The Insurance and Pensions Commission (IPEC) has ordered the dissolution of all dormant and or inactive pension funds as their continued existence has become a threat to member values, Business Weekly can report.
The insurance and pension funds’ regulator, describes dormant/inactive funds as those that have not received contributions for a continuous period exceeding 24 months.
According to IPEC, the lack of contribution could be due to incapacitation of the sponsoring employer, “and there are no reasonable prospects for resuming contributions”.
As a result, IPEC points out, such funds are “considered as financially unsound given the risk of asset value erosion through expenses”.
Records of IPEC, which are based on returns submitted by industry show that 36 percent of the total registered funds are dormant funds while the share of inactive funds’ assets to industry total assets stood at 1 percent as at March 31, 2021.
Most of these dormant funds do not have functional boards of trustees giving rise to conflicts of interests given that the administrators, asset managers, auditors, actuaries and other service providers of such funds have continued to provide services without the oversight that obtains when boards of trustees are present, according to IPEC.
As a result, IPEC has resolved to put in place “robust measures to deter the continued erosion in value through administrative and other service fees as well as to ensure tracing and payment of benefits to members of these dormant funds”.
One such measure is the dissolution of the dormant funds, including funds whose dissolution has not been finalised since 2015 when the Commission issued a directive for the dissolution of unviable funds.
Having noted that some funds have been inactive for prolonged periods, which qualifies them to be considered as financially unsound given the risk of asset value erosion through expenses, “the commission, in terms of section 19 of the Act hereby directs the dissolution of these funds,” reads part of IPEC’s directive.
Section 19 of the Pension and Provident Funds Act [Chapter 24:09] empowers the Commission to direct the dissolution of a fund if the Commission considers that the fund is in an unsound financial condition.
However, IPEC left room for the employer, board, or members that are of the view that there are reasonable prospects for restoring the financial soundness of the fund to submit a report to the Commission.
“The report shall state the reasons for the belief that the fund can be restored to a sound financial status and the specified timelines for restoring the fund.”
As part of the directive, Funds that are to be dissolved are expected to consider and address legacy issues affecting the pension industry including the 2009 loss of value and pending compensation.
In addition, every administrator who administers funds that had already commenced the process of dissolution shall submit a consolidated status report to IPEC.
“The Commission expects that those funds already under dissolution should complete the process within 12 months from the date of issuance of this Directive, and schemes commencing winding up following publication of this directive should complete the process within 18 months,” reads the IPEC directive.
For schemes without a board of Trustees and it is impracticable to constitute one, IPEC directed that the “fund members who are available, willing and possess relevant qualifications, expertise or experience to oversee the dissolution process shall constitute a committee of members.”
“If the fund is unable to constitute this committee, the insurer/fund administrator shall notify the Commission as soon as possible, although no later than sixty days after the publication of this directive.
“The fund administrator/insurer shall suggest alternatives which shall be aimed at ensuring that conflicts of interest are managed.” – ebusinessweekly.com