On 14 February, a full bench of the South Gauteng High Court reserved judgment in what could be a landmark legal case for South Africa’s concentrated pension fund industry. A few months ahead of reporting its strongest earnings ever, Amplats approached the Court to effectively force the Board of Trustees of the Amplats Group Provident Fund (AGPF) to transfer the assets of the fund – a Section 14 (of the Pension Funds Act) into Old Mutual’s Superfund Umbrella Fund. 

In court documents submitted by the Board of Trustees of the AGPF, they contend that they have not been given enough information to make informed decisions, or effectively communicate about the reasons, which led Amplats to decide to change the structure of the AGPF from a standalone fund to an umbrella fund. The move will effectively end worker participation in the future management of the fund. 

The case is also unique in that the affidavit submitted by the Board of the AGPF’s Trustees – which is represented by 50% member-elected trustees and the balance employer-appointed, with one independent trustee – could very well lead to an amendment of the Pension Funds Act.

At the crux of the matter: Two years ago, Amplats seemingly unilaterally decided to move the AGPF to an umbrella fund without any consultation with either the Board of Trustees or the employees. The move was met with a huge outcry and resistance which Amplats chose to simply ignore. 

Upon issuing a request for proposal, Amplats received proposals, which it tells Daily Maverick were independently assessed and a decision was made to appoint Old Mutual. How independent could this assessment have been when the service provider in question was paid by Amplats, the AGPF did not participate and the members were left out of this process? 

Further, all the candidates that were invited to submit proposals were forced to sign non-disclosure agreements – creating an exclusive process without fairness or transparency. To date, no-one but Amplats has seen those tender documents and the company simply ignored a request by Daily Maverick to provide those competing bids. 

Although it is the employer’s prerogative to make these kinds of decisions under the Pension Fund Act, in seemingly wonky drafting, it is ultimately only the Board of Trustees that can sign off the Section 14 transfer from the AGPF into Old Mutual’s account. The problem is that the Board of Trustees cannot reach a resolution to effect the Section 14 transfer, which has led to Amplats approaching the court to compel the Board of Trustees to effect the transfer within 20 days of obtaining such a court order.

Although the Pension Funds Act is explicit about the independence of trustees whether appointed by members or the employer, the board is deadlocked with employer-appointed trustees on one hand pushing for the transfer of the fund’s assets and the member-elected trustees along with the fund’s independent trustee staying put. 

Amplats’ decision to push this deal over the past two years is curious for many reasons:

1. About a year ago,  some 2,000 miners and members of the AGPF filed a complaint to the Pension Fund Adjudicator, to block the transfer of the Fund to Old Mutual, citing numerous allegations including the fact that there was absolutely no employee participation in any of the decisions leading up to the appointment of Old Mutual. To date and more than one year later, the Pension Fund Adjudicator has not made a ruling. 
2. Why has Amplats exerted energy and money litigating this issue? The AGPF is a defined contribution fund, meaning that Amplats has zero vested interest or exposure to the fund, while at the same time, members of the fund carry 100% of the risk relating to the management and performance of the fund. Why then is Amplats locking out workers and pushing this deal at all costs? And why then does Amplats insist on having 50% board representation in the fund – especially as it is common knowledge by members of the fund that all the employer-appointed board members are not even members of the AGPF, whereas the member-elected trustees are members of the fund?     

Amplats declined to answer all questions put to it about this matter, however, they did provide a generic response about the move to umbrella funds, a trend that is supported by the Financial Sector Conduct Authority (FSCA), which is supposedly better for members. Umbrella funds by definition are off-the-shelf products of large insurance companies and have a commercial motive first – to realise value for the sponsor and its shareholders, in this instance Old Mutual!

The jury is still out about umbrella funds being better for members. President of the Black Securities and Investment Association (Absip), Sibongiseni Mbatha, recently wrote an op-ed where he decried the move of standalone funds into umbrella funds.   

In his piece, he states: “The umbrella fund industry is dominated by the largest players in the industry: Old Mutual, Alexander Forbes, MMI, Sanlam, Sygnia and Liberty, which wield significant management and investment control through multi-managers.

“Multi-managers, discretionary fund managers and linked investment service providers, such as Analytics, Fundhouse, Sanlam Multi-Managers, Old Mutual, Momentum, Investec and PPS, are the most reluctant to consider emerging black asset managers. It is estimated that less than 10% of assets on their combined platforms are managed by black asset managers, let alone black asset managers who have consistently delivered exceptional long-term investment performance.”

He said: “Workers have little say in the matter. If an employer decides to move from a stand-alone fund, where employees will legally have 50% representation on the board of trustees, to an umbrella fund where employees can participate in the management of the fund, they have no legal status or say. The sponsor and employer wield disproportionate influence in the running and management of the fund.

“This trend is at odds with the government’s priority of broadening access to financial services for all South Africans and raises the question of how transformed umbrella funds and the multi-managers that typically manage the allocation of those funds are, given the significant size of the market they control on behalf of members, who are largely workers.

“With every stand-alone fund that joins an umbrella fund in SA, workers’ rights and participation in the management of their retirement is eroded further, with no legal say or any other recourse.”

 A few years ago, before rebranding and becoming what we know today as ASISA (Association for Savings and Investment SA), the Life Officer’s Association (LOA) wrote what is still the most comprehensive discussion paper on umbrella funds. 

In that report, the LOA cites: “The possible exemption of such funds from the requirement to enable members to elect trustees.

“The locking in of such funds to services provided by or under the auspices of the sponsor. The presumption behind this is that the resultant lack of potential competition with other service providers leads to excessive costs. These in turn (in a defined contribution environment) eat into the retirement savings of the members.”

Another point of criticism is that employers make decisions on entry to and exit from the umbrella fund. The board of trustees has no member representation. 

Beyond this paper, there has been very little scrutiny or even debate around umbrella funds. 

Amplats declined to address any of these issues or concerns posed by Daily Maverick. And the AGPF’s Board of Trustees presumably locked in yet another internal battle, did not respond to the Daily Maverick at all.  

It is important to point out that the FSCA has actively been promoting the move of free-standing retirement funds into umbrella funds. SA’s biggest financial services providers are presumably over the moon. Its justification is reducing costs. 

However, some industry experts say there is no evidence that umbrella funds are cheaper to run than free-standing funds. Nor is there any way of determining whether umbrella cross-subsidise administration fees, which everyone pays attention to, with investment fees, which can be really obscure, especially for a provider that is a one-stop-shop.

Interestingly at the recent conference hosted by the FSCA, representing the FSCA, Olano Makhubela admitted that the industry has not transformed at all, to which Jan Mahlangu of Cosatu responded, “how do you then advocate consolidation under umbrella funds in an already untransformed industry?”       

While the courts are likely to have the final say on this matter, some 28,000 members of the AGPF will face many more months or years of uncertainty. And until the role of trustees vs the role of employers is explicitly ironed out in the Pension Fund Act, many more members face a similar prospect.    

Daily Maverick has confirmed that the matter is now being dealt with in London by Anglo American and submissions have already been made to the board by various parties. The parent company’s head of legal, Michael Schottler was in South Africa this week to facilitate parts of the process. BM

*Following the initial publication of the article, the platinum miner’s public relations firm pressed for inclusion of this statement:

“Thank you for your interest in Amplats Group Provident Fund (“AGPF”). As you would know, judgement has been reserved in this case, and out of respect for the ongoing judicial process, we would not wish to comment at this stage on the individual questions you have raised, or the merits of the Fund’s case. 

What we can say at this stage is that a legal process between the Fund and Anglo American Platinum (“the Employer”) is currently underway. The process relates to the Employer’s instruction to transfer the assets and administration of members’ pension fund benefits to an umbrella fund and a judgement is pending from the Gauteng High Court.

The Fund takes very seriously its mandate and responsibility to ensure that members’ rights and interests are upheld and it is incumbent on us to satisfy the Financial Sector Conduct Authority (“FSCA”) that we have complied with our duties in this matter.”

** This was the FSCA’s wanted to include this response on transformation:

The Financial Sector Regulation (FSR) Act includes the establishment of a supervisory and regulatory framework that promotes financial inclusion and transformation of the financial sector. Our commitment against this is to ensure that financial inclusion and transformation is supported and promoted in the industry. 

The FSCA acknowledges the strides made in terms of transformation in the financial sector; however, there is still room for greater progress to attain a fair, equal and just society. 

Thus, the FSCA’s transformation strategy focuses both on transformed financial institutions and optimising the role that the sector plays in supporting economic growth and development.

The FSCA seeks to ensure that its regulatory and supervisory frameworks support and strengthen the aims of the FSCA in achieving broad-based economic empowerment. In addition, the focus will be given to reducing barriers faced by financial institutions wishing to participate meaningfully in the sector and to create an enabling environment for them to develop inclusive business models.

The Financial Sector Regulation (FSR) Act includes the establishment of a supervisory and regulatory framework that promotes financial inclusion and transformation of the financial sector. Our commitment against this is to ensure that financial inclusion and transformation is supported and promoted in the industry. 

The FSCA acknowledges the strides made in terms of transformation in the financial sector; however, there is still room for greater progress to attain a fair, equal and just society. 

Thus, the FSCA’s transformation strategy focuses both on transformed financial institutions and optimising the role that the sector plays in supporting economic growth and development.

The FSCA seeks to ensure that its regulatory and supervisory frameworks support and strengthen the aims of the FSCA in achieving broad-based economic empowerment. In addition, the focus will be given to reducing barriers faced by financial institutions wishing to participate meaningfully in the sector and to create an enabling environment for them to develop inclusive business models.