Pension funds should be at the front line when it comes to encouraging good corporate governance. The large funds in the Netherlands, Denmark and Norway play that role well. But the trouble with SA is that funds need to improve their governance first, particularly corporate umbrella funds, run by the large life assurers.
There was the ridiculous situation at Old Mutual’s Super Fund in which employee benefits head Bertie van Wyk was parachuted onto its board as an “independent” trustee — not after a three year cooling off period but immediately after stepping down.
There were similar lateral moves at Liberty Life. Avishal Seeth, head of Sanlam’s umbrella business, agrees that this has been the pattern that has emerged at many umbrellas. Speaking to Business Day on the fringes of this week’s Sanlam Benchmark Symposium, he pointed out that the National Treasury wants governance to improve at umbrellas.
Yet, unlike stand-alone pension funds, they have no member-elected trustees. The Treasury wants the current number of active funds to be reduced from 1,600 to no more than 200. Few would then be stand-alone; all but the very largest companies will be part of a multiemployer fund. Under present rules members of these funds would be disenfranchised.
Even the biggest stand-alone fund in the country, the Government Employees Pension Fund, has a hybrid system in which only some members have a direct vote. The rest have no choice as a union leader in their sector is deemed to represent them.
Seeth says the Sanlam Umbrella Fund has tightened up its definition of independent, which is now defined as people who have not worked for Sanlam for 10 years. And it allows no more than three terms of office. Former Sanlam executives are considered sponsor-appointed. And I think most members of the fund can see they often have a lot to give.
David Gluckman, for example, is the country’s foremost expert on umbrellas. It was said he knew more about umbrellas than anyone apart from Mary Poppins. Elias Masilela, a long-time trustee and now chair of the Sanlam Group, was appointed CEO of the Public Investment Corporation on the strength of his knowledge of the institutional sector.
But interaction is limited. The member representatives of the sub-funds are invited to the umbrella’s annual general meeting (AGM) and question the trustees face-to-face. Every three years a handpicked group of member representatives can elect independent trustees, but they have limited power. They can only choose from a recommended list of specialists chosen by the principal officer and his pals.
Seeth admits that with the increase in digital engagement platforms it is now much easier for all members of the fund, about 300,000 in Sanlam’s case, to cast a vote in a trustee election. But he says allowing joint representation in a joint forum is already a step forward. Seeth argues that a complication would arise as there would be a bias in favour of companies and people who are more technologically savvy — a paper balloting process across the country wouldn’t be practical.
Many decisions should still be taken by individual employers, whether in umbrellas or not. An obvious example is member defaults. How can a board of an umbrella understand what investment mix suits members as they go through their work journeys and their retirements?
Within employers there has been quite a substantial change in the recommended annuities after retirement, says Sanlam Corporate CEO Kanyisa Mkhize. Over the past two years, for example, fewer funds recommend living annuities as a default. The proportion has plummeted from 45% to 30%. The catch with living annuities is that there is no guaranteed income — it is simply a basket of unit trusts that rises and falls in value along with the JSE.
The with-profit annuity was recommended by 41% of funds two years ago. This offers a guaranteed income, but, unlike life annuities, offers market growth. It is still quite popular, however, and is recommended by 28% of funds. Guaranteed annuities are still recommended by 16% of funds, and there is no doubt some cohorts need the simplicity and certainty of a fixed sum every month. Perhaps because inflation is low, yet these products are still expensive, inflation-linked annuities are recommended by just 7% of funds, down from 15% two years ago. The hybrid annuity, in which a living annuity converts into a life annuity over 10 years, barely registered two years ago, recommended by just 1% of funds. Thanks to some lively marketing from Sygnia and Alexander Forbes, this has increased to 4%.
Then there is the nondefault default, in which 29% of trustee boards recommend a combination of different annuities, up from 20%. Perhaps it should be up to each member to make a decision after talking to a benefit counsellor instead of following a blanket recommendation.
• Cranston is a Financial Mail associate editor.
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