Compliance and governance in retirement funds

Compliance and governance in retirement funds in South Africa are crucial to ensuring that these funds operate in the best interest of their members, adhere to regulatory requirements, and maintain high standards of integrity and transparency. Here’s a detailed look at the key aspects of compliance and governance for retirement funds in South Africa:

  1. Legal and Regulatory Framework

Pension Funds Act, 1956

  • The primary legislation governing retirement funds.
  • Sets out the requirements for registration, management, and administration of funds. 

Financial Sector Conduct Authority (FSCA)

The main regulatory body overseeing compliance and governance of retirement funds. 

  1. Governance Structures

Board of Trustees

  • Every retirement fund must have a board of trustees responsible for the management and administration of the fund.
  • Trustees have a fiduciary duty to act in the best interests of the fund members. 

Composition of the Board

  • Must include member-elected and employer-appointed trustees.
  • The Pension Funds Act stipulates the minimum number of trustees and their qualifications. 

Trustee Training and Education

  • Trustees are required to undergo training to ensure they understand their roles and responsibilities.
  • Continuous education to keep abreast of changes in legislation and best practices.
  1. Compliance Requirements
  • All retirement funds must be registered with the FSCA.
  • Funds must prepare and submit audited financial statements to the FSCA.
  • Regular actuarial valuations to assess the fund’s financial health and solvency.
  • Regulation 28 Compliance ensures diversification of investments by setting limits on asset class exposure.
  • Compliance with the default investment, annuity, and preservation strategies
  1. Risk Management and Internal Controls
  • Development and implementation of comprehensive risk management policies.
  • Establishment of internal controls to safeguard assets and ensure accurate financial reporting.
  • Formation of audit committees to oversee financial reporting and internal controls.
  1. Member Communication and Transparency
  • Providing regular statements and updates to members about their contributions, benefits, and fund performance.
  • Conducting annual general meetings to report to members and address their concerns.
  • Disclosure of fees, investment strategies, and fund performance to members.
  1. Ethical Conduct and Fiduciary Duties
  • Trustees and fund managers must adhere to a code of conduct that promotes ethical behavior and decision-making.
  • Trustees must act with due care, skill, and diligence in managing the fund.
  • Policies to manage and disclose any conflicts of interest.
  1. Dispute Resolution Mechanisms
  • Establishment of procedures for handling member complaints and disputes.
  • An independent body that resolves disputes between members and funds.
  1. Investment Governance
  • Development of an Investment Policy Statement (IPS) that outlines the fund’s investment objectives, strategies, and risk tolerance.
  • Regular monitoring and review of investment performance against benchmarks.
  1. Regulatory Reporting and Inspections
  • Regular reporting to the FSCA on various aspects of fund operations.
  • Periodic inspections by the FSCA to ensure compliance with regulations.
  1. Adherence to International Standards
  • Compliance with International Financial Reporting Standards (IFRS)
  • Adherence to global best practices in fund management and governance.

By adhering to these compliance and governance standards, retirement funds in South Africa can ensure they operate efficiently, transparently, and in the best interests of their members, thereby promoting trust and stability in the retirement fund industry.