By Banji Mudimba
Everyone has or has had an imaginary picture of how they envision life after retirement. But the question that begs answers is, have you laid the foundation for the future?
Under private pension schemes, Trustees being the “captains of the ship” play a pivotal role in ensuring the members’ funds are appropriately invested in order to yield the desired outcome. Achieving the desired results comes with getting it right from the onset.
This entails that Trustees need to source for service providers that will offer a distinguished service to Pension Schemes for the benefit of the members that they represent.
The Trustees responsibilities include: administration; investing; auditing; banking; seeking legal advice; having appropriate custody of the Schemes’ assets; and undertaking periodical actuarial valuations on Pension Schemes as required by the Pension Scheme Regulation Act No. 28 of 1996 (As amended by Act No. 27 of 2005).
In order to appropriately execute their mandate, Trustees are at liberty to appoint Pension Fund Administrators and Pension Fund Managers that are operating in the pensions industry and are dully registered by the Pensions and Insurance Authority (PIA).
I must hasten to mention that the process of subcontracting service provider does not in any way take away the fiduciary duty (a legal obligation of one party to act in the best interest of another) of Trustees as they still remain accountable jointly or severally for decisions made
The industry currently has seven (7) registered Fund Administrators and seven (7) Fund Managers. The Fund Administrators are in charge of the day to day operations of Pension Schemes while the Fund Managers undertake the investment of funds.
Additionally, besides the highlighted service providers regulated by the PIA, Trustees also require services from banks, external auditors, lawyers and actuaries.
Trustees must ensure that the selection process for service providers is thoroughly done in order to come up with the right bidder, protect the interests of Pension Scheme Members and realise the required output.
It is important that Trustees take a deliberate action of examining/ familiarising if possible, with the service providers’ operational systems and human capital to confirm that the service will be provided if a contract was awarded without any challenges.
Trustees can also assess the performance of prospective Fund Managers in the industry through comparing their year on year investment returns as a tool for settling for the best service provider.
The significance of sourcing the right Fund Manager cannot be over emphasized for Defined Contribution (DC) Schemes as the final pension benefits hinge on investment returns for the growth of member benefits.
It should be noted that low investment returns can negatively impact members’ benefits at retirement. Therefore, Trustees should be alive to the objective of the Pension Scheme towards its members in the process of sourcing service providers.
Once the preferred service provider has been selected, the contracts and Service Level Agreements, which stipulate the terms of engagement must be drawn by legal personnel for parties involved to sign. Contracts and Service Level Agreements are critical to a satisfactory relationship between the Trustees and service providers and for the purposes of measuring performance. It is therefore important to have all agreements documented for the purposes of reference and for them to be binding.
Trustees must at the bear minimum include the following elements in the contracts for successful bidders.
Effective date and duration of the agreement
The date when the contract or agreement commenced is important as it clearly defines the expectations regarding the envisaged deliverables from both parties. It also acts a reference point for defining the duration of the contract and future negotiations.
Information to be provided by both parties
Information to be provided by both parties should be clear and without any ambiguity in order to avert any disagreements that may arise from failure by any party to fulfill the obligations. Clarity of information is useful in eliminating gray areas, thereby enhancing the basis for monitoring service delivery.
Timing of services, reporting rules and deadlines
It is imperative that Trustees are furnished with relevant information at the right time by contracted service providers. Therefore, the contractual documents should clearly highlight the deadlines for submission of information. This will assist in making informed decisions at the right time for the benefit of members.
Dispute resolution process
It is desirable to have a good working relationship with contracted service providers. Therefore, a dispute resolution process should be clearly outlined in the contract in order to avert the deterioration of the good relation once enjoyed by both parties,
Contract Termination Provisions
Termination provisions in contracts acts as a guide to both the Trustees and service providers when one party decides to opt out of the contract. The provision deters any one party from doing things in a haphazard manner. Well-crafted termination provisions can save parties to the contract a thousand kwachas arising from litigations.
Finally, Trustees must ensure that proper oversight processes are in place and monitoring of the Pension Schemes and Service providers is continuously undertaken.
Trustees’ obligation is one that is never ending as members join and retire from the Pension Scheme at various times. Therefore, Trustees are required to continuously provide oversight to the Scheme through the subcontracted service providers, deliver a decent pension to retiring members including beneficiaries until the last member retires and the Pension Scheme is closed.
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The author of this article is a Pensions Inspector of the Authority; Prudential Supervision.