Sitting trustees who fail to attain the mandatory Certificate of Proficiency (C.O.P) face disqualification

HARARE, The Insurance and Pensions Commission (Ipec) through Statutory Instrument 80 of 2017 is mandated to oversee and control pension funds in order to avert poor corporate governance and malpractices in the sector.

Gazeting of the Pension and Provident Funds (Amendment) Regulation S.I 80/17 in July this year gave Ipec the impetus to also deal with qualifications of fund trustees amid revelations that some trustees lacked competent skills to properly administer pension funds.

In addition to that, the statutory instrument also sets the minimum and maximum of trustees at 3 and 9 respectively, with half of the Board being 5.

Members of the Zimbabwe Association of Pension Funds (ZAPF) in an effort to discuss implementation of the SI having received queries from members met the Ipec Commissioner at a breakfast meeting this morning.

Below are IPEC COMMISSIONER, MR TENDAI KARONGA’S RESPONSES TO QUESTIONS FROM ZIMBABWE ASSOCIATION OF PENSION FUNDS.

 1.What was the motivation to make the Certificate of Proficiency (C.O.P) mandatory even to long-serving trustees?

In addressing this question, I want to refer to a quote from John Maxwell when he said,”Practice does not make it perfect but makes it permanent”. The Commission noted poor widespread record-keeping and general weak management of the pension funds in Zimbabwe. For instance, there are rampart cases in the industry where decisions were and are being made in the interests of sponsoring employers at the expense of the pension fund and its members. An indication of poor corporate governance practices.

It is objective deduction of the Commission that most trustees we have were not operating at the expected level and may not be fit and proper to hold the position of trusteeship.  Some have found themselves on the board of trustees as a result of them being vocal or loyalty to the extent they lack expected expertise and independence commensurate with their office.

In order to understand the motivating factors, the qualification should be understood not just for its benefits to the individual but to the industry as a whole.  While acknowledging that each fund has situations that are unique to it, there are, and always will be principles that are of a general application. The Commission in realization of the need to create a uniform and harmonized foundation from which the trustees can tap into for the benefit of their individual pension funds, saw it fit to have every trustee attain this qualification. The industry needs to speak with one voice and promote the same goals in order to achieve the greater vision of strengthening the industry for its ultimate stability, consistency and growth.

The board of trustees has a fiduciary role of managing the assets of the fund for the benefit of its members and beneficiaries. It is therefore essential that the board of trustees be adequately capacitated to fulfil this vital role efficiently and effectively. In order to achieve this goal, the trustees should possess expertise, which equips them with the capacity to provide qualitative and not just quantitative decisions.

Management of pension funds is a sector that is unique, especially given its goal of providing income to the member upon their retirement or death. It is not an industry that can be left to an adhoc application of systems in its management. It is necessary to have standard guidelines attained through the undergoing of the same training for all trustees so as to ensure there is harmonization and consistency in the management of the funds.

The aim was never to disregard the experience gained by these long-serving trustees but to build and tap on that experience by enhancing their knowledge through the attainment of additional qualifications. It is important moving forward, that everyone keeps an open mind, a flexibility that accepts that this requirement is not calculated to burden anyone but is meant to add value firstly to the individual and ultimately to the industry.

2.Why has there been no provision made for exemptions even for otherwise highly qualified professionals?

When the circular was issued, no provision was made for exemptions, however with the gazetting of The Pension and Provident Funds (Amendment) Regulation S.I 80/17 provision has been made for exemptions.

The Commission does accept that there are highly qualified professionals who are trustees. The requirement to sit for Certificate of Proficiency is not taking away from their esteemed position, it is merely adding to those qualifications. It should be understood that the term “highly qualified” is also relative. The question is, in which area, is the person regarded as highly qualified?

The directive to make it compulsory was only meant to ensure that every trustee has a qualification specific to pension funds administration while recognising the broader qualifications one may possess. The directive should not be viewed as a show of lack of confidence in the ability of trustees but as a value addition to the ability of trustees.

The Commission has no intention of disregarding any qualifications people might have. If whatever qualifications one has, are sufficient to satisfy the requirements of section 6B (2) (c) of S.I 80/2017 in the same way that the C.O.P in trusteeship does, then such individuals are welcome to approach the Commission for exemptions. However, the Commission will be working in conjunction with the institutions that offer the training, to ensure that the trustees’ alternative qualification meets the criteria being considered under the curriculum. The Commission will from time to time advise the industry of the institutions that have been approved to offer the training. These institutions will be responsible for granting exemption certificates subject to guidance given by the Commission.

3.What happens to effective sitting trustees who fail to attain the requisite qualifications within the stipulated time frames?

Our law is very clear regarding this question. Section 6B of Pension and Provident Funds Regulations (Amendment) Regulations S.I 80/2017 states that:

“No person shall be appointed, elected or continue to act as a trustee unless he or she possesses such qualifications and additionally, or alternatively such experience or expertise as may be required for the proper administration of the fund…”

Therefore to answer the question, such trustee by operation of the law, will be disqualified from continuing to hold that position. However, this does not apply to those who would have been exempted, given a grace period or granted leave by the Commission to continue acting in that capacity in the public interest.

4.What happens if at the end of the stipulated period, a pension fund does not have sufficient C.O.P qualified members from which the board of trustees can be constituted?

The Commission will deal with these situations individually as they arise. However, as a guideline, for instance the Commission can:

Instruct the fund to join another umbrella fund or;

The fund can appoint independent trustees with the necessary training and exemptions;

The Commission cannot have people who have proved that they cannot understand the basic principles by acquiring the necessary training. It will not be prudent for the Commission to allow such people to run the fund.

5.Do existing trustees need to obtain and submit police clearance certificates? And do existing trustees need to complete the form in the fourth schedule?

The fit and probity test provided under Section 6B of S.I 80/17 is an ongoing exercise and in that regard, these documents shall be required even from existing trustees to ensure that they are and will remain fit and proper persons to hold the office of the trustee. It will be prudent for a trustee that does not meet the fit and proper test, to step down from their position. The Commission also reserves the right to conduct random check.

6.In section 6A1, with a maximum number of nine trustees, how can half be elected by the members of the fund? Should the wording be “at least half to be elected by the members”?

Half shall mean 5.

7.Does the appointment of an independent expert (6A2) or corporate trustee affect the statement in 6A1; does this trustee simply reduce the number not elected by the members or is it half after this appointment?

The independent trustee does not reduce the number not elected by the members in any way. The board in its composition should at all times, have an equal or greater number of the trustees being member elected. If a fund opts to have an expert or independent trustee then the total number of trustees including that trustee must not exceed the upper limit. In terms of section 6A2, the expert or independent trustee may be appointed by the fund.

8.The requirements outlined in 6B2(c) may not be available with more than one or two people within the membership of the fund. What action should the fund take in this place?

The Commission is very much aware of this possibility. It is for this reason that there is a requirement under section 6D (1) to have every trustee undergoing training on core skills within six months of appointment or election.

A fund, based on section 6B (1), can elect a trustee who does not have the qualifications but who instead has the experience and expertise. It is after election that the trustee can undergo the training in order to satisfy the requirements of section 6B2 (c), which training must be undertaken within the stipulated time.

The board of trustees is also empowered to outsource expert trustees where such expertise is absent in the board.

9.The requirements in section 6B5 (h) requires trustee to be resident. There is a problem here, where the owner is non-resident and the fund still has Defined Benefit liabilities, which are an obligation of the employer and not the fund. Will the Commissioner confirm the owner as the trustee in terms of 6B (9)?

The provision is a general provision but the Commissioner can in exceptional circumstances exercise the powers bestowed in terms of Section 24 to grant the fund exemptions in such scenarios as stated above.

In conclusion, as the Commission is a creature of statute, thus we are supposed to act within the confines of the law. We are mandated to act within those boundaries to ensure the protection of the interests of fund members. Therefore our initiatives though they may be a regulatory burden are meant to ensure a well-managed pension industry that is being run in an accountable, transparent and efficient manner.