Remember Captain Bob, better known as Robert Maxwell, the British publisher who raided the pension funds of his newspaper and printing empire, to buy shares in those same companies and prop up the value of those shares.
Now lo and behold the same thing has happened here.
The Registrar of Pension Funds, André Swanepoel, has taken action against the CAF Pension Fund, whose chairman of the board of trustees is Laurie P Korsten, who also happens to be a major shareholder in the company.
This is the same Korsten who has been involved in various financial services companies and who headed a commission into the privatisation of government pension funds. This investigation was a waste of money because its recommendations were never implemented mainly because affected unions were not consulted.
The point is that if anyone should have known better it was Korsten.
But Korsten says he was not responsible for the investment although he told our sister publication, Business Report, that the buck stopped with him.
You bet the buck stops with you Mr Korsten. You were chairman of the board of trustees and my understanding of the legislation is that you could be in a lot of trouble if the fund members find themselves out of pocket.
You also ran the companies, AMK Technologies and its parent company Korfinans, to which about R29 million in unsecured, interest-free loans was made by the pension fund.
A few months ago Personal Finance published a list of pension funds that had not submitted their annual returns to the Registrar of Pension Funds for checking and approval.
Our advice was that members should keep a check on their pension fund, particularly if it is submitting late reports to the Registrar. We quoted André Swanepoel as saying that late reports were an early sign of trouble.
The fund that Korsten headed was supposed to submit reports by February last year. It was given an extension until November. Still no report. After being refused another extension, Korsten was more or less forced to confess all.
The fund has 286 contributing members and 66 pensioners.
Apart from placing the pension fund under a curator, the authorities should take a number of steps to ensure that there is no repetition. South Africa cannot afford to have even more pensioners relying on the state.
As a first step criminal charges should be brought for a contravention of the Pensions Act against all those responsible, regardless of whether the money is repaid or not.
As a second step the discretionary powers of the Registrar of Pensions to allow more than five percent of pension assets to be invested in a company that employs the fund members should be scrapped immediately. Preferably the five percent should be reduced to nil.
There are a few other things that should be considered:
* The advisability of asset management companies, which manage pension fund money, being permitted to invest pension fund monies in their own companies. It is scary to see how much pension fund money is invested by some of these managers in their own and associated companies. What is particularly perturbing is that many of these asset management companies have significant share option schemes for senior managers. The question is would these senior managers sell the shares a pension fund holds in their company or associated company when it could affect the price of that share? In other words the asset manager could personally lose by making a decision to sell the shares.
* It is all very well limiting share ownership by a pension fund in a company to five percent but there is no limit to the number of associate companies that can attract five percent of the pension fund assets. South Africa is an oddity in that pyramiding and cross holding of companies is permitted without restraint. The result is that share prices can be kept at artificial levels. It works like this: one company owns say one third of the shares of another company which in turn holds a third of the shares of that company. Nice and cosy and it keeps up the share price. Now some of these structures might involve five or more companies. Put five percent of a pension fund's money into each of the five interlinked companies and you no longer have five percent but 25 percent. Not a good idea to my mind. The very reason for the five percent rule is to diversify risk. By not restraining the placing of pension fund money in interlinked companies this risk is concentrated, particularly if the interlinked companies are in the same type of business.
If the authorities will not act it is up to you, the retirement fund member, to ask your fund for explanations and put pressure on your trustees.
Swanepoel says that other changes are in the pipeline. He says the five percent that pension funds are allowed to invest in companies which employ the pension fund members is not automatic. From now on when permission is granted there will be audits to ensure that the barrier is not transgressed. Swanepoel warns that action will be taken against future transgressors.