Editorial

Dear Reader: A necessary precedent


A necessary precedent

Many readers will no doubt be surprised, maybe even distressed, that our cover story puts Minister of Public Enterprises Pravin Gordhan, a key member of President Cyril Ramaphosa’s “save us from Zuma” circle, on the spot. He is undoubtedly competent, shows rare sophistication and intelligence and, like so many others, I have great appreciation for the public role he is now playing in our politics.

But, here I must immediately remind you that, throughout his career, Nelson Mandela repeatedly told his admiring supporters: “I am not a saint.”

Maybe that’s all Gordhan need do: admit he is not a saint; that he made a bad judgement call, influenced by his sense of loyalty to a long-standing friend, comrade and colleague when he approved his former deputy at SARS, Ivan Pillay’s early retirement with full benefits (acquired at the taxpayers’ expense) and his  immediate re-employment in his pre-retirement job with the same salary.

All might be forgiven. Just don’t persist in claiming it was normal practice.

On the evidence, Ivan Pillay’s “early retirement” was a sham retirement. As he was in receipt of a salary exceeding R2m a year at the time, it was not even driven by dire financial need. (Unless he has an expensive habit we don’t know about.) Explanations and justifications were contrived to fit the bill.

If it were to be accepted as a valid precedent, hordes of public servants will qualify for early retirement at huge expense to the fiscus. Unless, of course, this one case is to be distinguished from all others by the applicant’s closeness to the responsible minister – that is the real criterion, the real precedent being set. But then we may as well be back with Zuma.

Mr Gordhan, admit the error of judgement, apologise – and get Ivan Pillay to Pay Back The Money. Right now, that is the precedent that needs to be established. History will credit you with leading the way.

I would hope that is what minister Gordhan and comrade Pillay will do, because I, too, think he is a talent the government cannot afford to lose. Heaven knows, in current government circles, talent and skill are in short supply.

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Look what we’ve done!

So often readers bemoan the fact that Noseweek’s exposés get so little follow-up, almost as if they expect us to operate the police force, man the courts and govern the country. What we actually do best is simply to name and shame those who abuse their power in business, politics and the professions. So that they know that you know.

Which is not to say we don’t enjoy the moment when we do manage to provoke the miscreants and/or law-enforcement agencies into positive action.
 
Our story in last month’s issue that revealed how Old Mutual was “holding a gun to the heads” of its gold fund investors, did the trick.

Alerted to the story by reader Neville Stevens-Burt, we were able to report that, in effect, OM was manipulating their Gold Fund investors into sharing their handsome profits with OM’s poor-performing funds, where disenchanted investors are dropping out in droves.

As we predicted, at 08.42 on Monday 28 October, just days after Noseweek was published, Meryl Pick, “Investment Professional” at Old Mutual Equities sent a circular to clients stating: “The ballot results are in favour of closure of the Gold Fund [i.e. The vast majority of investors had not bothered to vote]. The Financial Sector Conduct Authority (FSCA) has the final say and we expect to hear their decision today.”

What Pick did not reveal is that only 15% of all investors voted. And 87% of those who bothered to vote, voted to retain the Gold Fund. But, as Noseweek had anticipated, the 85% of OM’s investors who did not bother to vote appeared easily to have won the day for OM: in terms of the rules, non-votes equal yes votes.

That same day, Noseweek reader David Melvill of Financial Hub wrote to the FSCA: “This appears more like fraud on the OM Gold Fund investors dressed up as product line simplification.

“Product providers should be required to treat their customers fairly. […] No [Gold Fund] participant would vote for its closure – otherwise they would long ago have moved their funds. Presumably the votes to close the fund came from [investors in other funds] OM controls. These votes should be excluded as there is a conflict of interest.”

Attached to his letter was a copy of the Noseweek article.

Old Mutual pressed on. On 29 October they confidently wrote to various financial advisors, saying: “We wish to inform you our Auditors have confirmed that investors have voted in favour of the amalgamation of the above 2 Old Mutual Unit Trust Funds into the Old Mutual Equity Fund. We believe that the formal FSCA approval is imminent and the funds will amalgamate on 31 October 2019.”

But at 12:07pm on 30 October, there was a sudden change in the weather: Kedibone Dikokwe, Divisional executive: Conduct of Business Supervision at the FSCA reported to brokers: “I had a discussion with OM regarding this amalgamation and OM is reconsidering its decision to amalgamate the portfolios. They will communicate their decision to the clients.”

Thirty minutes later, Melvill could write jubilantly to supporters: “I have just had a phone call from Shana Ebden, my OM Unit Trusts consultant. She told me Old Mutual has decided NOT to proceed with the Amalgamation of the Gold Fund. Yeah!”

Next day, Elize Botha, MD of Old Mutual Unit Trusts, conceded that, while the percentage of investors who voted was typically small, “the number of people who voted against the proposal was higher than we’ve seen in the past.

“Technically, the decision to close the fund was carried. However […] we always try to put clients at the epicentre of our thinking and with that in mind we decided to ask the FSCA to revoke our request to merge,” she said. “We wanted to take clients’ opinions into consideration, looking at the number who voted against.”
Hmm. And spurred on by that call from the FSCA?

• The Old Mutual Gold Fund is reported to have gained 111% over the past 12 months, making it comfortably the top-performing unit trust in South Africa for this period; the next-highest return being 31%.

Most of Old Mutual’s other funds are producing returns in low single digits, barely covering management fees.

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How has Nedbank just managed to quietly pocket R1.5 billion from its employees’ pension funds?


On 23 October Noseweek reader Aubrey Bezuibenhout wrote a very important letter to Mr Abel Sithole, Commissioner of the Financial Sector Conduct Authority (FSCA), raising his concerns about newly available information that suggests that the Nedbank banking group has, unannounced, recently appopriated a R1.5 billion “surplus” from its employees’ pension funds.

Mr Bezuidenhout is a former member of the Nedgroup Pension Fund and the Nedgroup Defined Contribution Pension Fund.

He got to know about the huge appropriation by the banking group from a friendly interview with the Chairman of the Nedgroup Pension Fund, Chris Pearce, that appeared in September in the group’s  in-house newsletter, On Pension.

Pearce had been a trustee of the pension fund for 21 years.  In his long reply to the question “Looking back, what were the challenges  which faced the fund?”, these two significant paragraphs caught our reader’s attention:
Pearce: “One of the early challenges faced by the fund was the Surplus Apportionment exercise that was required by the then FSB in terms of the new pension fund regulations. Thanks to the very good work done in the late 1990s… the surplus apportionment was regarded as completed and registered in 2004.”

And: “More recently another significant event was the transfer out of the Fund of a portion of the Employer Surplus Account. The trans-fer of R1.5 billion was made, but fortunately a significant balance of this account remains in the Fund.”

Prompted by this astounding bit of information, Bezuidenhout now wants to know from the FSCA: “In terms of which section/s and sub-section/s of the Pension Funds Act did the trustees implement the transfer?”

He went on: “The surplus apportionment scheme of the Nedgroup Pension Fund disclosed a Nil Surplus Apportionment on 1 November 2005. Please explain in detail in terms of the surplus apportionment legislation in the Pension Funds Act, how the Nedgroup Pension Fund, from a base of Nil, accumulated a massive employer surplus in order to transfer R1.5 billion to the employer with “a significant balance of this account remains in the Fund” per the article in On Pension. This wording implies is that the Employee Surplus Account is zero.

“It would appear to me that for the first time since the finalisation of the surplus apportionment exercises (in 2004), the Nedbank Group disclose in their audited annual financial statements for 2018 (in the notes on page 124) a Contribution Asset of R774,000,000.”

Nearly 20 years ago, back when Nedbank employees were persuaded to convert from defined benefit funds to defined contribution pension funds, the Trustees of the defined benefit funds, Nedbank Ltd (formerly Nedcor Bank Ltd) and ALL their advisers promoted the defined contribution funds on the basis that ALL the yields (realised and unrealised) would accrue and be allocated to the members of the two defined contribution funds. In his letter, Bezuidenhout observes: “It would appear that it was a planned misrepresentation of the facts and the future Nedbank plans, i.e. fraud.”

In the surplus apportionment disclosures on the FSCA website, both the Nedgroup Defined Contribution Provident Fund and the Nedgroup Defined Contribution Pension Fund are shown in surplus. It would now appear that the Nedbank Group Ltd has accounted for all or some of the surplus.

“Please explain (down to accounting entry level) in terms of the surplus apportionment provisions in the Pension Funds Act, how Nedbank Ltd or the Nedbank Group Ltd suddenly accumulated in their Employer Surplus Account the equivalent of supporting assets to the value of R774,000,000 as at 31 December 2018.

“I argue that the sudden disclosure by the Nedbank Group Ltd in their 2018 notes to their audited AFS is related to a ‘Process of Transfer’. International Financial Reporting Standard, IAS 19 only prescribes how to report something that has already happened according to different laws”.

“Therefore please disclose to us what is happening – or has already happened – to the Nedgroup Defined Contribution Provident Fund. For example, are the Trustees converting the fund to a new underwritten fund and is/was it the intention of the Trustees to close/liquidate the existing fund in order to transfer the surplus to the employer?

“Please keep in mind that the Principal Officer of the fund is an employee of Nedbank Ltd and is therefore subject to a conflict of interest.

“Finally, I have noticed that the Nedcor Provident Fund is not listed under Surplus and Nil Schemes on your website. Please advise what happened to the Nedcor Provident Fund? Did the trustees also transfer the members to another retirement fund and thereafter did the trustees transfer the balance in the Employer Surplus Account (if applicable) to Nedbank Ltd?

“I respectfully remind you […] it was never the intention of Section 22 of the Financial Services Board Act or Paia, or any other secrecy clauses in our legislation, to cover up malfeasance,” wrote Bezuidenhout.

And so say all of us! – The Editor

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