Trustees of beneficiary funds are sometimes required to assist in saving the family home from being sold in execution by a bank by using a portion of the funds held in a minor member’s account.

These decisions are often complicated and carry huge responsibility and liability if not handled correctly and promptly, and are often very emotional where the family is concerned.

When making such a decision, Trustees need to be as objective as possible and base their decision on what is in the best interest of the minor member of the beneficiary fund, for whom they carry a fiduciary responsibility.

The scenario usually facing the Trustees occurs when the late member of the retirement fund had purchased an immovable property, subject to a mortgage bond registered over the property. At the time of the member’s death, an outstanding balance is still due on the mortgage bond, and there is no or insufficient insurance cover to pay off the remainder of the mortgage bond liability. The outstanding balance of the mortgage bond becomes a liability in the deceased member’s personal estate.

The Executor or family members of the deceased member’s estate usually approach the Board of Trustees of the beneficiary fund to financially assist the estate of the deceased member to settle the outstanding mortgage bond over the property, in order not to have to sell the family’s home.

One of the primary objectives of the beneficiary fund is to maintain and educate (both primary and tertiary education) the minor member until age of majority. However, Trustees also recognise that it is in the interests of the minor to have a stable and secure home in which to live, and to be cared for by a guardian/caregiver who is not under undue financial stress due to the loss of the family home. The Trustees need to balance these various interests when deciding whether and to what extent to use a portion of the funds in the member’s account to save the family home.

General factors to take into account

• Is the minor member the sole beneficiary to inherit the immovable property in terms of the Will or intestate succession of the deceased member?
• Will the minor member benefit from saving the family home? If for example the property is registered in the surviving spouse’s name, is there a possibility that the minor will ultimately inherit the property on their natural guardian’s death?
• How many people live in the home and who will benefit from saving the property?
• Can the other people who benefit also contribute, and if so by how much?
• Does the minor member actually live in the home, or do they live somewhere else (e.g. with another family member)?
• What is the current market value of the immovable property? This is to ensure that the property has economic value as well as the value of having a home, to the minor member, and is worth retaining for the minor member.
• What is the age of the minor member? How much benefit will the minor member derive from living in the house? For example, where the minor member is older, the benefit may be diminished compared to when they are younger.

In addition to the above general factors, Trustees need to consider in detail the specific circumstances on a case-by-case basis. For example, if the estate of the deceased member is bequeathed to their surviving spouse/natural guardian either through testate or intestate succession, then the Trustees should ascertain the following:

• Whether the surviving spouse/natural guardian is working and can afford to take over the monthly mortgage bond instalments themselves together with the conveyancing costs to transfer the property into their name. If yes, then the mortgage bond can be cancelled and a new mortgage bond registered in their name. In this case they may need financial assistance from the funds in the minor member’s account of the beneficiary fund to pay for the conveyancing costs.
• Where the surviving spouse/natural guardian is not in a financial position to service the monthly mortgage bond instalments, the amount due on the mortgage bond account and the current market value of the property is required to assess if the property has sufficient “equity”, i.e. that it is an asset worth saving.
• The value of the funds in the minor member’s account within the beneficiary fund, and whether the minor has siblings who also have member accounts in the beneficiary fund, and whether their funds can also be considered in the circumstances.
• The ages of the minor members and what each would require financially to meet their educational (primary and tertiary) and maintenance requirements until they reach majority.

Where it is clear that the minor has surplus funds (i.e. the primary objectives of the beneficiary fund have been or can be met) then the Trustees can consider one of the following options depending on the relevant circumstances in each case:

Settle the outstanding balance on the bond

This could occur in circumstances where the outstanding balance due on the bond is not that large. The Trustees can consider if it is reasonable in the circumstances to pay off the mortgage bond. Where appropriate and subject to whether the surviving spouse/natural guardian can afford it, the latter could be responsible for paying all monthly running costs and expenses of the immovable property. This scenario may be suitable where the minor member is young and will live in the home for many years until attaining majority.

Settle the outstanding balance of the bond, subject to the condition that a percentage of the property is registered into the minor member’s name.

This scenario can occur where there are sufficient funds in the minor member’s account, but the outstanding portion of the bond is quite large. In these situations, the Trustees should consider negotiating with the surviving spouse /natural guardian, that the minor member receives a percentage stake in the property and that this stake is registered against the title deeds of the property in the Deeds Registry.

In situations where the funds in the minor member’s account are large enough, and depending on the specific circumstances of each case, the Trustees may deem it appropriate for an amount to be paid from the minor member’s account toward the monthly running expenses of the property.

A minor member’s interest in an immovable property is protected from alienation or from being mortgaged by a natural guardian if it exceeds R100 000 if registered in the Deed’s Registry. A natural guardian would require the permission of the Master or the Court to alienate or mortgage any immovable property of a minor. The Trustees can therefore take comfort that some protection is afforded to the minor member in these situations (this is in terms of Section 80 of the Administration of Estates Act 66 of 1965).

Sell the property to repay the outstanding amount due on the bond

This scenario usually occurs where the surviving spouse/natural guardian is unemployed and has little hope of obtaining employment that can support the monthly running expenses of the property. The funds held in the minor member’s account are not sufficient to cover the primary objectives of the beneficiary fund for the minor member, nor pay for the monthly running expenses of the immovable property and /or monthly mortgage bond instalments. In these circumstances, the Trustees may recommend that the property be sold to repay the mortgage bond of the deceased member.

Further, in situations where there is insufficient “equity” in the property to repay the mortgage bond and the surviving spouse/natural guardian is unemployed, then it may be a suitable option to have the deceased member’s estate declared insolvent. The Trustees’ responsibility in such a situation will be to protect the minor member’s account assets from being misused by supporting a situation that is hopeless from the start.

Register the bond in the name of the surviving spouse/natural guardian

Where the minor member’s funds are sufficient, it may be appropriate for the Trustees to agree to pay or contribute to the monthly mortgage bond instalments in instances where the surviving spouse/guardian can afford to provide for the other monthly expenses of the property.

The age of the minor member is relevant

Minor members may not necessarily wish to be tied into a property deal, from which they will find it very difficult to extract themselves from in the future, should they so choose. For example, where due to the Trustee decision, the minor member now owns a 20% or 40% stake in the family’s property, they will have a financial commitment to the property (up to their percentage of ownership) into the future or until the property is sold, either in its entirety or they sell their portion. This could be quite an onerous burden on the member, especially if they wish to be independent of the family once they attain majority, or have other immediate financial priorities.

Where there are sufficient funds in the minor member’s account and the member is 16 or 17 years old, the Trustees should consider taking the minor member’s opinion into account as to whether they would like to invest a portion of their member account funds into the family’s property, although the Trustees are clearly not bound by this opinion.

In conclusion, the decision whether to use minor members’ funds towards saving a family home is not an easy one. Trustees need to consult in depth, obtain all relevant information and documentation and use their utmost discretion. This is another example of the huge responsibility Trustees have in fulfilling their fiduciary duty to minor members of beneficiary funds.

As we enter the second half of the year and reflect on the past six months, it is apparent that the world is still grappling with an economic crisis.

Reality has set in and although there are some signs of hope, economically we all understand that it will be a long journey. We have for the first time invited RisCura Consulting to provide us with a market commentary in Fairheads Times to assist in obtaining a better perspective of economic conditions. We thank them for their contribution and hope to make this a more regular feature.

At Fairheads it’s been business as usual and we continue to focus on communicating to our membership and service delivery. Robyn Cowie’s article on “Trustees’ Dilemma” gives insight into the complexity of some of the trustees’ decisions that are required on a regular basis. The provision of services to beneficiary funds is particularly complex if one wishes to provide a personalised and superior service. We have complex adhoc payment policies which endeavour to manage payments to members to ensure that the member’s benefits are maximised and to ensure that funds are not depleted unnecessarily.

Our guardian roadshows will once again commence in August under the expertise and stewardship of Olefile Moea and we hope to offer a more efficient and improved experience to our members and guardians as we constantly strive to improve the communication and contact with them.

As always feedback on any issue relating to our service is most welcome and appreciated.

As South Africa battles through the numerous challenges it faces in educating children, organisations such as Fairheads have to not only ensure we understand the cultural diversity of our clients but also take into consideration their education levels.

The journey begins on the very first day a child steps into a classroom. For some, this opportunity unfortunately never arises or only materialises later. For others, the journey ends even before the completion of grade 12. Of the 1 150 637 learners who began school in 2001, only 551 837 (48%) sat down to write the final matric examinations in 2012. 74% of the 48% actually acquired a matric certificate in 2012, with only 27% of those pupils achieving university exemption status. Statistics reveal that nine million South African adults are not functionally literate today.

The funds held in a trust or beneficiary fund are paramount to ensuring that minor beneficiaries and members at least obtain basic education. If there are sufficient funds available, these can assist a beneficiary or member with obtaining a tertiary qualification. Staying abreast of developments in the education arena not only helps us to understand the challenges our beneficiaries and members face in their years of schooling, but also helps us to understand the future direction in which education and particularly language proficiency are headed.

Additional language policy

In 2012 English was introduced as a compulsory first additional language in all African language speaking schools. An additional policy has been proposed for introduction in 2014 mandating the learning of an African language in all schools. The Minister of Basic Education, Ms Angie Motshekga, believes that a good grounding in a learner’s home language is essential. This new policy has generated much debate amongst various educational institutions, including the Federation of Governing Bodies of South African Schools. Chief Executive Paul Colditz said that “in principle, the federation supported the idea of multilingualism as it improved pupils’ abilities to communicate effectively. Implementing the policy, though, does not seem feasible.” Colditz feels that the current curriculum does not allow for the introduction of a third language, as there would not be sufficient teaching time. The other issue Colditz mentions is the availability of teachers. For a new subject to be introduced, each school would need at least two new teachers to teach it, which means approximately 50 000 new teachers.

The findings of the National Report 2012 by the National Education Evaluation and Development Unit (Needu) revealed that schools’ governing bodies, even those in deep rural areas, were opting to use English as a language of learning and teaching (LOLT). The report concedes that “learners whose home language was different to the school’s LOLT found it difficult to understand their teachers. This also made it difficult for their parents and guardians to assist them with homework.” This, however, doesn’t stop these parents and guardians from insisting that their children be taught in English. The report also revealed that a school in the Eastern Cape – one of the 133 primary schools visited for this section of the Needu report – justified its use of English as a LOLT on the grounds that parents were demanding it and were threatening to remove their children from the school if their demands weren’t met. Another school in Mpumalanga said it was phasing out mother tongue instruction in grades 1 to 3 because of the difficulties pupils had with the sudden switch to English in Grade 4. This phenomenon was illustrated by the 2011 Annual National Assessment results, where there was a sudden drop in scores from Grade 3 to Grade 4 pupils. This is what prompted the department to mandate that schools offer English as an additional language from Grade 1 so that pupils can easily transcend to English medium schooling from Grade 4 onwards.

So not only are children having difficulties in completing basic education, but the preferred language of learning and teaching seems to be English. Will the introduction of a new African language policy change this? How will the literacy levels improve and will the vernacular languages still be so prevalent in years to come? How will this affect the way we communicate with our clients in years to come?

Our approach

Fairheads will monitor policy developments, but in the meantime we continue to see great value in communicating with our clients in the language of their choice. This not only provides clients with a better understanding of our processes and procedures, but also enables them to relate to us at a level that would not have been possible in a language that was not their preferred language. Different cultures have their own set of nuances that can only be understood once you have knowledge of these, which includes understanding the language. Vernacular language proficiency is essential when recruiting new employees who service our clients. Our call centre is able to communicate with clients in all 11 official languages. If a call is received and the number used by the caller is the one recorded in our data base for that caller, the caller is immediately identified and their call is diverted to an agent who can speak their language. We are also in the process of introducing client satisfaction surveys for clients to complete in their preferred language. Written communication caters for multiple vernacular languages. We are able to translate documents and correspondence received from our clients written in their preferred language. Face to face contact is also a very effective medium of communication, and the presentations conducted at our annual guardian roadshows are done in two languages, those which are most prevalent in the region.

Illustrative and audio mediums of communication are some of the innovative ideas that we are exploring in an attempt to bridge the literacy and language barriers that we foresee will still be evident in the coming years. It remains critical to find innovative ways of communicating with our clients. Understanding the environment we operate in is important, as is staying in touch with language policy developments in the field.

Fairheads Benefit Services is running a five-part series on beneficiary funds in The Sowetan. This is an educational series aimed at educating the public and our members about beneficiary funds and answering some frequently asked questions. If you would like to read the series,please visit the

07 May 2013 - What a beneficiary fund is and other common questions

21 May 2013 - The roles of the different players in a beneficiary fun

04 June 2013 - How the monthly payments system works

18 June 2031 - Common questions about the beneficiary funds answered

02 July 2013 - Where to go for help and guiding children about their beneficiary funds

RisCura act as asset consultants to Fairheads Benefit Services and helped us to devise our unique asset allocation process for beneficiary funds. This is an edited version of their market commentary at 30 June.

SUMMARY

Markets were overextended after the prolonged rally in the past few months, so the correction in June was overdue. It is poignant to note that markets began to recover quickly towards the end of June as fear of rising interest rates started to abate. However, it is equally important to note how sensitive markets are to interest rate rises. This has major negative implications for financial markets when central banks want to start unwinding their quantitative easing programmes. While central banks will prefer to let rates remain low for the time being and rise slowly in any economic recovery, the markets will likely react swiftly and sharply again to any interest rate rise, creating significant policy risk. This also has major implications for the US dollar, especially versus emerging market currencies. The global chase for yield led to emerging market debt and currencies becoming popular asset classes, leading to overvaluation of many emerging market currencies and financial markets. A rising US dollar could cause the opposite to occur.

WORLD TOUR OF MARKETS

June saw a dramatic collapse in equity markets after what had been their longest winning streak since the beginning of 2011. The biggest news was confirmation from the Federal Reserve that it is considering tapering its QE3 quantitative easing programme. This programme has provided the ample liquidity that has fuelled the market rally since last November. The world was also hit by news of a rapidly unwinding Chinese credit bubble and large popular protests in Brazil, Egypt and Turkey, all of which sapped market confidence. The MSCI World Index fell sharply before recovering in the last week of June, when central banks reassured markets that they will maintain easy money policies, to end the month down -2.6% (still up +7.1% YTD).

The potential “Great Rotation” by investors from bonds into equities may have begun; in the least, fixed income investors are beginning to realise that the yield compression that has been so beneficial for their portfolios over the past 30 years may finally be coming to an end. This was exemplified by PIMCO Total Return, the world’s largest fixed income mutual fund that suffered record redemptions of $9.9bn in June.

Market fears of a reversal of quantitative easing, rising developed market yields and the bias towards resources hurt sentiment in South African markets in June. The JSE All-Share index was down -5.7%, although the rand was up +1.6% but still down -14.7% YTD.

The other major news in Africa was the mass protests against President Mohamed Morsi’s government in Egypt. It is refreshing that the Arab Spring in Egypt has focussed on the government’s poor provision of services and bad economic policies rather than pursuing a sectarian agenda. Egypt’s market was down -12.3% for the month due to the instability, but rallied when Morsi was subsequently removed in July.

In Asia, the People’s Bank of China declined to inject liquidity into China’s financial system despite a rapidly slowing economy. The central bank is trying to burst the credit bubble partially created by the massive stimulus measures and credit easing implemented in 2008. Private debt levels in China are now at all-time highs. Unfortunately, the lack of liquidity has resulted in a credit crunch, causing money market rates to more than double over the past two months. The central bank had to reverse course in mid-June to stabilise the financial system. Nevertheless, the Shanghai Composite was pummelled, down -14.0% in June, as the economy slowed much more quickly than the market had anticipated. The government is intentionally causing a slowdown in investment to push the transition to greater consumption. Unfortunately, this process is not easy and entails a lot of “policy” risk.

Further east, the Bank of Japan rattled investors by deciding not to unleash any fresh stimulus despite bond yields rising. This followed on disappointing economic reforms announced by Prime Minister Shinzo Abe, which were much less bold than had been hoped. However, the market seems to believe that there will be stronger reforms in July after the upper house parliamentary elections, which Abe’s party is expected to win. After falling very sharply in May and early June, the Nikkei is now recovering, though it still ended June down -0.7% (but is up +31.6% YTD).

Russia posted an annualised growth rate of 1.6% for the first quarter of this year, compared to 3.6% in 2012 and a 7% average during much of the last decade. The country lost 300 000 private sector jobs between 2008 and 2012 while the government added 1.1million; the state now employs 18million people (25% of the workforce, higher than France). This has pushed the government into persistent budget deficits despite a commodities boom. While the country could devalue its currency to make itself more competitive, this would likely drive the country’s already high inflation rate of 7.4% even higher. The MICEX Index is the cheapest in the world and now even cheaper than Pakistan.

The European Union and the US agreed to start talks on a free trade agreement between the two economies in what would be the largest free trade pact since the Uruguay Round of the World Trade Organisation (WTO). However, the deadline to complete negotiations in two years is ambitious, and the talks will aim to reduce tariffs and barriers on contentious goods and services, which had been excluded from previous trade initiatives. The EU’s reform and financial healing process will continue to be difficult for the foreseeable future, and the rise in interest rates in June had a highly negative effect. All major European markets were down significantly, with the FTSE 100, DAX 30 and CAC 40 down -5.6%, -4.7% and -5.3%, respectively.

In Latin America, Brazil scrapped a tax on foreign investment in bonds that had been implemented to staunch the flow of “hot” money, which had previously caused the real currency to appreciate. However, the country’s economic slowdown is starting to cause unrest amongst a population, which has benefited from an economic boom stretching over 10 years. Protests erupted across more than a dozen cities throughout the country as people took to the streets to demonstrate against a bus fare rise. Brazil has been consistently one of the poorest performing countries this year, with the Bovespa down -11.3% in June (and down -22.1% YTD) as the country fights a slowing economy, high inflation and a high current account deficit.

In the US, the most important news for the month was Federal Reserve Chairman Ben Bernanke indicating that the Fed will start tapering its quantitative easing programme in the fall of this year with the aim of stopping purchases by mid-2014 (although it will not sell the securities that it had previously bought). Financial markets effectively fell off a cliff, with bond yields soaring and the S&P 500 down sharply; the damage spread globally, especially to emerging markets that had benefitted from loose monetary policy in developed countries. However, economic data in the latter part of June generally came in under forecast; this had the perverse effect of causing a rally, as the market wagered that the Federal Reserve will have difficulty tapering quantitative easing while the economic recovery remained weak. The Fed in any case clarified its remarks by saying that it still intends to continue with loose monetary policy through 2015. As a result, markets recovered overall, and the S&P 500 was only down -1.5% for June. The US dollar also appreciated against most currencies as the market repriced for higher yields in the US. As the main economy where growth is actually accelerating, it is difficult to envisage the US market declining in the medium term.

Read the complete commentary on RisCura.com

Planning for the 2013 Fairheads Guardian Roadshow is well underway, and the excitement is mounting as the launch date for this year’s nationwide Fairheads Benefit Services guardian and member outreach draws near. This fourth consecutive roadshow initiative is scheduled to commence on 16 August, and will run until 30 November this year. – by Olefile Moea (Fairheads Guardian Roadshow Steering Committee)

The project will stretch over 15 weeks, covering 26 venues across 9 regions, with the ultimate aim to increase the reach among guardians, caregivers, members and beneficiaries year on year. Originally introduced as an enhanced member communication intervention on the back of the PF130 requirement, this large-scale annual initiative has evolved since its inception in 2010, and has firmly established itself on the Fairheads member communications agenda. Not only has it become a strategic business imperative, but it is also a critical and much anticipated annual engagement platform through which we communicate the essence of our Fairheads Benefit Services offering to those who directly benefit from it.

With the continued support of our partners, Fairheads has made significant inroads into fostering meaningful relationships with our guardians and beneficiaries over the past three years.

Every year this most critical – and probably most intricate – element of the roadshow focusses on the relationship between the Employer, the Fund Administrator and Fairheads. In our experience, these face-to-face engagements, within an amicable and non-threatening community environment, as well as with the physical brand presence, has created a unique environment in which to explain the role of the various stakeholders. We have already seen a vast improvement in the level of trust and understanding that has been created through these roadshows, and we look forward to building forth on that.

As the reach and scope of the roadshow expands every year, so do the challenges. The sheer logistics of such an extensive intervention requires meticulous planning, budgeting and seamless and cost-effective execution. After three years in the field, the team is determined to be fully prepared for any eventuality – from treacherous roads and non-existing infrastructure, strained electricity supply and dodgy wireless connectivity to unexpectedly high attendance levels.

However, key to the success of the initiative has always been the team’s dexterity – their ability to improvise and to remain committed to delivering a superior service and achieving the objectives despite the unpredictable. At the end of each year’s roadshow the team carefully interrogates their experiences and key learnings. This helps us in our forward planning, ensuring that we continuously improve on our value added offering to our members, while at the same time leveraging the engagement opportunity to derive maximum benefit from a business systems and processes perspective.

To this end, the team will be focussing on the following core areas:

We are trying to reach as many guardians and members as possible in advance to notify them of the upcoming events. We are doing this via a number a communication channels, such as direct mail, SMS and advertising in local media.

A more streamlined onsite registration and information gathering process will be introduced in order capture as much data, and as effectively as possible.

Our team of roadshow support staff members are currently receiving training to ensure that they are fully equipped to share information effectively, and to address our clients’ queries successfully. Training objectives include enhancing the team members’ proficiency in presentation and interpersonal communication skills, product and process knowledge, as well as their client service competencies. The Fairheads Roadshow team looks forward to the 2013 engagement with our members. We firmly believe that this initiative fosters and builds forth on the trust relationship that has been established during the event in previous years.

We thank our partners for their continued support and encouragement.