Enhancing retirement fund governance: The case for certified retirement fund trustees™

by Carina Wessels | 29,May,2024 | AlexForbes, Employee Benefits, Q2 2024

George Brown

In previous articles, we explored strategies to safeguard retirement funds against failure, drawing insights from corporate failures and independent non-executive (NED) remuneration practices to identify transferrable learnings for retirement funds. In this piece, we explore potential learnings on trustee education, continued professional development and assurance measures to protect member interests.

Director qualifications, skills and due diligence

The King IV report underscores the importance of governing bodies and committees possessing a well rounded blend of qualifications, skills, experience, diversity and independence to fulfil their governance responsibilities. This extends to ensuring that audit committees maintain sufficient financial literacy and expertise. Additionally, it emphasises the significance of committees collectively possessing the requisite skills and experience, particularly the importance of financial literacy, skills and experience within the audit committee. The Companies Regulations 2011, specifically require at least one third of audit committee members to have qualifications or experience in areas such as economics, law, corporate governance, finance, accounting, commerce, industry, public affairs or human resource management.

 

The King IV requirements extend beyond the initial appointment process. Alongside implementing a robust induction programme, post appointment, there’s an emphasis on continued professional development and regular briefings on legal and corporate governance developments. The independent investigation of candidates’ backgrounds and verification of qualifications are also highlighted as crucial.

Various services have emerged to support companies in meeting these best practice standards. These include specialised recruitment agencies, training interventions, dedicated professional bodies and bespoke qualifications like the Certified Director® and Chartered Director (SA)® offered by the Institute of Directors in South Africa.

Some of the benefits of holding these designations are articulated as:
· Independently assured competence
· Adherence to a professional code of conduct, esteemed as a higher standard
· Mandatory completion of 30 CPD hours annually for certification retention

Trustee requirements and training

Trustee requirements are governed by the Financial Sector Conduct Authority (FSCA), which published a draft Conduct Standard in May 2019, outlining minimum skills and training requirements for pension fund board members. The Pension Fund Act 24 of 1956, as amended, provides the framework. It mandates board members to acquire necessary skills and training within six months of appointment, as may be prescribed by the FSCA, with a requirement to maintain them throughout their term.

Following public consultation, the FSCA released the final Conduct Standard 4 of 2020 on July 10 2020, necessitating trustees to complete the Trustee Training Toolkit within six months of appointment. This free programme, based on FSCA guidelines, is intended to enhance trustees’ understanding of their roles and fiduciary duties.

In October 2023, the FSCA introduced a new trustee training e-learning toolkit, aimed at up-skilling trustees with comprehensive information to better fulfil their fiduciary duties. The revision was substantive, showing that governance principles are not static and have to keep pace with changes in our environment, economy and society. The FSCA suggested that trustees need to be constantly aware of changes in their environment, to make sure that they provide the correct stewardship to the long-term savings of workers.

Despite the assessments in the toolkit, there’s no requirement for a pass mark in order to test and verify a trustee’s applied skills, knowledge and experience. Additionally, even though they have the ability to mandate same, there are no specific Continued Professional Development (CPD) requirements.
Principal officers aren’t obligated to complete the toolkit, but the FSCA encourages them to do so.
On 28 March 2004, the FSCA extended the completion deadline for the first 11 modules of the toolkit, following a poor completion rate, and also released the second 11 modules.

Nearly four years since the Conduct Standard’s implementation, there is however limited data on the effectiveness of the toolkit in addressing knowledge deficiencies.

International perspectives on pension trustee accreditation and professionalism

In 2023, the United Kingdom Department for Work and Pensions and HM Treasury initiated a call for evidence to enhance the skills and capability of pension trustees. This included assessing trustee registration, accreditation requirements and professionalism. The UK utilises a free trustee toolkit, similar to South Africa’s, and encourages trustees to pursue additional industry qualifications and accreditation. While accreditation remains voluntary, The Pension Regulator (TPR) expresses a preference for accredited professional trustees. Some boards already mandate accreditation or equivalent quality training for all trustees, suggesting potential benefits in broadening accreditation requirements. They suggest that a wider take up of accreditation could better equip trustees to fulfil their roles, make informed decisions and ultimately benefit members.

Proposals under consideration include mandating a certain proportion of accredited trustees on every trustee board. Additionally, there’s a focus on professional trustees, who are held to higher expectations. The Professional Trustee Standards Working Group established standards in 2019, requiring professional trustees to undergo an accreditation process involving initial qualification and annual renewal.

These standards mandate ongoing development, with professional trustees required to undertake a minimum of 25 hours of relevant learning and development annually. The TPR’s long term intention is to have at least one accredited professional trustee (with the necessary accreditation) on each board.

Enhancing governance and trustee capabilities in retirement funds

Mandatory requirements:
While not obligatory, credentials like the Chartered Director® provide valuable independent assurance to companies and shareholders. Given the significant assets under management by retirement fund boards in South Africa, ensuring trustees possess verified skills and experience is crucial for member confidence. Is the time therefore ripe for a Certified Retirement Fund Trustee™ designation and independent accreditation? Importantly, such designation doesn’t need any prior qualifications as an entry requirement and could be based on recognition of prior learning.

Elevated standards for audit committees:
Given the substantial assets at stake and the limited pool of professional trustees, considering higher qualification standards for audit committee members is warranted. Such standards would enhance financial oversight and governance effectiveness.

Robust trustee induction processes:
Comprehensive induction programmes are essential for accelerating trustee effectiveness and contribution. Ensuring thorough training and orientation enables trustees to fulfil their fiduciary duties competently.

Continued Professional Development (CPD):
Despite being common practice in the financial services sector, mandatory CPD for trustees remains absent. It is suggested that, in addition to considering an entry requirement, mandatory CPD should be implemented for trustees. The CPD requirements should not only ensure regulatory tick boxing, but also be focused on future proofing our retirement funds. Therefore, they should include training on megatrends driving global change, such as climate change, the impact of artificial intelligence and ever increasing life expectancy, societal expectations and purpose.

Pre-appointment due diligence:
Proper fitness and propriety assessments are essential for trustee selection. While these are standard in financial services, they’re not consistently applied in trustee pre-appointment processes. Enhancing due diligence procedures can help ensure the selection of capable and ethical individuals.

Ensuring responsible governance for retirement funds
Prioritising the entry criteria, induction and continuous training of trustees is imperative for safeguarding the assets of retirement fund and members’ best interests. Considering external accreditation and verification of trustee skills and experience can inspire greater confidence in trustee capabilities, with the ultimate purpose of ensuring improved governance and stewardship.

Are your trustees appropriately skilled and experienced to adequately look after your future?
The future of your retirement fund is not yet determined – it’s in your hands. Are you ready to take charge?

Carina Wessels
Executive: Governance, Legal, Compliance and Sustainability at AlexForbes | + posts