Irf Annual Conference & Exhibition 2011

IRF DAILY

Monday, 18 July 2011

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IN THE NEWS TODAY

IRF ANNUAL CONFERENCE & EXHIBITION 2011

THE EVOLVING RETIREMENT LANDSCAPE

04-06 September – ICC Durban

REGISTRATION NOW OPEN!

http://www.irf-conference.co.za/2011/

LOCAL NEWS

Generating returns for the people

Government pensions fund head of investment's strategy buck calls for nationalisation

Deafeningly absent from the nationalisation debate so far has been the voice of the Government Employees' Pension Fund. The largest pension fund in Africa, it has 1.2million members and controls R926-billion on their behalf.

This money is invested in the companies and sectors that the ANC Youth League and trade union federation Cosatu supposedly want to nationalise so that "the people" can own them.

John Oliphant, head of investments of the GEPF, laughs when asked for his views. "The true owners of these companies are the people,'' he says. "The workers. It's their money."

Since joining the GEPF in 2008, Oliphant, 29, has been working to give more teeth to this ownership through the Code for Responsible Investing in SA (Crisa), which will be launched by the minister of finance on Tuesday and signed by any asset manager wishing to do business with him.

Crisa enjoins all funds which invest workers' money in companies such as Anglo American, BHP Billiton, Anglo Platinum, Sasol, Standard Bank and FirstRand to meet certain standards of transparency and accountability.

It is ironic that as the people's ownership of these assets becomes more tangible, so the cries for nationalisation become more strident. No wonder Oliphant, who has done a lot to drive shareholder democratisation, finds it so funny.

He would like to say a lot more on the subject, he says, but is loath to do so until his board, which meets this week, gives him "a clear mandate".

He agrees, however, that the GEPF should make its voice heard. "I think the GEPF should be out there more than we have been in the past. We are the largest pension fund in Africa by far, and we need to come forward and participate in public debate on any issues that might affect our investments."

As guarantor of the GEPF, the government is legally obliged to pay its members a fixed level of benefits regardless of how badly the fund's investments may be affected by something like nationalisation.

If its investments do well, then government's contribution to these benefits can be reduced. If they bomb, then its contribution has to increase, which means, of course, the taxpayer having to cough up.

"Money that would otherwise have been spent on other areas of priority would have to be spent on contributions to the GEPF," says Oliphant. "And I think our government is aware of all those consequences. I don't have to speak on behalf of the government.

"But we've got a role to play, and we cannot just sit back as a major stakeholder in the economy."

Many of the loudest champions of nationalisation are also those who subscribe to, and have done very well out of, the culture of entitlement.

Oliphant does not.

He was born and grew up in Parys in the Free State. His mother was unemployed and his father squeezed a dangerously precarious living out of offal, which he bought from butchers, packed into little plastic bags and sold house to house.

Oliphant matriculated at Phehellang Senior Secondary.

The quality of teaching was not great. That year it had a 29% pass rate. He, however, did not only pass, but was in the top 100 matriculants in the province. His parents, he says, forced him to study hard and to watch Dr William Smith on the SABC3 learning channel. "That's how I prepared for my matric. I sat and watched William Smith's lessons on maths and science."

Then he went to Wits university to study for a BSc in statistics and actuarial science. He never qualified as an actuary, though, because during a holiday stint at Liberty Life, "I realised what actuaries do and it did not suit my personality".

He got a job in asset management. His fund was a top performer and, in 2008, he was head-hunted for the GEPF as head of investment. He bought a van for his father, who now sells chickens.

"I always say I wish I had the guts to be an entrepreneur," he remarks, a line worthy of a professional comic, although he seems to miss the joke.

Oliphant arrived at the GEPF at a time when it was trying to retrieve ownership of its members' money from the Public Investment Corporation, which, it was alleged, had been investing it without due consultation with the pension fund.

He knew so little about the GEPF because of its low profile that he had to google it when he was being head-hunted. He became a driving force behind its emergence "out of the shadow" of the PIC. The year after his arrival, GEPF assets were transferred to the GEPF.

They are still managed by the PIC, but tightly monitored by Oliphant and his team to ensure their strategy is carried out. Under Oliphant, the strategy has changed significantly to reflect an agenda that is more broadly developmental and less focused on BEE.

Less GEPF money is now invested in BEE ventures which, to many observers, too often benefited the politically well-connected, but had little real developmental impact.

"We still want to invest in enterprise development, but, going forward, enterprise development in the form of BEE will form a smaller percentage of the overall portfolio," explains Oliphant. Fifty percent of the fund is invested in JSE-listed equities, of which between 25% and 30% is in the mining sector, which Cosatu is so keen to nationalise.

Oliphant wants 5% to be invested in developmental projects, mainly the development of infrastructure, which he sees as a key to future economic growth and, therefore, to the growth of his members' investments.

The effect of the Eskom power crisis on the mines affected the fund's investments badly and taught them a painful lesson about the need to invest in infrastructure. "We said then that we must not hold back from investing in infrastructure or anything that can assist the country to expand economically."

The development investment framework which he launched earlier this year, which commits 5% of the fund to developmental projects (presently only 1% is thus invested) in the next five to 10 years "was built on the back of this".

He cites substantial experience to refute suggestions by some commentators that this is a politically driven and risky strategy. "We want to invest in projects that have a social impact, but at the same time generate excellent returns."

And he's determined to use the considerable muscle of the GEPF to make sure that any South African fund manager who wants a slice of the action does the same.

"There have been too many lost opportunities."

Business Live

16 July 2011

By Chris Barron

‘Wrong date’ used for retirement benefit

The date you leave a retirement fund is the date according to which your withdrawal benefit must be calculated – not the later date when the payment is made to you.

The acting Pension Funds Adjudicator (PFA), Dr Elmarie de la Rey, recently admonished a fund and its consulting employee benefits company for calculating a benefit using the wrong date. In her ruling, De la Rey ordered GG Umbrella Pension Fund and its consultant, Garrun Group Employee Benefits, to pay a member the difference between what it had already paid out and the withdrawal benefit as it stood at the time of the withdrawal notification.

When she received her withdrawal benefit in May 2009, Janet Fuller of Parklands in Cape Town was paid out about R69 000 less than she thought she would get. She complained to the PFA because she was not happy with the amount she received.

Fuller resigned in September 2007. Her fund credit was then R310 856.

In April 2008, she requested a withdrawal and transfer of her funds to a Liberty living annuity.

She was repeatedly told by the GG Umbrella Pension fund that her benefit could not be paid immediately because the fund was being audited and it was awaiting approval from the South African Revenue Service for her benefit. The fund also told her that only 75 percent of the benefit would be transferred to Liberty and the balance would be paid once the audit process was completed.

Fuller was eventually paid a benefit of R269 070 on May 27, 2009.

According to Garrun Group Employee Benefits, the GG Umbrella Pension fund had changed administrators and in the process some member information had not been transferred and this had necessitated the audit.

The fund told De la Rey there had been a fall in investment returns of 15.92 percent between April 2008 and November 2008, which was consistent with the fall in the financial markets over the period.

The fund also said that, in terms of its rules, the trustees shall, within a reasonable period from the date on which they are notified of a termination of membership, arrange for the transfer of the member’s fund credit to a bank account. However, the fund told De la Rey that the disinvestment could not take place before the clean-up of the data because it was not possible for Fuller’s fund credit to be calculated accurately.

In her determination, De la Rey says Fuller became entitled to her withdrawal benefit when she resigned on September 4, 2007, and at the end of that month her fund balance was R310 856.

“The law is clear that a member’s withdrawal interest equals his or her fund credit on his or her withdrawal date. While the date of payment of the benefit may differ from the accrual date, the amount payable is the withdrawal interest on the date the benefit accrued to the member,” De la Rey says.

Fuller’s withdrawal benefit should have been calculated on September 4, 2007, the date on which she became entitled to her fund credit, she says.

De la Rey ordered that, within seven days of the ruling, the Garrun Group Umbrella Pension Fund and Garrun Group Employee Benefits calculate Fuller’s withdrawal benefit as it stood on September 4, 2007. She also ordered them, within two weeks of the ruling, to pay Fuller the difference between what they had already paid her and what they should have paid her.

Personal Finance

17 July 2011

By Neesa Moodley-Isaacs

Confidence in retirement funds is slipping

Confidence among members of retirement funds in SA have declined over the past year, according to the Old Mutual Actuaries & Consultants (OMAC) Member Retirement Confidence Index for 2011.

On a scale of 1 to 10 - where 1 is extremely unconfident and 10 is extremely confident - the index recorded a reading of 5.8, down from 6.1 for 2010. Craig Aitchison, the MD of OMAC, said this was only the second measure of the survey and cautioned against seeing a trend in the numbers.

However, it is still possible to isolate areas of improvement and decline over the year. Factors that have declined from last year include additional savings being put into retirement funds; member participation in trustee elections; an understanding of how retirement fund assets are invested; and which investment managers are being used.

Aitchison also noted that members had indicated a growing dissatisfaction with communication.

"The areas of decline indicate a growing gap in communication which seems to be leading to a dwindling desire among members to engage with their funds," he said.

"While we cannot tell if this is a downward spiral of confidence levels, it is clear that member engagement, understanding and satisfaction with communication remain challenges for the retirement industry as a whole."

But the results indicated a slight improvement in satisfaction with current retirement planning and provision, and the level of trust in a fund's ability to provide for retirement, death or disability.

Confidence and trust in trustees, the administration of their fund and in trustee management of fund investments also improved slightly. There was also a further improvement in pensioner satisfaction.

The index is an indication of aggregate confidence levels among members of occupational retirement funds, specifically in their fund's ability to deliver a satisfactory performance for them.

The calculations include members' trust in various aspects of their retirement fund, their knowledge and understanding of the fund and their level of involvement with the fund.

"We believe that this assessment provides a very real view of member confidence in their retirement funds," Aitchison said.

Business Live

16 July 2011

By Tshego Mashego

South Africa’s Public Investment Corporation begins to look outward

With R1,000bn ($145bn) under management the state-owned Public Investment Corporation plays a pivotal role in the South African investment world. Not many investment institutions in the developing world can boast a 100-year track record. The PIC is an exception. It started in 1911 as the Public Debt Commissioners with the responsibility of managing surplus government money (originally only bonds) and later government-related pension funds.

The PIC has just received regulatory approval for its biggest purchase to date; Cape Town’s Victoria & Alfred Waterfront. This is the country’s most popular tourist attraction and is South African owned once again; Growthpoint, South Africa’s largest property company, and the PIC each bought a 50 per cent share in the V&A for R4.9bn. The sellers were Dubai World and London & Regional Properties.