Retirement Fund Trustee Training

1. Retirement Fund Trustee Training Working together for a skilled tomorrow

2. Contents Introduction Summary of the research findings Distribution of funds by economic sector Population group Trustee type Province Trustee formal education Trustee experience Experience vs. formal education Training for retirement fund trustees Legal aspects and legislation Benefits offered and membership Ser vice providers Investment management Financial aspects Dealing with surplus and legislation related to surplus Interpreting financial statements Retirement fund governance Unit standards Training providers The steering committee members involved in guiding the groundbreaking project

3. Retirement Fund Trustee training was identified at the Growth and Development Summit (GDS) in 2003 as a specific and urgent priority for skills development. INSETA, as the Education and Training authority for skills development in the insurance sector was tasked to address this urgent skills need. Traditionally, Retirement Fund Trustee Training has been provided by service providers, which has largely been based on the existing investment products in which the service providers have a vested interest, thus indicating a lack in independent service provision regarding training. Trustees may also have not realised the urgency or importance of the need for quality training. INSETA in 2004 initiated a project to identify the registered retirement funds and the profile of their trustees. The project had to: • Compile a list of all current registered retirement funds. • Identify each fund’s economic sector. • Identify who the fund administrators are, per fund. • Determine the physical location of both fund administrators and trustees per fund (Employer- and employee- nominated). • Identify each Trustee’s level of formal education and training. • Identify the level and extent of Trustee specific training that each trustee has received. • Identify each Trustee’s years of experience as a trustee. • Using a 30% sample of identified trustees (which fulfilled the national demographic profile), quantify these trustees’ self-identified training needs. The end goal is to ensure that those individuals who have been thrust into the role of trusteeship as a result of changes in legislation are empowered with the requisite information and skills to carry out their duties. For this training initiative to succeed, Trustees must take up the training offered. The majority of the Trustees are not aware of the responsibilities that come with this role and the knowledge required to mitigate any risks of personal liability.

4. To date, INSETA has held consultations with various stakeholders to conceptualise the training requirements, conducted a Trustee Training quantification and skills survey, developed unit standards to address the skills requirements and appointed training providers to provide training to Trustees. INSETA is now launching the results of the research and the unit standards required for the basic formal training of Trustees. This project has involved all other sectors in South Africa therefore all other SETAs would be encouraged to promote the training of Retirement Fund Trustees in their own sectors. Summary of the research findings A nationwide data collection effort through advertising and awareness campaigns focused on the retirement fund community was conducted, with the support of stakeholders’ organisations. Data was mainly collected from Retirement Fund Administrators, Retirement Fund Skills Development Facilitators and directly from the Retirement Fund Trustees. The data collected with respect to the Retirement Funds and the Retirement Fund Trustees is comprehensive, although regular fluctuations in the industry may have altered the profile. The number of registered retirement funds in the South African Retirement Fund Industry was taken to be 12,750 pension and provident funds and some 800 umbrella funds.

5. The data collected was also used to determine the size of the retirement fund trustee population which is estimated to be approx 54,000 with more than half residing in the Gauteng province. Sufficient trustee data was collected to make meaningful analyses and inferences at a confidence level exceeding 90%. The data collected resulted in a sample containing over 500 retirement funds and 1,400 trustee responses as at 12 June 2006. The results were in line with intuitive thinking insofar as trends are concerned. Trustees with a higher formal education tended to have higher levels of trustee related knowledge, as did trustees with experience in trustee related activities. Both factors (education level & experience) were observed to have a strong influence on trustee knowledge. The ultimate aim of this project is to equip trustees with the tools they require to carry out their duties effectively. It was therefore important to distinguish between the professional and experienced trustees who do not require further training; and trustees who may have not had an opportunity to receive comprehensive training on or off the job in their experience as trustees. The final results indicate the proportion of trustees that have a certain level of training, but also go further to indicate the proportion of trustees requiring levels of training given their current level. These proportions take into account the trustees not requiring any further training. An analysis of trustee training needs revealed that the majority required an intermediate level of training, although, in some cases, this may have been less than their skill levels. This would indicate a need for refresher training and the importance of focussing training on all areas at the correct levels. The following graphs show where the Trustees are placed, the sectoral breakdown, the population groups and education and experience that Trustees currently have.

6. Distribution of funds by economic sector

7. This graph shows the significant prevalence of trustees in the white population group. The next most significant group is the black population group with the other groups forming marginal contributions to the numbers. Population group

8. This graph shows the approximate even split of employer (2) and employee (3) nominated trustees. The other groups, made up by pensioner (1), independent (4) and other (5) trustees, show very small proportions of the graph. Over 80% of trustees are either employee or employer nominated. Trustee type

9. The table below shows the large bias of fund location towards Gauteng. These trends are closely followed by administrator locations. Province Geographic distribution of funds Province Number of funds GAUTENG 61.86 % MPUMALANGA 2.14 % LIMPOPO 0.64 % NORTH WEST 1.02 % KWAZULU-NATAL 11.67 % EASTERN CAPE 4.76 % WESTERN CAPE 15.87 % NORTHERN CAPE 0.59 % FREE STATE 1.45 % • Geographic distribution of fund administrators • Province No. of administrators • EASTERN CAPE 4 • FREE STATE 2 • GAUTENG 137 • KWAZULU-NATAL 12 • MPUMALANGA 3 • NORTH WEST 3 • WESTERN CAPE 33

10. Trustee formal education This graph shows that most of the trustees that have responded are well educated (4). This result is perhaps not surprising as one would expect that the majority of the employer-nominated trustees are most likely financially literate individuals such as the Chief Financial Officer or Chief Operating Officer or even the Human Resources head. Similarly the member elected trustees are likely to be those individuals within the company that are seen to have the acumen, although they may not hold important positions as the employer nominated trustees.

11. Trustee experience Almost a mirror image of the formal education graph, experience also shows that more experienced trustees responded to the survey when compared with inexperienced trustees. This suggests that we may need to investigate the independence of formal education and experience. If they are heavily correlated, it is possible to drop one of the two factors from the analysis as they act in similar directions on the results

12. Experience vs formal education This table suggests the positive correlation between experience and formal education. With increasing experience, we note the increase in formal education. It is interesting to note that the differential between trustees’ formal education increases as trustee experience increases.

13. Training for Retirement Fund Trustees The training that has been developed will concentrate on Retirement Funds and Trustees, covering the structure of a retirement fund, different fund types, industry role-players, benefits payable and trustees’ duties and responsibilities. Training on Fund Documents and Death Benefits covers fund regulation, trustee meetings, financial statements and the distribution of death benefits. Trustee training, as per the research findings, is required in the following areas, with the graphs below showing the respective current levels of training in these areas: • Legal aspects • Benefits and membership • Service providers • Investment management • Financial aspects • Dealing with surpluses • Interpreting financial statements • Governance

14. Legal aspects and legislation This category tested the Trustees’ level of understanding of the Pension Fund and Retirement Legislation in SA. Benefits offering and membership This asked for the level of understanding and ability to differentiate between various funds.

15. Service providers This category tested Trustees knowledge of service providers' and service providers’ responsibilities. Investment management This category asked for the Trustees’ level of understanding of investment conditions and performance of funds in the SA market.

16. Financial aspects Here, Trustees’ understanding of their role in administering financial aspects of a Retirement Fund was tested. Dealing with surplus and legislation related surplus This asked for the understanding and ability of the Trustees of the concept of retirement fund surplus/deficit and how to set a formal surplus distribution strategy.

17. Interpreting financial statements This asked for the Trustees ability to read and understand the financial statements of Retirement Funds. Retirement fund governance This tested the understanding of Trustees of Retirement Funds governance.

18. Unit standards The four unit standards that have been developed specifically and approved by SAQA (South African Qualifications Authority) for Retirement Fund Trustees are the following and cover:

19. After training, Trustees will be required to undergo formal assessments, including a: • Portfolio of Evidence • Research Assignment and • Knowledge test Competent learners will receive certificates of competence from INSETA and are awarded nationally recognised credits towards the relevant unit standards. Training providers Deloitte Johannie Bayman 012 482 0184 Ekurhuleni East College Osborne Neluvhalani 011 736 4400 INTEC School of Insurance Petro Taljaard 021 417 6766 Investment Consulting & Trustee Services David Weil 011 656 1160 Investment Wise Joanne Miller 021 422 2701

20. The INSETA steering committee members involved in guiding this groundbreaking project were: Jan Mahlangu COSATU Lungile Thabo Twalo ENDELEO Investment cc Dennis George FEDUSA Olivia Davids FSB Wilma Mokupo FSB Charles Wells INSETA Glen Edwards INSETA Phakama Nkosi INSETA Busi Madlala PricewaterhouseCoopers Isaac Ramputa SASBO Alistair Duminy Trust Ad Training The full research report can be found on www.inseta.org.za