Gauteng Business News

Send  Share  RSS  Twitter  23 Oct 2012

PENSIONS: Avoid Fund Maladministration


Recent Gauteng Business News

Planning for retirement is a priority for most of us, but while we are aware of the need for pension and provident funds, most of us rely on our company or financial advisor to provide us with a choice that will meet our needs. However, this has opened both individuals and corporations to the risk of maladministration of the funds, leading to lost benefits and broken dreams for the investors.

David Brown, Managing Director of Profile Holdings, says that the onus is on accountants, payroll managers and financial advisors to ensure that pension and provident funds are managed correctly, that contributions are made properly, and that they meet all the legislative requirements. Speaking at the recent SAPA (South Africa Payroll Association) Annual Conference, Brown explained that the maladministration of pension and provident funds is often simply a matter of incorrect data, or incorrectly used data, and that, as a crucial link in the financial chain, Payroll and HR managers are in a good position to be able to identify and correct it.

“Historically, fund administrators used RFI as a means of calculation of contribution. This required that their system had the same calculation parameters as the payroll system, which in turn required that changes to the calculation on the payroll be synchronised with changes to the fund system. These two data sets always get out of sync,” he says. “Alternatively, fund administrators used a reconciliation method to affect changes only, which requires deft Excel skills on the part of the payroll administrator. If a change was missed, it was in effect wrong until the next change.”

He points out that the payroll calculates fund contributions from the RFI, but that RFI is not a standard value – in some cases it includes commissions, in others, a percentage of CTC, and in some cases full CTC. “The value used to calculate the contribution often not stored on the payroll system, and if it is stored, it is kept in a file that is not easily accessible,” Brown says. “Often, multiple percentages are applicable, depending on the EE level, and each rule is identifiable by a unique deduction code or sub-code. This is seldom – if ever – manually calculated and captured.”

The law requires a transparent view of the amount of contributions, split between member and employer, as well as an indication of any voluntary contributions paid. “Your payroll has calculated it perfectly, why should it be recalculated‘” Brown asks. He adds that payroll is the most audited system in the company, and that if the administrator considers the calculation to be incorrect, the issue lies with the calculation, not the value provided.

Brown suggests that employers should insist on receiving a detailed schedule of contributions, allocated by member, and insist that the payroll author store the RFI as used in the calculation of the contribution. “The overs and unders report does not cut it. Compare the post-EB update schedule with your payroll system and monitor and investigate variances. Split the risk contributions from the fund contributions and insist that the payroll system stores the salary used to calculate the risk elements. Most importantly, provide as much detail as possible to the EB administrator. If sufficient details are provided, there should be no excuse for shoddy administration.”

“Audit your EB administrator – it is your financial future they have in their hands. Ensure that they provide you with the information after the update and insist on an SLA regarding the accuracy of update. You are the client – you are entitled to know what they have done with the money,” Brown concludes.

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