Transcript The Pension ACt 2011- Trustees Perspective (Presentation)

DUTIES
OF TRUSTEES
Pension Act, 2011
RESERVE BANK OF MALAWI
OUTLINE
Pension Fund
 Appointment of Trustees
 Licensing of trustees
 Duties of trustees
 Restrictions on Trustee
 Key issues to note
 Other issues
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PENSION FUND
 Pension
Act defines a pension fund as a
pension scheme that is an indefinitely
continuing trust.
 Trusts are generally governed by trustees.
 The office of a trustee comes with fiduciary
duties.
 The law may prescribe additional duties
over and above the traditional fiduciary
duties.
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APPOINTMENT OF TRUSTEES
For restricted funds, the equal representation rule
under Section 26 of the Act will govern the
appointment of trustees for a pension fund.
 The employees within their fora will have to
choose the trustees and same for the employer.
 Sec. 29 provides that the member representatives
so appointed shall be removed only by the same
procedure as by which they were appointed
 In need be, an independent trustee may be
appointed but will not exercise voting powers.
 For unrestricted funds, the trustees will be
appointed under the trust deed.
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APPOINTMENT OF TRUSTEES CONT’D
Trustee to consent to appointment in writing section 24
 Umbrella funds and Unrestricted funds to have a
single trustee-body corporate - section 25
 Restricted funds to have a group of individual
trustees.
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LICENSING OF TRUSTEES
Section 16 requires that all trustees must be
licensed
 The trustees will be licensed in their individual
capacity and not by virtue of holding a certain
position or office.
 The fit and proper test is one of the licensing
requirements that a trustees must satisfy
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LICENSING OF TRUSTEES CONT’D
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The fit and proper test looks at the suitability of a
person to act as a trustees and in brief examines:
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Requisite experience
Qualification
Criminal record
Previous history e.g. bankruptcy or previous financial
industry practice
Integrity
The licensing requirements will be issues soon
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DUTIES OF A TRUSTEE
Statutory Duties of the Trustee Board are to ensure
that:
 A separate account in its books for each member is
established and maintained- Section 11
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This duty is normally delegated to fund administrators
Establish and operate Advisory Committees (AC)
for the fund.
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The AC has no authority beyond the Trustee except
advisory
In the event of a dispute between trustee and member,
failure to take advise of the AC constitutes a breach of
fiduciary duty to fund members
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DUTIES OF A TRUSTEE CONT’D

That members of the fund are provided with fund
information as soon as they become members (read
with definition of fund information in section 1)
 This is a statutory duty as well as an element of a duty to
act in good faith on part of the pension fund.
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That contributions to a DC fund are timely
allocated into the members accounts
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Sec. 61 and 62 makes provision that contributions should
be made within 14 days
Duty to ensure that administrators’ software and
proper control systems are in place to facilitate
compliance with this duty
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DUTIES OF A TRUSTEE…CONT’D
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That rules and operations of the fund are not in
violation of legislation and directives.
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There are many statutes that are binding on the board
of trustees, including common law principles and the
Constitution
That the fund is managed in accordance with its
registered rules.
Section 34 makes rules of the fund binding on the fund
and its members and employers.
 Ensure that fund is managed in a transparent and
fair manner
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DUTIES OF A TRUSTEE CONT’D
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Duty to protect/preserve fund assets
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Duty of care, skill and diligence
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To keep the money and other assets of the fund
separate
Same degree of care, skill and diligence as an ordinary
prudent person will exercise in dealing with property
of another whom the person felt morally bound to
provide
Duty to formulate an investment strategy
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Having regard to risk and return
To discharge its existing and prospective liabilities
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DUTIES OF A TRUSTEE CONT’D
Statutory duties Under section 70 & 71
 Duty to investigate authenticity of nomination or
revocation and currency.
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Anything fund does must be permitted by fund rules.
Duty to investigate financial dependants at time
of death
Where there is no nomination or nomination is invalid
 Provide all parties opportunity to be heard
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DUTIES OF A TRUSTEE CONT’D
Duty to make equitable payments to financial
dependants
 Duty to hold benefits to a minor beneficiary in a
separate account - trust
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Benefits not part of fund assets once due
 Trustee may pay parent or guardian to maintain the
minor beneficiary
 Payments to minor beneficiary issues
 Two options of payments
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Direct payment upon reaching age of majority sec 71(4)(b)
 Installment payment to parent or guardian sec 71(4)(b)
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DUTIES OF A TRUSTEE…CONT’D
If you deprive parent or guardian consider these factors:
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the amount of the benefit;
the ability of the guardian to administer the moneys;
the qualifications (or lack thereof) of the guardian to
administer the moneys; and
the benefit should be utilized in such a manner that it can
provide for the minor until he or she attains the age of majority.
Who can be deprived of right to administer benefits for
minor?
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Prodigality-trait of spending extravagantly
Insolvent-bankrupt
Mental disability-mental disorder
Incapable of managing his own affairs
 Best interest of the child should be primary consideration
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DUTIES OF A TRUSTEE CONT’D
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Duty to avoid conflict of interest
A trustee must declare their interests in writing or
otherwise to the board
 Must exercise their powers in loyalty to the members
and not to their personal interest
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Duty to act impartially
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The board must not unfairly discriminate against
members or beneficiaries
Duty to formulate a complaints resolution
mechanism
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Inquiries are properly considered and dealt with
within 60 days
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RESTRICTIONS ON TRUSTEE - SEC 43
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Trustee is restricted from falling under the direction of any
person.
 This provision is designed to ensure that a trustee is able
to exercise independent discretion in his duties.
 Section 43 emphasizes the need for trustee to make
independent decisions
 This means as a trustee you are not required to act in
terms instructions from your employer or organized
labor.
 Exceptions to section 43
A court ruling
 Directive by the Registrar
 A decision by the Appeals Committee set up section 78 of the
FSA 2010
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RESTRICTIONS OF TRUSTEE SEC 45
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Trustee is prohibited from abdicating discretionary powers
to another person.
Trustee can delegate discretionary power if trustee retains
control of the decision making (consent from trustee required
before delegatee can act)
Trustee may delegate discretionary powers if permitted by
Registrar’s directives.
This provision ensures that trustees must retain
discretionary powers in the management and operation of
the fund.
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For example discretion to pay death benefits under sec 71 can not
be delegated to anyone by trustee
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RESTRICTIONS ON TRUSTEE SEC 46
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Fund rules must prohibit decisions from being
made by the consent or approval of an employer
only except where the decision:
Increases the benefits or rates of benefits payable
 Would have effect of increasing costs to the employer
 is made to comply with a directive or Appeals
Committee ruling
 Is Directives from the Registrar
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RESTRICTIONS ON CHANGES TO
FUND RULES SEC 47
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Fund rules can only be amended in following
circumstances
Consent by trustee
 Compliance with Directives
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Amendments must be approved to be valid.
 Fund rule amendment are deemed approved after
30 days, unless extended or approval is refused
 Trustee must notify Registrar of any rule
amendment coming into effect
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RESTRICTIONS ON FINANCIAL ISSUES
SEC 51-56
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Shall not invest fund assets unless at arms length –Sec
51
Shall not acquire an employer asset as an asset of the
fund- Sec 52
Shall not lend money of the fund or use fund assets to
give any other financial assistance- Sec 53
Shall not knowingly acquire an asset from a member or
an associate of a member except as authorized by the
registrars directives – Sec 54
Shall not borrow money from the pension fund – sec 55
Fund assets of a pension fund shall not be invested
outside Malawi – sec 56
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KEY ISSUES
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Trustee not to be paid a fee unless
 Independent trustee
 Body corporate
Trustees to be indemnified out of fund assets in respect
of a liability incurred while acting as a trustee or as an
operator
Trustees to be liable for
failing to act honestly in matters concerning the fund
 intentionally or recklessly failing to exercise, in relation
to a matter affecting the fund, the degree of care and
diligence that a trustee or operator was required to
exercise
No person to victimize a trustee – section 79
 Contravention is liability to an offense
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OTHER ISSUES…CONT’D
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The fund to appoint a Principal Officer
Must be approved by the Registrar
 Must be a fit and proper person in terms of Registrars
directive
 May not be removed or change without prior approval
 Duties include but not limited
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Receive and process communications between the fund and
other authorities concerning the fund
 Ensure implementation of decisions of the board of trustees
 Ensure that all legislatively required returns are submitted
on time
 Responsible for all administrative functions in terms of the
rules and legislation
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A Principal Officer is like a company Secretary
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THANK YOU