases, they don’t have any expertise or experience in retirement funds or pension legislation, and they aren’t required to by law.
In a retirement fund, trustees are the ultimate decision-makers and also the accountable parties in the event that the decisions made turn unfavourable.
Trustees may engage outside service providers to perform certain activities on their behalf and designate professional advisers for assistance and counsel on subjects outside their purview or ability, acknowledging that they might not have the time, knowledge or ability to manage all that needs to be done.
However, ultimately, it is the trustees’ responsibility to guarantee that such work is carried out correctly.
Trustees may also be unable to comprehend and question the advice they get from outside specialists due to a lack of appropriate information, experience or training.
What should be done?
Namfisa has crafted ‘fit and proper’ requirements under the Financial Institutions and Markets Act (FIMA) (Act No. 2 of 2021) section 410(2)(d), as standard GEN 10-2, which are in draft form. The implementation of FIMA has been postponed indefinitely to allow adequate time for broader consultation on a specific regulation pertaining to the compulsory preservation of retirement savings until at least the age of 55 years. In light of the pending implementation of FIMA, challenges persist with respect to the adequacy of ‘fit and proper’ requirements in the appointment of trustees.
Namfisa ought to take a more aggressive stance with the crafting of a prescriptive directive outlining the ‘fit and proper’ requirements, considering factors both before and during the appointment of trustees to a retirement fund.
Factors to consider are qualifications and requirements for trustees. Defining the needed abilities, experience and knowledge - such as financial acumen, legal understanding and governance experience. Financial stability and soundness criteria, examining if persons have the financial capability to execute their tasks without jeopardising their integrity. Honesty, ethical conduct and a track record of appropriate financial behaviour are all criteria to consider.
This will create a solid framework for evaluating the fitness of persons who seek to become trustees, guaranteeing the effective and ethical management of retirement funds.
Governance standards should be outlined and made a mandate while trustee training should be made a normal requirement rather than an infrequent practice.
The need for the regulator and retirement funds to improve trustee recruitment procedures derives from the critical role trustees play in protecting the interests of pension beneficiaries.
*Vincent Shimutwikeni is a retirement fund trustee. This article is written entirely in his personal capacity.
This is why the annual member benefit statement interrogation becomes more important to understand the growth of your benefit and the costs associated with the running of your respective fund.
Retirement fund members rely on trustees to make prudent investment choices on their behalf. Trustees are charged with a fiduciary duty of running the fund prudently and managing the administration thereof while ensuring regulatory reporting takes place.
All funds are managed and administered in accordance with the Pension Fund Act 24 of 1956, the fund regulations and all relevant legislation.
However, the Pension Fund Act lacks provisions that clarify requirements or address the method and nomination of trustees, and it also does not expressly address the fiduciary obligations and responsibilities of trustees of registered funds. These fiduciary responsibilities are often relied on from a common law perspective, while some funds build these duties into their rules to ensure the prudent management of the funds.
Guidelines
Through circular PI/PF/02/2004, the Namibia Financial Institutions Supervisory Authority (Namfisa) issued guidelines for composition and election of boards of trustees, with boards preferably consisting of at least four trustees who are ‘fit and proper’ to be trustees. In a standard private standalone fund, a minimum of 50% of these trustees are usually employee-elect, and the remaining 50% must be employer-appointed. Among other considerations, these still function as guidelines and do not amount to prescriptive measures.
Good governance is essential to a retirement fund that runs well, as well as improving investment returns and protecting benefits. It is necessary for pension funds to maintain a funding level of at least 100%, allowing for the fund to meet any financial obligation as these may arise.
Although being a trustee is a noble undertaking, many trustees might not realise right away how much liability, responsibility and work they are exposed to and are taking on. This is true even though, in most cases, they don’t have any expertise or experience in retirement funds or pension legislation, and they aren’t required to by law.
In a retirement fund, trustees are the ultimate decision-makers and also the accountable parties in the event that the decisions made turn unfavourable.
Trustees may engage outside service providers to perform certain activities on their behalf and designate professional advisers for assistance and counsel on subjects outside their purview or ability, acknowledging that they might not have the time, knowledge or ability to manage all that needs to be done.
However, ultimately, it is the trustees’ responsibility to guarantee that such work is carried out correctly.
Trustees may also be unable to comprehend and question the advice they get from outside specialists due to a lack of appropriate information, experience or training.
What should be done?
Namfisa has crafted ‘fit and proper’ requirements under the Financial Institutions and Markets Act (FIMA) (Act No. 2 of 2021) section 410(2)(d), as standard GEN 10-2, which are in draft form. The implementation of FIMA has been postponed indefinitely to allow adequate time for broader consultation on a specific regulation pertaining to the compulsory preservation of retirement savings until at least the age of 55 years. In light of the pending implementation of FIMA, challenges persist with respect to the adequacy of ‘fit and proper’ requirements in the appointment of trustees.
Namfisa ought to take a more aggressive stance with the crafting of a prescriptive directive outlining the ‘fit and proper’ requirements, considering factors both before and during the appointment of trustees to a retirement fund.
Factors to consider are qualifications and requirements for trustees. Defining the needed abilities, experience and knowledge - such as financial acumen, legal understanding and governance experience. Financial stability and soundness criteria, examining if persons have the financial capability to execute their tasks without jeopardising their integrity. Honesty, ethical conduct and a track record of appropriate financial behaviour are all criteria to consider.
This will create a solid framework for evaluating the fitness of persons who seek to become trustees, guaranteeing the effective and ethical management of retirement funds.
Governance standards should be outlined and made a mandate while trustee training should be made a normal requirement rather than an infrequent practice.
The need for the regulator and retirement funds to improve trustee recruitment procedures derives from the critical role trustees play in protecting the interests of pension beneficiaries.
*Vincent Shimutwikeni is a retirement fund trustee. This article is written entirely in his personal capacity.
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