Pensions scandal nets R500m

CAPE TOWN – Pension fund administrators in South Africa had disgorged half a billion rands in secret profits, which would be paid back into the funds, members of South African parliament were told yesterday.

A number of administrators had paid “as penance” an additional R15,25 million into the consumer education trust of the Financial Services Board (FSB) . The administrators that had made undisclosed profits from the pension funds they oversaw were warned by the FSB that they might still face prosecution, despite paying penance.Alexander Forbes, the country’s biggest administrator, has agreed to repay R368 million to the pension funds whose assets it administered, to cover the 10 years from the time it began bulking the funds to boost interest payments.Another R100 million has been set aside in the company’s 2007 financial statements to deal with any further irregularities that may be uncovered by an independent audit.It has also donated R12 million to the education trust fund.These donations caused a minor row in the portfolio committee on finance when Ian Davidson of the Democratic Alliance asked the FSB officials who were giving evidence whether the payments had been made to avoid prosecution.Davidson insisted that “no one in their right mind would have handed over R12 million if there was no promise of non-prosecution”.He accused the FSB of acting as both prosecutor and judge, and added that this carried the implication that corruption could be involved.”There was no kickback to me or any of my executives in any form,” FSB executive officer Rob Barrow said sharply.”Prosecution is very much on the cards in any event.”Jurgen Boyd, the FSB’s deputy executive officer for retirement funds, told the committee that 66 of the country’s roughly 200 fund administrators had replied to a circular asking them to voluntarily disclose all secret profits made at the expense of the pension funds.The board was confident that those that did not reply had each administered only one fund, and therefore had no opportunity for bulking.Of the 66 respondents, 36 said that they did not bulk, did not make secret profits and had nothing to declare.Eleven administrators reported that they did bulk their clients’ funds (which is both legal and encouraged by the FSB, as long as clients know), but full credit of the enhanced interest rates was passed to their clients, or prior approval had been received for the administrator to keep any benefit.One company identified by the board’s officials as NBC – a negotiated benefits company – indicated to the regulator that it had no intention of repaying money to any of the funds administered by it.The total benefit it received is estimated at R16 million.NBC plans to seek retrospective ratification of its practice of making a secret profit from its clients’ funds.”We obviously have great difficulty with that approach,” Boyd said.Lekana, jointly owned by the Mineworkers’ Investment Company and FirstRand, received a commission on death benefits paid by a number of funds.It has agreed to disgorge the full amount, estimated at R20,5 million, which will be paid to the beneficiaries, who are undergoing hardship as a result of the Fidentia affair.The FSB named two other companies that were under continuing investigation: mCubed and Wynne-Jones, which has been renamed Cedar Employee Benefits and Consultants.Business ReportThe administrators that had made undisclosed profits from the pension funds they oversaw were warned by the FSB that they might still face prosecution, despite paying penance.Alexander Forbes, the country’s biggest administrator, has agreed to repay R368 million to the pension funds whose assets it administered, to cover the 10 years from the time it began bulking the funds to boost interest payments.Another R100 million has been set aside in the company’s 2007 financial statements to deal with any further irregularities that may be uncovered by an independent audit.It has also donated R12 million to the education trust fund.These donations caused a minor row in the portfolio committee on finance when Ian Davidson of the Democratic Alliance asked the FSB officials who were giving evidence whether the payments had been made to avoid prosecution.Davidson insisted that “no one in their right mind would have handed over R12 million if there was no promise of non-prosecution”.He accused the FSB of acting as both prosecutor and judge, and added that this carried the implication that corruption could be involved.”There was no kickback to me or any of my executives in any form,” FSB executive officer Rob Barrow said sharply.”Prosecution is very much on the cards in any event.”Jurgen Boyd, the FSB’s deputy executive officer for retirement funds, told the committee that 66 of the country’s roughly 200 fund administrators had replied to a circular asking them to voluntarily disclose all secret profits made at the expense of the pension funds.The board was confident that those that did not reply had each administered only one fund, and therefore had no opportunity for bulking.Of the 66 respondents, 36 said that they did not bulk, did not make secret profits and had nothing to declare.Eleven administrators reported that they did bulk their clients’ funds (which is both legal and encouraged by the FSB, as long as clients know), but full credit of the enhanced interest rates was passed to their clients, or prior approval had been received for the administrator to keep any benefit.One company identified by the board’s officials as NBC – a negotiated benefits company – indicated to the regulator that it had no intention of repaying money to any of the funds administered by it.The total benefit it received is estimated at R16 million.NBC plans to seek retrospective ratification of its practice of making a secret profit from its clients’ funds.”We obviously have great difficulty with that approach,” Boyd said.Lekana, jointly owned by the Mineworkers’ Investment Company and FirstRand, received a commission on death benefits paid by a number of funds.It has agreed to disgorge the full amount, estimated at R20,5 million, which will be paid to the beneficiaries, who are undergoing hardship as a result of the Fidentia affair.The FSB named two other companies that were under continuing investigation: mCubed and Wynne-Jones, which has been renamed Cedar Employee Benefits and Consultants.Business Report