Institute of Retirement Funds Africa

Newly appointed FSCA Commissioner is a strong proponent of leadership skills in times of crisis and change

Definitive and ethical leadership is required to position transformation as both a strategic imperative and a hearts and minds issue, says the Commissioner of the Financial Services Conduct Authority, Unathi Kamlana, speaking to delegates from the retirement sector at the Institute of Retirement Funds Africa November 2021 conference held in Johannesburg and Cape Town.

In opening his address, Kamlana, who took up the appointment as Commissioner in June of this year, highlighted the challenges and changes facing not just the sector in terms of Covid 19, the focus on sustainable investment and governance, the issues around arrear contributions as well as transformation, but society as a whole. In so doing he highlighted the importance of leadership and leadership skills in moving the country and sector forward.

Kamlana, whose address was entitled “leadership in times of crisis and the need to develop and maintain these skills for a well-functioning industry” noted that a survey conducted by the FSCA in 2020 indicated that 47% of retirement funds experienced financial distress as a result of the Covid 19 pandemic. He told delegates from the sector that smaller funds experienced the brunt of this, notably in the form of requests for some form of contribution relief in the face of the pandemic coming from employees in the manufacturing and services industries.

Kamlana said that South Africa was ranked 31st out of 43 countries in the 2021 Mercer 13th Annual CFA Institute Global Pension Index Report. “This ranking gives South Africa a “C” grade using the adequacy, sustainability, and integrity criteria. The UK and Australia were rated a “B” and the Netherlands an “A”. The report classifies the South African retirement system as one with “good features, but also major risks and/or shortcomings”. A “C” in grading terms, means a relatively average or mediocre outcome. We should definitely aim higher, and it is not difficult to identify the areas of improvement in our system, which are preservation, coverage, and governance.”

“In this context, you would be aware of the work that the National Treasury has been doing with regard to the Two-Bucket System. The feedback we have received and seen across the spectrum has been overwhelmingly supportive of the proposed Two-Bucket system. As the FSCA, we also remain supportive of this important work done by the National Treasury, and we are of the view that it will yield improved outcomes for retirement savings in South Africa and assist in achieving a replacement ratio of at least 75% - given that only 6% of working South Africans are expected to retire comfortably, that is, with a 75% income replacement ratio.”

The importance of governance and leadership

On governance and leadership Kamlana had this to say “There is really no point in compelling South Africans to save for retirement and to preserve their savings if we are not able to build trust and confidence in the retirement savings sector by ensuring the highest levels of competence and integrity across the value chain of activities and responsibilities.  The calibre of leadership in these various spaces is absolutely important, everything turns on it. We need leaders who always put the interests of members first.”

Re-inforcing his point Kamlana was emphatic . “We need leaders who take care of the basic but important tasks of accurately calculating members’ benefits, keep correct and updated records of members, make a genuine attempt to trace members and to charge for their services fairly. Members of retirement funds deserve no less and we owe it to them and their families to ensure that they have decent savings to enter retirement with.  We should have this as a foundational preoccupation when we elect trustees and appoint service providers in order to ensure that we are entrusting the right people with these lifetime savings and treat them fairly.”

On sustainable investment, ESG and climate change

On the subject of sustainable finance the Commissioner was no less frank. “We should consider all the relevant risk factors that could possibly have a negative (or positive) impact on financial returns. ESG factoring does not mean that you ignore or relegate financial return to a secondary priority. It does not mean neglecting your fiduciary duty to members. It does not mean charitable investments. It just means Capital with a Conscience.”

Kamlana pointed out that South Africa has the largest carbon footprint amongst its G20 peers and asked delegates “without the environment, without the planet, we have no place to live and enjoy the privilege of being alive. The very same retirement that we are saving towards, could become meaningless. Who wants to retire in a wasteland?”

On this topic Kamlana felt that one positive from the Covid 19 pandemic was the reduction of pollution in major cities as a result of lockdown. “Leadership should learn from these experiences and decide on what the new work-life balance should look like. The new default could very possibly be hybrid arrangement enabling a combination of work from the office and remote working.”

On arrear contributions, transformation and debate

“As I have indicated earlier, Covid has had a major negative impact on many retirement funds. As the FSCA, we have tried to assist by reminding funds of rules which enable them, upon agreement between employees and employers, to reduce or suspend contributions during major shocks like the one we have just experienced. It is equally important to remind employers of the obligation they have to honour their commitments to contribute and pay-over deductions into their respective retirement funds in the absence of an agreement between employees and employers to the contrary. Failure to do so is a criminal offence in terms of the Pension Funds Act which can result in the management of a company being held personally liable.”

On transformation and inclusion Kamlana told delegates that in his opinion “they provide the value contours to help frame approaches to dealing with unfairness across the value chain of economic activities.  As such we should all stay the course and not relent in the face of doubt or fatigue and we should not pay lip service to it. We should also not just do it because of the need to tick the legislative box. Leadership is required to position transformation as a strategic imperative and a hearts and minds issue. I am, therefore, optimistic about the retirement funds industry having its own dedicated transformation scorecard very soon, with achievable and practical objectives and timelines. As the FSCA, we stand ready to assist the Financial Sector Transformation Council and all the partners in achieving this imperative.”

Kamlana concluded his address by saying “As for our part as the FSCA and its new leadership we are committed to working with you to navigate the challenges of the Covd19 period, to provide ethical leadership and a clear strategy towards the attainment of the objectives I have outlined above including – sustainability, good governance, and transformation. And ultimately to make inroads in terms of the broader policy objectives of preservation and coverage. To repeat myself, all of this turns on leadership. “