After decades of complaints from workers in the private security sector about the Private Security Sector Provident Fund (PSSPF), the Financial Services Conduct Authority (FSCA) has finally wrapped up an investigation that dates back to 2017.

As of February last year, the fund had R10-billion in assets and almost 600,000 members.

Following a supervisory on-site inspection of the fund in November 2017, the FSCA initially wanted to place the fund under curatorship, but, in September 2018, with the agreement of the trustees, appointed statutory managers to the board instead. The statutory managers then commissioned an independent forensic investigation, which was carried out by Ngidi Business Advisory.

Late last Friday, the FSCA revealed it had concluded its “long, detailed and complex investigation” of the PSSPF board of trustees. In releasing its findings, the FSCA noted that investigations by nature take time and that all implicated parties – former trustees, current trustees and the fund administrator Salt – had legal representation.  All members of the board who could be traced were given an extensive opportunity to respond to the various assertions and allegations levelled at them. The FSCA’s findings included the following:

• The board of the PSSPF deviated from its own procurement policy and processes in the appointment of service providers, without any justifiable basis.
• Agreements in respect of the appointment of service providers were inconsistent with service providers’ tender proposals.
• Tender negotiations with service providers took place after conclusion of the tender process, in violation of regulations.
• The rates paid to board members during the 2017 financial period varied from R100,000 to R1.2-million and were inconsistent with the fund’s trustee remuneration policy.
• Board members were paid almost R8,000 each for attending a golf day and a conference.
• Chairpersons of each sub-committee received a fixed monthly fee of R7,460 in addition to their usual fee for attendance of meetings. This is not standard practice in the retirement funds industry and appeared to be solely for their personal enrichment.

Service provider agreements that have been called into question include those with Salt Employee Benefits, Bophelo Life

The FSCA has concluded that the board members:

• Failed to take all reasonable steps to ensure that the interests of members, as per the Pension Funds Act (PFA), were always protected.
• Failed in their fiduciary duty of acting with due care, diligence and good faith, by failing to ensure that the procurement of service providers was done in a cost-effective manner.
• Failed to ensure the fund’s resources were utilised in a sound and cost-effective manner, which constituted a breach of the board’s duties under the PFA and the Financial Institutions (Protection of Funds) Act.

The FSCA said it considered the above transgressions and improper conduct serious enough to warrant appropriate regulatory action, including administrative penalties and the removal of board members. Further, the FSCA objected to the appointment of the principal officer.

Board members issued with administrative penalties ranging from R10,000 to R230,000 are Zazi Zulu, Bonginkosi Qwabe, Simon Jackson, Hennie Myburg, Sipho Miya and Cobus Bodenstein. They have the right to appeal to the Financial Services Tribunal. Fines were imposed at a rate of 10% of the remuneration received by the relevant board members.

Board members Zithulise Mqadi, Marchel Coetzee, Anna Maoko and Jonnes Hlatswayo have been ordered to vacate their positions within 10 days of receiving letters to that effect.

The FSCA objected to the continued appointment of principal officer Peter Zibi, on the grounds that he was not fit and proper. However, Zibi told Business Maverick he will be filing his response to the tribunal in the week ahead. “Funds are not managed by the principal officer but by the trustees. If you have a company, the company secretary does not manage the funds, it is the directors who are responsible and in the case of the fund, the trustees,” he said.

“The improper management of pension funds can cause significant financial prejudice for funds and their members, ultimately compromising their benefits at retirement and resulting in old-age poverty,” the FSCA said on Friday. “While (we accept) that the complexity of overseeing retirement funds could at times result in genuine mistakes by trustees, certain conduct which can be construed as deliberate or grossly reckless, self-enriching, and an abuse of position with ulterior motives or malicious intent, will be sanctioned.”

The authority has not ruled out further regulatory action in this case. FSCA commissioner Unathi Kamlana said it remains committed to protecting members of retirement funds against any reckless or intentional conduct by trustees which could compromise retirees’ savings, and will take action where justified. The statutory manager appointed in 2017 will remain in place to oversee the affairs of the PSSPF and protect members’ savings.

Commenting on the action taken by the FSCA, pension funds adjudicator Muvhango Lukhaimane said it was a “welcome development”. “However, from a member’s point of view, (considering) the number and nature of the complaints that my office receives, the statutory management has not improved the member experience, nor does it come cheap. It is true that under statutory management we are receiving responses to complaints, albeit late in most instances. However, the fund has done very little to ensure that contributions are collected timeously – if at all; or that withdrawal benefits and death benefits are paid out timeously,” she noted.

The PSSPF was formed in 2001 and provides retirement, disability, death and funeral benefits to employees in the private security sector. The problems with non-compliant employers in this sector appear to be nothing new, going back nine years and probably further. In 2012 there were about 350 complaints to the adjudicator related to the PSSPF, but by 2016 these had slowed to just over 100. In 2016, the fund engaged with more than 1,000 non-compliant employers, resulting in 390 acknowledgements of debt amounting to R275-million. BM/DM