1. D UTIES OF T RUSTEES Pension Act, 2011 RESERVE BANK OF MALAWI

2. RBM OUTLINE Pension Fund Appointment of Trustees Licensing of trustees Duties of trustees Restrictions on Trustee Key issues to note Other issues

3. RBM PENSION FUND Pension Act defines a pension fund as a pension scheme that is an indefinitely continuing trust. Trusts are generally governed by trustees. The office of a trustee comes with fiduciary duties. The law may prescribe additional duties over and above the traditional fiduciary duties.

4. RBM A PPOINTMENT OF T RUSTEES For restricted funds, the equal representation rule under Section 26 of the Act will govern the appointment of trustees for a pension fund. The employees within their fora will have to choose the trustees and same for the employer. Sec. 29 provides that the member representatives so appointed shall be removed only by the same procedure as by which they were appointed In need be, an independent trustee may be appointed but will not exercise voting powers. For unrestricted funds, the trustees will be appointed under the trust deed.

5. RBM A PPOINTMENT OF T RUSTEES C ONT ’ D Trustee to consent to appointment in writing - section 24 Umbrella funds and Unrestricted funds to have a single trustee-body corporate - section 25 Restricted funds to have a group of individual trustees.

6. RBM L ICENSING OF T RUSTEES Section 16 requires that all trustees must be licensed The trustees will be licensed in their individual capacity and not by virtue of holding a certain position or office. The fit and proper test is one of the licensing requirements that a trustees must satisfy

7. RBM L ICENSING OF T RUSTEES CONT ’ D The fit and proper test looks at the suitability of a person to act as a trustees and in brief examines:  Requisite experience  Qualification  Criminal record  Previous history e.g. bankruptcy or previous financial industry practice  Integrity The licensing requirements will be issues soon

8. RBM D UTIES OF A T RUSTEE Statutory Duties of the Trustee Board are to ensure that: A separate account in its books for each member is established and maintained- Section 11 This duty is normally delegated to fund administrators Establish and operate Advisory Committees (AC) for the fund. The AC has no authority beyond the Trustee except advisory In the event of a dispute between trustee and member, failure to take advise of the AC constitutes a breach of fiduciary duty to fund members

9. RBM D UTIES OF A T RUSTEE CONT ’ D That members of the fund are provided with fund information as soon as they become members ( read with definition of fund information in section 1) This is a statutory duty as well as an element of a duty to act in good faith on part of the pension fund. That contributions to a DC fund are timely allocated into the members accounts Sec. 61 and 62 makes provision that contributions should be made within 14 days Duty to ensure that administrators’ software and proper control systems are in place to facilitate compliance with this duty

10. RBM D UTIES OF A T RUSTEE … CONT ’ D That rules and operations of the fund are not in violation of legislation and directives. There are many statutes that are binding on the board of trustees, including common law principles and the Constitution That the fund is managed in accordance with its registered rules. Section 34 makes rules of the fund binding on the fund and its members and employers. Ensure that fund is managed in a transparent and fair manner

11. RBM D UTIES OF A T RUSTEE CONT ’ D Duty to protect/preserve fund assets To keep the money and other assets of the fund separate Duty of care, skill and diligence Same degree of care, skill and diligence as an ordinary prudent person will exercise in dealing with property of another whom the person felt morally bound to provide Duty to formulate an investment strategy Having regard to risk and return To discharge its existing and prospective liabilities

12. RBM D UTIES OF A T RUSTEE CONT ’ D Statutory duties Under section 70 & 71 Duty to investigate authenticity of nomination or revocation and currency. Anything fund does must be permitted by fund rules. Duty to investigate financial dependants at time of death Where there is no nomination or nomination is invalid Provide all parties opportunity to be heard

13. RBM D UTIES OF A T RUSTEE CONT ’ D Duty to make equitable payments to financial dependants Duty to hold benefits to a minor beneficiary in a separate account - trust Benefits not part of fund assets once due Trustee may pay parent or guardian to maintain the minor beneficiary Payments to minor beneficiary issues Two options of payments Direct payment upon reaching age of majority sec 71(4)(b) Installment payment to parent or guardian sec 71(4)(b)

14. RBM D UTIES OF A T RUSTEE … CONT ’ D If you deprive parent or guardian consider these factors: the amount of the benefit; the ability of the guardian to administer the moneys; the qualifications (or lack thereof) of the guardian to administer the moneys; and the benefit should be utilized in such a manner that it can provide for the minor until he or she attains the age of majority. Who can be deprived of right to administer benefits for minor? Prodigality-trait of spending extravagantly Insolvent-bankrupt Mental disability-mental disorder Incapable of managing his own affairs Best interest of the child should be primary consideration

15. RBM D UTIES OF A T RUSTEE CONT ’ D Duty to avoid conflict of interest A trustee must declare their interests in writing or otherwise to the board Must exercise their powers in loyalty to the members and not to their personal interest Duty to act impartially The board must not unfairly discriminate against members or beneficiaries Duty to formulate a complaints resolution mechanism Inquiries are properly considered and dealt with within 60 days

16. RBM R ESTRICTIONS ON T RUSTEE - SEC 43 Trustee is restricted from falling under the direction of any person. This provision is designed to ensure that a trustee is able to exercise independent discretion in his duties. Section 43 emphasizes the need for trustee to make independent decisions This means as a trustee you are not required to act in terms instructions from your employer or organized labor. Exceptions to section 43 A court ruling Directive by the Registrar A decision by the Appeals Committee set up section 78 of the FSA 2010

17. RBM R ESTRICTIONS OF T RUSTEE SEC 45 Trustee is prohibited from abdicating discretionary powers to another person. Trustee can delegate discretionary power if trustee retains control of the decision making (consent from trustee required before delegatee can act) Trustee may delegate discretionary powers if permitted by Registrar’s directives. This provision ensures that trustees must retain discretionary powers in the management and operation of the fund. For example discretion to pay death benefits under sec 71 can not be delegated to anyone by trustee

18. RBM R ESTRICTIONS ON T RUSTEE SEC 46 Fund rules must prohibit decisions from being made by the consent or approval of an employer only except where the decision: Increases the benefits or rates of benefits payable Would have effect of increasing costs to the employer is made to comply with a directive or Appeals Committee ruling Is Directives from the Registrar

19. RBM R ESTRICTIONS ON CHANGES TO F UND R ULES SEC 47 Fund rules can only be amended in following circumstances Consent by trustee Compliance with Directives Amendments must be approved to be valid. Fund rule amendment are deemed approved after 30 days, unless extended or approval is refused Trustee must notify Registrar of any rule amendment coming into effect

20. RBM RESTRICTIONS ON FINANCIAL ISSUES S EC 51-56 Shall not invest fund assets unless at arms length –Sec 51 Shall not acquire an employer asset as an asset of the fund- Sec 52 Shall not lend money of the fund or use fund assets to give any other financial assistance- Sec 53 Shall not knowingly acquire an asset from a member or an associate of a member except as authorized by the registrars directives – Sec 54 Shall not borrow money from the pension fund – sec 55 Fund assets of a pension fund shall not be invested outside Malawi – sec 56

21. RBM KEY ISSUES Trustee not to be paid a fee unless Independent trustee Body corporate Trustees to be indemnified out of fund assets in respect of a liability incurred while acting as a trustee or as an operator Trustees to be liable for failing to act honestly in matters concerning the fund intentionally or recklessly failing to exercise, in relation to a matter affecting the fund, the degree of care and diligence that a trustee or operator was required to exercise No person to victimize a trustee – section 79 Contravention is liability to an offense

22. RBM O THER ISSUES … CONT ’ D The fund to appoint a Principal Officer Must be approved by the Registrar Must be a fit and proper person in terms of Registrars directive May not be removed or change without prior approval Duties include but not limited Receive and process communications between the fund and other authorities concerning the fund Ensure implementation of decisions of the board of trustees Ensure that all legislatively required returns are submitted on time Responsible for all administrative functions in terms of the rules and legislation A Principal Officer is like a company Secretary

23. T HANK YOU