Alexander Forbes denies milking local pension funds
By Chamwe Kaira

Financial services group, Alexander Forbes, which is facing allegations of illegally earning interest on money it handles on behalf of pension funds, was this week maintaining that it was clean in the face of growing pressure that it bulked Namibian client accounts with South African pension fund money.

The group told the Economist that its Namibian client accounts are bulked locally and, as a result, its clients earn enhanced rates. However, given the size of local pension funds industry, the bank balances are smaller, hence the benefits are relatively less than those of South African clients. In South Africa, Alexander Forbes has been accused of lawfully plundering retirement fund savings through bulking. Alexander Forbes is the largest independent administrator of pension funds in Namibia. Debbie Kotzen, the head of group corporate affairs at Alexander Forbes, said the investigation by the Financial Services Board in South Africa relates to disclosure of fees earned for bulking accounts. “It is not relevant in Namibia as we did not earn a fee for negotiating the higher client interest rates,” said Kotzen in an email response to the Economist.

Explaining the bulking scheme, Alexander Forbes said it negotiates with banks to treat each individual retirement fund current account as part of a large group solely for the purpose of setting the interest rate that the bank will pay. The bank pays a higher interest rate based on the “bulk” of all accounts in the group than they would on the individual accounts, thus securing a better interest rate for each of the clients.
However, Alexander Forbes stands accused in South Africa of making secret profits by not disclosing to the pension funds that it was earning higher interest on the bulk accounts. Reports from South Africa say Alexander Forbes has been attempting to keep the scandal secret by reaching secret settlements, involving tens of millions of rands, with retirement funds that became aware of the bulking accounts. Last week, Alexander Forbes made a R17 million settlement with the Anglo Platinum (Amplats) pension fund in South Africa.

The Financial Advisory and Intermediary Services (FAIS) Act of South Africa forced Alexander Forbes to stop the secret profits scheme at the end of 2004. FAIS requires that all costs and fees, whether direct or indirect, be disclosed Kotzen said the practice of negotiating higher interest rates for the benefit of pensioners has been explained to Namibian clients, whom he said have benefited from the practice over the years.“There has been no need to disclose fees as no fees were ever earned,” said Kotzen adding that Alexander Forbes will continue enlightening the Namibia Financial Institutions Supervisory Authority (NAMFISA) on its business practices. Alexander Forbes said ,following receipt of legal advice, it started rolling out new service level agreements more than two years ago that disclosed the nature of the bulking arrangements and the fact that it received payment.

“After careful review of further legal advice, and considering the complexities of complying with new FAIS requirements, in September 2004 Alexander Forbes stopped receiving payment but ensured that the bulking arrangements continued for the full benefit of our clients,” said the group. Alexander Forbes said without bulking, individual retirement fund cheque accounts, on their own, attract zero or very little interest. The group said the higher interest rates are beneficial for clients, but are of particular benefit to smaller clients, whose cash amounts would normally only attract significantly lower interest rates or none at all.