SECTION 13B PENSION FUNDS ACT – WHO’S IN, WHO’S OUT?

Thursday, August 13, 2009
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Ever since the 2006 exposé of Alexander Forbes’ bulking of retirement funds, there has been an increased focus on pension fund administration. Section 13B of the Pension Funds Act of 1956 requires persons who administer the investments of a pension fund on that fund’s behalf to obtain the approval of the Registrar, and to comply with such conditions as the Registrar may prescribe. Clear enough. Less clear is the exact scope of this section. Thus:

• Does the ambit of a s13B ‘administrator’ include a stock broker who receives money from a pension fund for investment?
• Does it include a pension fund that employs its own administrative staff? and
• Does it include attorneys who act as post offices between pay offices and the pension fund administrators?

Apart from compliance with any particular or general conditions laid down by the Registrar, the importance of this determination lies in the reporting and regulatory requirements that accompany status as a pension fund administrator. An administrator has certain obligations in terms of s13B(5), which include – for example – the obligation to employ adequately trained staff and ensure proper supervision, and to furnish the Registrar with such information as may be reasonably requested.

The term ‘administrator’ is not usefully defined in the Act, but the intention of the legislature in s13B appears to include ensuring that an administrator complies with section 19 of the Act and its accompanying Regulation 28, and ensuring that pension fund assets are dealt with in a way that safeguards those assets.

The Financial Services Board (FSB) adopts a broad approach to interpreting ‘administration of investments’, which is taken to include investment management and the performance of certain administrative functions in relation to investments of a pension fund. A 1996 FSB Guide, which was apparently not intended for external circulation, sheds more light on what is, and is not, included within the scope of a s13B administrator.

The function of the administrator is often crucial in determining this issue. For example, stock brokers who receive money from a fund for investment on a discretionary basis would have to obtain approval as administrators. However, if the function of the stock broker is to buy or sell assets as instructed by the trustees of the fund, approval as an administrator under s13B is not required.

The FSB Guide was prepared prior to the promulgation of the Financial Advisory and Intermediary Services Act of 2002, and it is unclear precisely how financial services providers should be treated. Using the stockbroker example as the basis for extrapolation, it is clear that a financial services provider who buys or sells financial products as instructed by the trustees would not require approval as an administrator under s13B.  On the other hand, a discretionary financial services provider that exercises its discretion in buying and selling financial products for a pension fund would require approval.

In certain cases, looking at the functions usually performed by a s13B administrator can assist in determining exactly who is the administrator of the fund. If an employer company employs staff to administer its pension fund, then that employer would have to obtain approval in terms of section 13B. However, if the pension fund itself were to employ staff to administer its fund – and its fund alone – then neither the employer nor the pension fund would have to obtain approval in terms of s13B.

An attorney who acts as a post office or messenger between a pay office and the pension fund administrator does not have to obtain approval. However, if the function of the attorney is to keep any records or information for or from the administrator, the attorney would have to obtain approval. The subtlety involved in these distinctions highlights how important it is for entities providing financial services in connection with pension funds to ensure that they do not inadvertently become administrators in terms of the Pension Funds Act.