ANNUAL REPORT OF THE TRUSTEESto the members of CORPORATE SELECTION PENSION & RETIREMENT FUNDS Annual Report for 2006 of the Trustees to the members of the Corporate Selection Retirement Fund Corporate Selection Pension Fund Corporate Selection Retirement Fund No. 2 Corporate Selection Pension Fund No. 2 [1]
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ANNUAL REPORT OF THE TRUSTEESto the members of CORPORATE SELECTION PENSION & RETIREMENT FUNDS A word from the Chairperson I am pleased to be able to present a report on the activities of you Board for the calendar year 2006. The year has been an exceptionally busy one and the Board met on four occasions for formal Board meetings. However, the increasing complexity of legislation and regulation with its focus on improved levels of fund governance has led to the appointment of a number of sub committees and ad hoc committees to focus on specific important topics such as the all important investment strategy and new audit and financial reporting requirements for the Funds. Sub committees The activities of the various sub-committees are listed below: The audit sub-committee, which oversees the safeguarding of the Funds assets, the operation of adequate systems by the administrator and the preparation of accurate financial statements The death benefits sub-committee, which is concerned with the equitable and fair distribution of lump sum death benefits to the beneficiaries of deceased members. The investment sub-committee, which is concerned with the formulation of a broad investment strategy appropriate for these Funds. This committee, is in my opinion, the most important as it concentrates upon the fundamental reason for the Funds existence; that of making available sufficient number of investment portfolios to suit the wide range of risk appetites that can be found within the Funds whilst at the same time maintaining a manageable framework of portfolios so that performance to benchmark can be easily monitored. The home loan sub-committee which oversees the granting of pension backed home loans to members and engages with various financial lending institutions regarding the terms and conditions of the agreements between the Fund and the institution. I do need to sound a note of warning to members and employers that this activity is largely prompted by the increased regulation of the retirement savings industry and in my view, however well meaning and well intended that regulation might be, the costs involved are approaching the point where each participation in the Funds should, in conjunction with their financial advisor, conduct a cost benefit analysis. Composition of the Boards There are 8 Trustees governing the business of the Funds. I am pleased to say that of these 7 Trustees, can be classified as fully independent of the Funds sponsor, Liberty Life. This is an increase of 2 independents from the 2005 year. I would like to make a special mention of Adv. Leslie Primo who resigned during the course of the year and to welcome Mr Mike Garbutt to our deliberations. The Principal Officer, Mr Charles Martin together with his support staff, transferred their employment to the Funds during the first quarter of 2006. Consequently, the independence of your Board is in keeping with the highest standards of fiduciary independence; a fairly uncommon position for life insurer sponsored retirement funds. [3]
Meet your Trustees Alan McCulloch (Chairperson Independent Trustee) Trustee for 9 years 44 years in the retirement fund industry Chairperson/Trustee of a number of other Boards of Trustees Qualifications: FCII, FIISA, APMI, CFP Retired from Liberty Life in August 2005 Director of the Financial Planning Institute (FPI) and chair of its Employee Benefits Interest Sector Group. Johan Drotschie (Independent Trustee) Trustee for 7 years 37 years experience in the retirement fund industry Currently running own Financial Planning and Consultancy Business Member of the boards of Stanlib s Preservation and Retirement Annuity Funds Qualifications: B.Com Honours, Certificate of Advanced Trust Law, completed all in-house technical and managerial training programs at Sanlam, LIMRA manager s diploma, CFP. Mike Elliott (Independent Trustee) Trustee for 3 years 49 years of extensive experience Old Mutual, Alexander Forbes and ABSA Currently member of PLA (Member of IPCA 10 years, IRF 12 years) Qualifications: CFP. Adv. Cawe Mahlati (Independent Trustee) Adv. Cawe Mahlati (Independent Trustee) Trustee for 3 years Advocate of the High Court of South Africa Chairman CMI - Emerald Investment Holdings Qualification: LLB, MA Martin Oakes (Independent Trustee) Trustee for 4 years 35 years experience of consulting to retirement funds and individuals Currently acts as a consultant to a number of retirement funds and also acts as an independent Trustee, a principal officer and is a former member representative Qualifications: BA Honours (UK), ACII, CFP. [4]
ANNUAL REPORT OF THE TRUSTEESto the members of CORPORATE SELECTION PENSION & RETIREMENT FUNDS Mike Garbutt (Independent Trustee) Trustee for nearly a year 41 years experience in the life insurance industry at all levels of management Involved in all aspects of sales and marketing, specializing in: Sales management Marketing Retirement funds Investment marketing Product development Start up operations Trustee of a number of other retirement funds Retired from Liberty Life in 2006. Bongi Shongwe (Independent Trustee) Trustee for three years 17 years retirement fund experience Member of IRF, AFP Managing Director of Hlela Financial Solutions (Pty) Ltd Qualifications: Diploma in Business Management, MBA, Certificate of proficiency IISA, COP, currently in the process of attaining B.Com, CFP. Stuart Wenman (Liberty appointed Trustee) Trustee for 12 years 14 years extensive pensions experience Responsible for The Technical Sales & Distribution Support Services Unit at Liberty Life Qualifications: B. Economic Science degree, FIA and FASSA. Investment Strategy for the Corporate Selection Umbrella Funds For the past 18 months your Board has been engaged in formulating an investment strategy in consultation with our appointed independent investment advisors, fifth Quadrant Actuaries and Consultants. By way of background, historically there have been few constraints to members and participations in selecting any of the investment portfolios made available by the plan sponsor, Liberty Life. The consequence has been that more than 250 investment portfolios were on offer, but more than 80% of the funds overall assets were in a relatively few portfolios. With such a widespread range of investment portfolios, it proved an impossible task for the Board to regularly monitor performance to benchmark and some trimming of portfolios was clearly needed. [5]
The following few paragraphs summarises the investment strategy developed by the Boards of the Corporate Selection Umbrella Funds. Employers and members (where the employer has agreed to make individual member choice available) may select from a range of risk profiled and other investment portfolios that the Boards are comfortable to make available to members and employers as sound choices for retirement provision. The Boards (in consultation with its independent investment advisors) and fund members/employers may conveniently and easily monitor performance. The Boards have implemented their investment strategy in two phases. Portfolios available to new participations from 1 st May 2006 The portfolios marked below with a # comprise the entire suite of investment portfolios that can be made available to new participations effective on or after 1 st May 2006. A significant feature of the new range of portfolios is the introduction of the Multi-manager Life Stage portfolio (which will also act as the default portfolio where members/employers do not make an investment portfolio selection). Assets in the Multi-manager Life Stage portfolio will automatically be shifted through the various risk profiles of investments aligned to the members tolerance for risk, from aggressive to moderate and eventually to a conservative profile as the member nears retirement. This is intended to minimise volatility of investment returns and to ensure maximum preservation of assets closer to retirement to ensure that the accumulated capital is protected against fluctuation in value due to volatile markets. Portfolios available to existing participations from 1 st March 2008 The Boards view is that the historical range of 220 available investment portfolios is far too numerous to allow the board to monitor performance or suitability for retirement provision. After taking independent investment advice and in consultation with Liberty Life, it has been decided to reduce the number of investment portfolios to 35 (inclusive of the portfolios marked with a #). Ideally, the Boards would have preferred that all participations select solely from the suite of portfolios introduced from 1 st May 2006, but recognised that such action might result in a potential reduction in benefits for certain members who have chosen portfolios which offer performance guarantees. For those portfolios that are not being continued, affected members will be able to retain their guarantees through an automatic switch into portfolios with similar mandates and guarantees, which are being retained. Further, a number of existing popular historical portfolios have been retained. The board has decided to retain these portfolios to reduce the enormous workload in implementing the conversion and furthermore as it feels that these portfolios are suitable for use for retirement provision. As far as is practicable, the Boards have ensured that the values held in the portfolios to be closed will be transferred to portfolios with similar mandates and risk profiles. Adequate time will be given for members and employers with investments in those portfolios which are being closed, to notify the administrator, in writing, of their new investment choices. In the event of no investment decision being made by the members/employers, assets will be transferred to the Stanlib Multi-manager Risk-profiled portfolios. [6]
ANNUAL REPORT OF THE TRUSTEESto the members of CORPORATE SELECTION PENSION & RETIREMENT FUNDS Members/employers who elect to transfer assets to the Multi-manager Life Stage portfolio will be required to invest 100% of existing assets and future contributions into that portfolio as the Multi Manager Life Stage Portfolio concept can only operate effectively subject to this condition. Available Portfolios #Life Stage Multi-manager Life Stage consisting of: Multi-manager Growth Multi-manager Consolidation Multi-manager Preservation Single-manager Life Stage consisting of: Single-manager Growth Single-manager Connsolidation Single-manager Preservation Corporate Range Corporate Preferred Assets Corporate Preferred SA Assets Corporate Absolute Returns Corporate SA Absolute Returns Corporate Choice Assets Corporate Real Estate Corporate Balanced Bonus Corporate International Assets Corporate Specialist Balanced Corporate Liquid Assets Corporate Advanced Bonus Corporate Specialist Equity Corporate Specialist SA Equity Corporate Real Estate CPI Corporate ALSI 40 Plus Corporate Financial & Industrial Corporate Wealth Development Corporate Gilt Corporate Specialist SA Balanced Stanlib Multi-manager risk-profiled portfolios Stanlib Multi-manager Aggressive Balanced Stanlib Multi-manager Moderate Balanced Stanlib Multi-manager Conservative Balanced Stanlib Multi-manager Aggressive Stanlib Multi-manager Moderate Stanlib Multi-manager Conservative [7]
Stanlib Unit Trusts Standard Bank Money Market Fund Stanlib Pooled Portfolio Liberty Managed #External Managers Oasis Crescent Equity (Shari ah compliant portfolio) Allan Gray House View with Global RMB House View with Global Investec House View with Global Coronation House View with Global Oasis House View with Global Surplus apportionment The task of apportioning surplus amongst members and former members of some participating employers that had surpluses is still ongoing at the time of writing (May 2007). This has proved to be a huge logistical exercise for the Funds. The final deadline for the submission of surplus apportionment schemes to the Financial Services Board (FSB) was 31 December 2006. The Board is aware of a serious backlog in full surplus submissions in the Corporate Selection Funds and is applying constant pressure on the Fund administrators to finalise the exercise. The exercise to identify and have approved nil and small surplus submissions is virtually complete. In fairness, the legislation is very complex and although published at the close of 2001, the final detail only emerged from the FSB in 2006. Even now there are considerable retrospective changes in the legislation before Parliament. Registration of former members A former member is defined as any previous member who left their scheme (sub-fund) prior to the sub-fund s surplus apportionment date (this date varies according to annual revision date). Former members are required to register their details in order to be considered for any surplus benefits that may be due to them. The Board strongly urges current members who are aware of any former members to encourage them to register their details with Liberty Life s Surplus Team. Contact details are: Fax No: (011) 408-4623 E-mail: surplus@liberty.co.za Call Centre: 0860 100 388 The surplus apportionment status report for the Corporate Selection Funds as at April 2007 is as follows: [8]
ANNUAL REPORT OF THE TRUSTEESto the members of CORPORATE SELECTION PENSION & RETIREMENT FUNDS Nil Submissions (No surplus to distribute) Total number of sub-funds 3301 Number of submissions to the FSB 3271 Number of submissions approved by the FSB 1617 Number of submissions still to be approved 1654 Number of submissions in progress 30 Small submissions (small surplus within the sub-funds) Total number of sub-funds 1293 Number of submissions to the FSB 1274 Number of submissions approved by the FSB 884 Number of submissions still to be approved 390 Number of submissions in progress 19 Full submissions (sub-funds with distributable surpluses) Total number of sub-funds 372 Number of submissions to the FSB 47 Number of submissions approved by the FSB nil Number of submissions still to be approved 47 Number of submissions in progress 325 Beneficiary nominations Members are again urged to ensure that beneficiary nomination forms are updated regularly to reflect up-to-date information in the event of their death. These nomination forms should be lodged with your employer. This will allow quicker resolution of death claim payments and avoid unnecessary time having to be spent on obtaining the necessary information. Trustees are required in terms of the Pension Funds Act to make the final decisions on the allocation of death benefits to beneficiaries. Your beneficiary nomination form helps them to do this timeously. Death benefit trusts When deliberating on the distribution of death benefits, the Trustees will take into account the circumstances of the beneficiaries. The Trustees may decide that the interests of the beneficiaries would best be served by investing the money in a trust that would pay a monthly income. In 2006, an umbrella trust fund called the Coselira Umbrella Trust was established specifically for Liberty Life sponsored retirement annuity and umbrella retirement funds. The trust is administered by Fairheads Umbrella Trust Company (Pty) Ltd and the investments are managed by Stanlib Asset Managers. The Board of Trustees of the Coselira Umbrella Trust meets quarterly to oversee the affairs of the Trust and your Chairperson, Mr Alan McCulloch, chairs the Board of the Trust. [9]
Pension Fund Adjudicator cases The office of the Pension Funds Adjudicator was established to resolve disputes and investigate and determine complaints by members of retirement funds regarding abuse of power, maladministration, disputes of fact or law and employer dereliction of duty in respect of retirement funds. A number of Pension Fund Adjudicator complaints were received during the course of the year under review. A common complaint was that members were not paid out their withdrawal benefits due to a withdrawal notification not being received by the administrators when the member has left service. The Adjudicator ruled against one employer who refused to submit a signed withdrawal form on behalf of one of his employees and ordered the employer to submit the signed form and pay interest at the rate of 15,5% from the date of the member s resignation to the date of payment. The Adjudicator s contact details are as follows: Cape Town office Tel. number: (021) 674-0209 Fax number: (021) 674-0185 Physical address: 2 nd Floor, Oakdale House, The Oval, Oakdale Road, Newlands, 7700 Postal address: P O Box 23005, Claremont, 7735 Email: enquiries@pfa.org.za Johannesburg office Tel number: (011) 8848454 Fax number: (011) 8841144 Physical address: 1 st Floor, Norfolk House, Cnr. 5 th Street & Norwich Close, Sandton 2196 Enquiries: enquiries-jhb@pfa.org.za Rule amendments Rule amendments changing the Financial Year of the Funds to 1 October of each year were signed by the Trustees and submitted to the Financial Services Board during the period under review. Home loans In terms of the Pension Funds Act, members are permitted to use a portion of their share of the Fund s assets (currently the Trustees allow up to 40%) as collateral for securing a pension backed home loan from a recognised financial institution. Provided certain conditions are fulfilled, your retirement fund will stand as guarantor for the collateral. In 2005 and 2006, the Board of Trustees of your Fund, fully aware of their fiduciary duties, called for tenders from a number of leading financial institutions that operate in the field of pension backed home loans in order to ensure that the institutions meet their requirements and offer competitive rates of interest and conditions to you, the members. [10]
ANNUAL REPORT OF THE TRUSTEESto the members of CORPORATE SELECTION PENSION & RETIREMENT FUNDS Some of the requirements are that members receive proper education and assistance from the institution in relation to the affordability of loan repayments, the purpose for which the loans are granted, the correct and accurate completion of the loan application documents as well as other relevant matters associated with the acquisition and/or maintenance or improvement of a dwelling. At present, there is only one financial institution that meets most of the Board s requirements and that is Standard Bank, which also offer members an interest rate of prime less 0,5%. At the time of writing this report the Board of Trustees is still negotiating with Standard Bank on the conditions of a new home loan agreement between the Fund and the Bank to ensure that the members interests are safe guarded at all times. The new agreement will also comply with the provisions of the National Credit Act that comes into effect on 1 June 2007 and which offers greater protection to borrowers. Other financial institutions are being considered to offer pension backed home loans to members once they have fulfilled the Board s requirements. In terms of the Pension Funds Act, pension backed home loans may only be used to buy the land on which you will build a house or dwelling purchase a house or dwelling build a house or dwelling alter an existing house or dwelling. Fund contact details Any general queries relating to the day-to-day administration of your Fund can be raised via your employer or appointed intermediary or directly with Liberty Corporate Benefit Operations (CBO) at their call centre, telephone number 011-408 2999 or fax 011-408 2264. All queries to CBO should ideally be put in writing. Should a Corporate Selection Fund member wish to bring any matter to the attention of the Trustees or have a problem in obtaining a response from the administrator, he/she can contact the Principal Officer, Charles Martin, directly. His contact details are: Tel. Number: (011) 408 8736 Fax number: (011) 408 7236 Email: charles.martin@liberty.co.za [11]
Liberty Group Limited - an Authorised Financial Services Provider in terms of the FAIS Act (Licence No. 2409) B12 11185