Annual Report of the Trustees for 2007 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
ANNUAL REPORT OF THE TRUSTEESto the members of CORPORATE SELECTION PENSION & RETIREMENT FUNDS A word from the Chairperson I am very pleased to present a report on the activities of your Board for the calendar year 2007. The year has been very busy once again and the Board met on four occasions for formal Board meetings. In 2007, the Financial Services Board (FSB) issued circular PF 130 which sets out the requirements for good governance of retirement funds. Your Board has made a first pass of how we as a Board measure up to the 13 principles set out and are pleased to report that we score very well. However, we have also identified a few areas where we can improve. In the main, these are being addressed by further expansion of the sub-committees as explained below. Sub-committees The activities of the various sub-committees are listed below: The audit and risk sub-committees oversee the safeguarding of the Funds assets, the operation of adequate systems processes by the administrator and the preparation of accurate financial statements. In addition, the sub-committee is responsible for the appointment of external auditors, finalisation of the audit and the submission of the audited financials to the FSB, which was achieved within the stipulated timeframes. This committee also identifies potential problems for the funds which may arise from any source and ensure adequate measures are in place to minimise these risks. The death benefits sub-committee has been expanded to include all day-to-day service issues but still has as a main priority, the equitable and fair distribution of lump sum death benefits to the beneficiaries of deceased members. The investment sub-committee 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 on the fundamental reason for the Funds existence; that of making available a 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 against benchmarks can be easily monitored. The new legal sub-committee oversees all aspects of legal matters such as Fund rules, policies and administration agreements with the various providers. A subset of this committee s work is overseeing the granting of pension backed home loans to members and the engagement with various financial lending institutions regarding the terms and conditions of the agreements between the Fund and the institution. The new communication sub-committee is tasked with the development of a communication policy and to ensure that all communication and processes are as clearly stated and relevant as possible. This is not an easy task in this complicated and highly regulated business. [3]
In addition, there is a remuneration committee which is wholly independent of the Board and recommends the level of compensation for the trustees and their full time staff. I do need to sound a note of warning to members and employers that much of the new activity is largely prompted by the increased regulation of the retirement savings industry. 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 needs to, in conjunction with their financial adviser, assess and understand the additional costs incurred due to the demands of regulation. The Board now believes it is appropriate in the interests of the proper disclosure of costs to split out the fund governance costs from the administration fees and has requested the administrator to do so as advised in the notice to employers issued by Liberty Life concerning the October rate review. To cover the fund costs brought about through the enhanced regulation requirements, there will be a separate monthly deduction from the individual member accounts. 2008 Budget for Fund Governance R Independent trustee fees 622,600 Principal officer plus support staff including office and computer equipment 1,436,200 Production of financial statements 1,500,000 Investment consultants 600,000 Annual report and communications 500,000 Audit fees 1,650,000 Fidelity insurance cover 1,300,000 Fund governance 25,000 Principal officer association 1,000 Trustee training 75,000 Miscellaneous 20,000 Provision for possible legal opinions 100,000 Total umbrella costs for 2008 7,829,800 Composition of the Boards Ordinarily there are 8 Trustees governing the business of the Funds of whom 6 Trustees can be classified as fully independent of the Funds sponsor, Liberty Life. We are currently in the process of recruiting a further trustee to replace Michael Elliot who died in November after a long illness. I am very grateful for Mike s significant contribution to the Board s deliberations in the past 4 years - especially his hard work and expertise in the pension backed home loan area. Mr Patrick Mayne was appointed Principal Officer effective 1 September 2007 - he and his support staff, are directly employed by the Board. Consequently, the independence of your Board is in keeping with the highest standards of fiduciary independence. Alan McCulloch Chairperson [4]
ANNUAL REPORT OF THE TRUSTEESto the members of CORPORATE SELECTION PENSION & RETIREMENT FUNDS Meet your Trustees Alan McCulloch (Chairperson Independent Trustee) Trustee for 10 years 45 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 8 years 38 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. Adv. Cawe Mahlati (Independent Trustee) Adv. Cawe Mahlati (Independent Trustee) Trustee for 4 years Advocate of the High Court of South Africa Chairman CMI - Emerald Investment Holdings Qualifications: LLB, MA. Martin Oakes (Independent Trustee) Trustee for 5 years 36 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. Mike Garbutt (Independent Trustee) Trustee for nearly a year 4s 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. [5]
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. Received the Passing the torch Woman in Finance award in 2006 from the Gauteng Department of Economic Development 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. The board has a code of conduct in place, which supports its practical operation. The overall attendance level by trustees was 90.6% for the 2007 year. The role of the Employer Representative The key requirements: ensure contributions are paid on time provide the retirement fund administrator with the individual member breakdown of the contribution as contributions are paid provide a conduit for all communication from the Board of Trustees to the membership. In an Umbrella fund, each participation should have an Employer Representative to take responsibility for these roles and that person will often be what was historically referred to as the authorised signatory. Fund Financial statements The following is an abbreviated financial statement for the combined four Corporate Selection Funds as at fund year end 30 September 2007: Pension fund Pension fund no 2 Retirement fund Retirement fund No 2 Number of participating employers Number of members Total contribution income Death claims paid (including insured benefits) 668 21103 R371,788,880.72 R9,082,655.40 5 140 R2,311,177.14 R0 5745 137521 R1,451,220,129.10 R31,892,690.29 2173 52651 R623,138,371.75 R6,945,655.95 [6]
ANNUAL REPORT OF THE TRUSTEESto the members of CORPORATE SELECTION PENSION & RETIREMENT FUNDS Lump sum disability claims paid (including insured benefits) Retirement benefits paid Withdrawal benefits paid Administration costs including FSB levies Total assets Registration number SARS approval number Pension fund Pension fund no 2 Retirement fund Retirement fund No 2 R788,970.40 R0 R5,591,420.74 R626,861.73 R57,437,488.19 R703,272.18 R206,976,615.28 R21,584,123.41 R199,577,634.75 R1,949,920.63 R849,048,930.05 R182,735,178.28 R9,029,944.20 R96,264.48 R49,058,565.32 R20,579,045.34 R2,137,094,735.64 R25,003,098.47 R8,795,520,876.91 R1,824,455,178.83 12/8/36006 12/8/36440 12/8/27024 12/8/36438 18/20/4/40547 18/20/4/40725 18/20/4/9320 18/20/4/40726 Investment Strategy for the Corporate Selection Umbrella Funds For the past 30 months, your Board has been engaged in formulating an investment strategy in consultation with our appointed independent investment consultants, Fifth Quadrant Actuaries and Consultants. At this point, it is worth taking a step back. By way of background, there have historically 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 made available. In March 2006, the trustees requested that the administrator reduce the offering to 13 portfolios for all new participations (subsequently expanded to 15 portfolios). This meant that the trustees could in fact fulfil their fiduciary duties to their members and track the of these portfolios carefully. This decision has been vindicated by the emergence of the PF 130 circular referred to above, which makes this accountability a key role in fund governance. It gives us some pleasure that there has not been a significant amount of comment on these portfolio choices and the market share of our sponsor has not been affected by the restrictions requested. The Board assumes, therefore, that our choices have met with general market approval. Another key step was to bring all participations which commenced prior to March 2006 broadly into line with the new range. Without going into full detail as this has been communicated to each affected participation, suffice to say that the communication process started in July, the process was completed at the end of February 2008. Clearly the process of limiting the portfolio choice of existing participations from in excess of 250 portfolios is a very daunting and challenging task and a few complaints have been received. However, the Board is pleased to record that these complaints have come from a small minority of participants. It is the Board s view that the pain that is being endured is well worth the improved governance position in line with PF 130. The investment strategy developed by the Board of the Corporate Selection Umbrella Funds can be summarized as: 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 Board is comfortable to make available to members and employers as sound choices for retirement provision. The Board (in consultation with its independent investment advisers) and fund members or employers may conveniently and easily monitor. The Board has chosen a range of funds such as Life Stage, Multi-manager and Single-manager - managed by both Stanlib Asset Management and other recommended asset managers. The range of funds will be regularly reviewed but only changed where there is deemed to be a very strong case to so do. [7]
Portfolios available to new participations Members or 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. Life Stage Multi-manager Life Stage consisting of: Single-manager Life Stage consisting of: Multi-manager Growth 23.80% Single-manager Growth 24.14% Multi-manager Consolidation 17.80% Single-manager Consolidation 15.12% Multi-manager Preservation 8.80% Single-manager Preservation 8.10% Stanlib Unit Trusts Standard Bank Money Market Fund 8.53% External Managers Oasis Crescent Equity (Shari ah compliant portfolio) 41.20% Investec House View with Global 26.90% Allan Gray House View with Global 23.80% Coronation House View with Global 3.60% Prudential House View with Global No History Oasis House View with Global 4.40% Stanlib Multi-manager risk-profiled portfolios Stanlib Multi-manager Aggressive Balanced Stanlib Multi-manager Moderate Balanced Stanlib Multi-manager Conservative Balanced 26.96% Corporate Preferred Assets 25.96% 27.33% Corporate Choice Assets 22.52% 18.19% Corporate Absolute Returns 13.31% Stanlib Pooled Portfolio Liberty Managed 23.15% [8]
ANNUAL REPORT OF THE TRUSTEESto the members of CORPORATE SELECTION PENSION & RETIREMENT FUNDS Additional portfolios available to existing participations prior to May 2006 Corporate Range Corporate Preferred SA Assets 27.80% Corporate Liquid Assets 8.99% Corporate SA Absolute Returns 18.81% Corporate Advanced Bonus 13.09% Corporate Real Estate 20.63% Corporate Specialist Equity 32.87% Corporate Balanced Bonus 26.08% Corporate Specialist SA Equity 34.94% Corporate International Assets 2.79% Corporate Real Estate CPI 20.63% Corporate Specialist Balanced 27.34% Corporate ALSI 40 Plus 36.12% Corporate Specialist SA Balanced 29.82% Corporate Financial & Industrial 41.03% Corporate Wealth Development 26.37% Corporate Gilt 9.41% Stanlib Multi-manager risk-profiled portfolios Stanlib Multi-manager Aggressive 31.05% Stanlib Multi-manager Moderate 27.46% Stanlib Multi-manager Conservative 20.06% Surplus apportionment The task of apportioning surplus amongst members and former members of some participating employers is still ongoing at the time of writing. This has been 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. 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. The exercise to identify and approve nil and small surplus submissions is virtually complete. Registration of former members A former member is defined as any previous member who left their scheme (participation) prior to the participation 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. [9]
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: Nil Submissions (No surplus to distribute) Total number of sub-funds 2863 Number of submissions to the FSB 2847 Number of submissions approved by the FSB 2110 Small submissions (small surplus within the sub-funds) Total number of sub-funds 1316 Number of submissions to the FSB 1285 Number of submissions approved by the FSB 1080 Full submissions (sub-funds with distributable surpluses) Total number of sub-funds 316 Number of submissions to the FSB 157 Number of submissions approved by the FSB 57 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 delays in obtaining the necessary information. Trustees are required in terms of the Pension Funds Act to make the final decisions on the allocation of approved 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 will pay a monthly income. [10]
ANNUAL REPORT OF THE TRUSTEESto the members of CORPORATE SELECTION PENSION & RETIREMENT FUNDS 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. Pension Funds Adjudicator cases The office of the Pension Funds Adjudicator was established to resolve disputes, 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 Funds Adjudicator complaints were received during the course of the year under review. The most common complaint continues to be 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 Pension Funds 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. As a result, the Board has requested that in similar future circumstances, the administrator make payment to the withdrawing member and advise the employer accordingly. Other areas of complaint are related to terminations when delays occur as a result of the employer failing to pay contributions up to the effective date of termination, delays in appointing the liquidator and the protracted termination process. 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) 884-8454 Fax number: (011) 884-1144 Physical address: 1 st Floor, Norfolk House, Cnr. 5 th Street & Norwich Close, Sandton 2196 Enquiries: enquiries-jhb@pfa.org.za [11]
Divorce The Pension Funds Adjudicator made an important determination concerning the payment of divorce benefits in the second half of 2007. In the complaint between JC Cockcroft and The Mine Employees Pension Fund the adjudicator effectively ruled that the changes to the divorce regulations contained in the Pensions Funds Amendment Act 11 of 2007 should be considered as retrospective. This means that where a divorce order has historically been attached to a member s benefit, the divorced spouse may now claim the benefit immediately. However, determinations made by the Pension Funds Adjudicator are not binding precedent in law and there remains considerable doubt as to the retrospective nature of the amendments to the Pension Funds Act. Until the matter is clarified, the Board has instructed the fund administrator only to consider making divorce settlement payments which relate to divorce orders granted after 13 September 2007. Divorce orders granted before this date will continue to be paid when the member spouse leaves service. Rule amendments A rule amendment to enable the Board to collect costs from the membership to defray the costs of running the umbrella was submitted to the FSB. Directive 147 Directive 147 of the Financial Services Board (FSB) which governs the regulation of retirement funds and life assurance companies requires that for each with-profits contract, a summary of how the investment in your scheme works should be issued to members. For Corporate Selection this requirement is only applicable to the Corporate Balanced Bonus and Corporate Advanced Bonus portfolios. This summary will be issued to applicable participations with the renewal packs during 2008. The summary and a much more detailed document as per Directive 147 entitled the Principles and Practices of Financial Management (PPFM) for Business with Discretionary Participation Features (DPP) will be made available on the Corporate Benefits Operations public website at www.libcorpben.co.za. 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 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. In 2007 the Board was required to review the contracts and ensure the suppliers complied with the National Credit Act. 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. [12]
ANNUAL REPORT OF THE TRUSTEESto the members of CORPORATE SELECTION PENSION & RETIREMENT FUNDS At present, there are only two financial institutions that meet the Board s requirements those are Standard Bank and Alexander Forbes. Other financial institutions are welcome to be considered to offer pension backed home loans to members once they have fulfilled the Board s requirements which are available on request. Expert advisers and service suppliers During the year the board has taken advice from Fifth Quadrant investment advice SizweNtsaluba - auditors Alexander Forbes Risk Services advice on fidelity cover Service providers Liberty Life, Corporate Benefits Operations - administration services Various investment houses as mentioned previously Business Recovery Services to trace members for whom contact has been lost Fund contact details Any general queries relating to the day-to-day administration of your Fund can be raised via your employer or appointed financial advisers or directly with 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, Patrick Mayne, directly. His contact details are: Fax number: (011) 408-2615 Email: patrick.mayne@liberty.co.za [13]
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Liberty Group Limited - an Authorised Financial Services Provider in terms of the FAIS Act (Licence No. 2409) B12 11710