An end to EB fund maladministration
Pension and provident fund maladministration makes the news regularly, with repeated reports of blunders on the part of fund administrators and deliberate fraud in some instances. David Brown, Managing Director of Profile Holdings, says that the reasons for most of the inconsistencies and maladministration of these funds lie in historical requirements and inefficiencies.
“The current Act allows fund administrators to be as inefficient as they are, because it allows a 2.5% variance. Any variance is unacceptable, as far as I am concerned, when you’re talking about people’s hard-earned money just disappearing,” he says. “There is a fallacy in the fund environment that administrators need the contribution amount and income to calculate the contribution and allocate it to the member. The Act specifies that the employer must provide the information regarding salary and percentage of contribution OR sufficient information to identify the employee and their contribution. All past systems have been written around EB administrators having the correct information, and that has resulted in the situation we see today.”
Section 13 of the Act, Regulation 33, specifies that the Initial Contribution Statement shall have the full name, date of birth, ID number or employer pay number, or other means of identification, date of membership, pensionable emoluments of member and percentage or amount of contributions, split between member and employer as well as an indication of any voluntary contributions paid. These requirements were created when electronic information was limited. However, despite technological advancements, fund administrators are using the same inefficient systems.
“Historically, electronic information between systems was limited. Today, administrators are taking data and changing it into another format, so it is no longer the information that was given originally. When there is a need to be able to compare to the original data, it is difficult to do because of the changes in format. This has multiplied into the administration nightmare we are seeing today,” says Brown.
He adds that the comparison between what the employer provided and what the EB administrator provided to the employee has caused great concern, with some wanting to report these inconsistencies to the Financial Services Board. “There is a need to legislate EB administration, and we are in fact seeing the Board to request this legislation.”
For a start, Brown says that administrators must give the employer back an electronic picture each month of what was allocated, but that current EB administration leaves a lot to be desired. Brown explains that as result of enabling clients its system, Profile Holdings has provided their clients with new visibility into fund maladministration, causing many of them to start wanting to audit. However, many administrators are reluctant to provide the required information because they know it will show their incompetence.
“Our environment allows us to link third parties to the employer seamlessly through a common gateway. Since we link the employer to multiple third parties and vice-versa, EB maladministration becomes immediately apparent,” says Brown. “Past employee benefit information from administrators proving to be challenge, however, because if it is undervalued, the employer has to cough up the difference. Our system highlights these exceptions quickly and accurately, resulting in the embarrassment of a number of EB administrators that have realised that inconsistencies can no longer be hidden.”
Brown says that while many of the fancy systems out there claim to get the data 100% right, they don’t even get it 95% right. “They get it about 11% right. With a system like ours, everything is automated and all the calculations get done properly. Doing it this way, there is less administration on both sides and a guarantee of 100% accuracy.