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Financial Planning

The assembly line of pension fund administration

In 1908, Henry Ford conceived the idea of what would become the first mass-produced motor car: the Model T Ford. It was simple in its design and construction, and you could have it in whatever colour you wanted so long as it was black. In the beginning, it took around thirteen hours to assemble one motor car. Five years after production began, Ford was turning out one car every 90 seconds. Of course, the miracle was not so much the motor car, but rather the assembly line that built it.

Over the last two decades the retirement fund industry in South Africa has followed in the footsteps of Henry Ford and we have created, in the main, assembly line pension fund administration systems. Computerisation has both helped and hindered in this process. It has helped in that the essence of administration is encapsulated in the computer’s workings; it becomes easy to give an administrator an overview of how funds operate and then teach them the computer requirements that enable them to perform the task at hand. They become, to a large extent, button pushers – in most cases, efficient button pushers, but button pushers, nonetheless. To re-emphasise, they are taught how the system works and not how pension funds work. As a result of this, administrators are seldom taught to question what is input into the computer system. Likewise experience has shown that their immediate superiors are often just more efficient button pushers who, over the years, have learnt to delegate work. One often has to go quite far up the line of management to find complete understanding of the operation of pension funds and an understanding of the sometimes intricate relationships between the component parts of a fund. This skeletal knowledge of funds does not necessarily make the operators bad administrators in today’s context, but it can be extremely frustrating for clients who expect a broader understanding than that which they often receive. What is often found is that, in the same way as a mechanic who installed left back-doors on a Model T Ford did not have to know how the fuel system or suspension of the motor car operated, so, too the claims administrator may have no knowledge of risk underwriting or valuation requirements.

Yet, knowledge of all of the components of funds is so important in this vehicle called the retirement fund industry. Having seen the evolution of the retirement fund industry through the introduction of more and more sophisticated computerised administration systems, it can be seen that, in many ways, this has, in fact, hindered the administration process. In the 1980s, a great many functions were still done manually. There was, as a result, a greater emphasis on training staff to ensure that they had an understanding of how the component parts of administration all impacted on one another. Therefore the administrator – or clerk as they were then known – really understood the relationship between the various administration functions. This was marvellous as it helped to make the industry more interesting and more stimulating, and it certainly exposed more people to the varied nature of the retirement fund industry.

Today, we see many august bodies such as the Financial Services Board, the Institute for Retirement Funds, the Pension Lawyers’ Association and the Principal Officers’ Association (to name a few) calling for the need to train trustees and to educate members. Experience has shown, however, that there is reluctance from certain brokers, administrators and advisors for trustees and members to be trained. Is this because they are afraid of their own shortcomings being exposed?

To all who are stimulated by this industry and who believe that it should be something of value, I say, let us forget about training, but rather embark on an education process for all participants in the industry to ensure that the highest standards can be met and maintained. Let us forget about assembly line administration and become adherents to a fuller understanding of the entire production process when building this vehicle called a pension fund.

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