By David Geral Monday, December 08, 2008

New legislation grants controversial powers to the registrar of pension funds to veto the appointment of principal officers.

The General Financial Services Laws Amendment Act, which partially came into effect on 1 November, amended the Pension Funds Act which now requires every fund to notify the registrar of the appointment of a principal officer.The registrar has the right to object to an appointment in which case the fund’s board is compelled to terminate the appointment of the principal officer within 14 days. 

The amendment provides that in assessing whether or not a principal officer is a fit and proper person, the registrar is entitled to take into account evidence that the person in question has taken part in business practices which, in the registrar’s opinion, were “deceitful, prejudicial or otherwise improper”, or “otherwise brought discredit to that person’s methods of conducting business”. This, regardless of whether or not they were actually unlawful. The decision brings back nagging memories of the confusion and controversy resulting from the introduction of the concept of “improper”- but not unlawful – use of surplus in previous amendments.

Given this unbridled discretion of the registrar, it becomes advisable to make the registrar’s approval a condition of future employment contracts with principal officers. If not, a fund could face an unfair dismissal claim from a principal officer whom it has no option in law but to dismiss.

Significant practical difficulties could arise if the fund or the erstwhile principal officer sought to challenge the registrar’s objection in terms of the FSB Act or the Promotion of Administrative Justice Act. It also raises the prospect of the registrar being joined as a necessary party in unfair dismissal proceedings in the CCMA, Labour Court or High Court.  

The amendment also prescribes that if a principal officer’s appointment was approved by the registrar, but is subsequently terminated by the board, the principal officer is compelled to submit a written report to the registrar detailing “the principal officer’s perceived reasons for the termination”. This would include circumstances in which principal officers were dismissed for misconduct, incapacity, operational requirements and, possibly, resignation by agreement or the liquidation of the fund or the principal employer.

Auditors are similarly subject to the veto power of the registrar and are also required to notify the registrar in writing within 21 days of the termination of their appointment, detailing their perceived reasons for the termination. 

Interestingly, the Act says that if an auditor, but for the termination of appointment, would have had reason to submit an irregularity report under the Auditing Profession Act, then the auditor will be obliged to submit such a report directly to the registrar. 

Its drawbacks aside, the Act does clarify much of the confusion and debate that followed the September 2007 amendments to the Pension Funds Act in relation to the accrual and payment of pension interest awarded in favour of a non-member spouse following a divorce.

Any portion of the pension interest assigned to the non-member spouse in terms of a decree of divorce or dissolution of a customary marriage granted prior to 13 September 2007 is now deemed to have accrued on that date and attracts interest from that date at the value of the actual fund return.

This means that funds which adopted the approach that the previous amendments to Section 37D of the Pension Funds Act did not have retrospective effect must  now honour demands by non-member spouses for pension interest assigned in their favour prior to 13 September 2007, together with interest from that date.