FSCA report details the deregistration of more than 6,700 inactive retirement funds
In a wide-ranging report, the Financial Sector Conduct Authority (FSCA) has released full details of the controversial cancellations project it embarked on in 2007, revealing that it deregistered a total of 6,757 inactive retirement funds.
The reason for the inordinately high number of dormant or inactive retirement funds dates back to the late 1990s/early 2000s when there was a major switch in the South African retirement fund industry from defined benefit funds to defined contribution funds.
The FSCA (at that time the Financial Services Board) picked up the large number of inactive funds when the Pension Funds Act was amended in 2005, requiring all retirement funds to submit annual financial statements to the FSB.
Discrepancies triggered a verification exercise by the Financial Services Board around 2006, which confirmed that less than half (4,057) of the 10,132 registered funds were active at the time. The rest of the funds were “orphan” funds that were either empty shells or had some assets or liabilities remaining.
The FSCA report defines an orphan fund as one that does not have a board of trustees to act or speak on its behalf.
“There is usually nobody to apply for cancellation on its behalf or collect and provide the necessary evidence to prove that the fund ceased to exist. The Registrar (of the Financial Services Board) sought to address this problem by appointing authorised representatives to act on behalf of orphan funds,” the report says. Authorised representatives were usually officers of the former administrators of the orphan funds and were appointed by the Registrar to act on behalf of these funds.
Almost 1,000 (999) funds were cancelled through the authorised representatives’ process. The representatives investigated orphan funds, applied for deregistration if they found these funds no longer had any members, assets or liabilities, and collected and provided the Registrar with proof that the funds ceased to exist. As many as 3,516 funds were cancelled in the process.
However, 76 funds were found to have been mistakenly cancelled and had to be reinstated – and then later cancelled. Only two of these mistakenly cancelled funds have since been reclassified as active funds.
The FSCA’s records showed that almost 91% of cancelled funds were administered by seven administrators. BM/DM