03 Apr 2020

COVID-19 Impact on Retirements Funds

by Carlyle Field, Partner, Durban,
Practice Area(s): Pension & Employee Benefits |

The COVID-19 virus and the resultant national lockdown that took effect at midnight on Thursday, 26 March 2020, has had far-reaching implications for all citizens and sectors of South Africa and the retirement fund industry is no different. Not least of the concerns facing the industry has been the downward market movements that have negatively impacted the retirement fund savings of members. Many individuals and corporates that are involved in the industry (including boards of trustees, principal officers, participating employers, service providers and members) may not be aware that there have been developments arising on an almost daily basis during the past week of lockdown intended to address the impact of COVID-19 on the retirement fund industry. Some of the key developments include:

1. “Pension fund administration” has been specifically included as an Essential Service in terms of the Regulations issued in terms of the Disaster Management Act, 2002;

2. The FSCA (the retirement fund regulator) has issued two communications relating to the impact of COVID-19 on retirement funds:

2.1 FSCA Communication 11 of 2020 – in terms of which employers facing financial distress as a result of COVID-19 may be afforded relief in respect of the payment of contributions to the relevant fund/s in which they participate. The implementation of such relief may require changes to the rules of the relevant fund, which will require the approval of the relevant board of trustees and which the FSCA has stipulated would then have to be submitted urgently.

2.2 FSCA Communication 12 of 2020 – which sets out the FSCA’s expectations of regulated entities on account of the impact of COVID-19.  Boards of trustees of retirement funds have been encouraged to “clearly communicate COVID-19 developments and risk management strategies to fund members, to promote calm and minimise the risk of premature fund withdrawals”.  The communication also sets out other general expectations in relation to retirement funds and all other regulated entities, such as that customers must be treated fairly with increased “empathy, flexibility and understanding” during this period, the mitigation of risks that may impact on business continuity and the importance of clear and continuous communication to stakeholders

3. Market movements arising from COVID-19 may result in asset class breaches of Regulation 28 to the Pension Funds Act, 1956, for certain funds, which may necessitate disclosure of the breach being made to the FSCA.

All industry stakeholders are recommended to carefully consider what steps they should be taking in order to protect their funds and members and to remain legally compliant through these unprecedented and challenging times.  Please feel free to contact us should you require any further guidance in respect of any of these issues.