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 other potential outcomes, inefficient governance may result in the retirement fund suffering financial losses from bad investment choices, market crashes in investment areas, asset mismanagement and higher operating expenses compared to the standard industry benchmark.

This is why the annual member benefit statement interrogation becomes more important in understanding the growth of your benefits and the running costs associated with respective funds.

Retirement fund members rely on trustees to make prudent investment choices on their behalf.

Trustees are charged with the fiduciary duty of running the fund judiciously and managing its administration, while ensuring regulatory reporting takes place.

All funds are managed and administered in accordance with the Pension Fund Act (24 of 1956), the fund’s regulations and all relevant legislation.

TRUSTEES

The Pension Fund Act lacks provisions that clarify requirements or address the method and nomination of trustees.

It also doesn’t 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.

The Namibia Financial Institutions Supervisory Authority (Namfisa) has issued guidelines for the composition and election of boards of trustees, with boards preferably consisting of at least four trustees who are ‘fit and proper’ for the role.

In a standard private stand-alone fund, a minimum of 50% of these trustees are usually employee-elected, 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, 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 that may arise.

Although being a trustee is a noble undertaking, many trustees might not immediately realise how much liability, responsibility and work they are taking on.

This is true even though, in most cases, they don’t have any expertise or experience on retirement funds or pension legislation, and aren’t required to by law.

ACCOUNTABILITY

With retirement funds, trustees are the ultimate decisionmakers and also the accountable parties in the event that decisions made turn out to be 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 abilities 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 because of a lack of appropriate information, experience, or training.

WHAT TO DO

Namfisa has crafted Fit and Proper requirements under the Financial Institutions and Markets Act (2021), section 410(2)(d), as standard Gen 10-2, which are in draft form and which addresses Fit and Proper requirements extensively under the said legislation.

Implementation of the Financial Institutions and Markets (Fima) Act has been postponed indefinitely to allow adequate time for broader consultations on a specific regulation pertaining to the compulsory preservation of retirement savings until at least the age of 55 years.

In light of Fima’s pending implementation, 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 to be weighed up both before and during the appointment of trustees to a retirement fund.

FRAMEWORK

Factors to consider are qualifications and requirements.

• Defining the needed abilities, experience and knowledge, such as financial acumen, legal understanding and governance experience.

• Financial stability and soundness criteria, examining if people 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 people 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 trustee of a retirement fund. This article is written entirely in his personal capacity.