Small pension funds struggle with costly FIMA compliance

Small pension schemes are confronting a new reality: the cost of meeting FIMA can erode the economic viability of the plan and its members.

Regulatory demands on small schemes

FIMA was introduced to tighten governance, improve member protection, enforce risk management and raise accountability. The legislation itself is widely accepted; the issue is whether the expense of implementing its provisions falls disproportionately on smaller entities.

Unlike larger counterparts, a modest scheme does not benefit from economies of scale. It may have to satisfy the same legal duties while operating with a fraction of the membership and asset base.

The board’s role has expanded beyond attending meetings and signing off documents. Trustees are now expected to provide substantive oversight of governance, risk profile, service-provider arrangements and ongoing compliance.

Section 271 of the Act requires scheme rules to comply with FIMA and matters prescribed in regulations or standards, and subsection (5) requires members and beneficiaries to receive the fund rules.

Beyond the Act, NAMFISA’s framework adds standards on fit-and-proper criteria, outsourcing, codes of conduct and retirement-plan governance, creating a layered regulatory architecture.

In practice, trustees increasingly need to understand not only what the fund does, but whether it has the policies, systems, controls and evidence to demonstrate that it is doing it properly.

A fund may need appropriately documented governance arrangements, risk-management processes, conflicts-of-interest controls, outsourcing arrangements, conduct frameworks, compliance monitoring, information and communication processes, business-continuity arrangements and appropriate record keeping.

The retirement fund annual report framework requires reporting on matters such as board activities, meetings, service provider interactions, governance practices, administrative changes, legal actions and rule amendments.

Large schemes can allocate these tasks to dedicated internal teams. In a small scheme, the same workload often rests on the shoulders of the board, the principal officer and external advisers.

While larger organisations can spread compliance duties, smaller plans must decide whether to share functions, streamline processes or outsource without compromising governance standards.

Rising compliance expenses

Section 374 requires, among other things, proper records, secure and continuous fund and member data backups, adequately trained staff, defined compliance procedures, adequate financial resources, monthly reporting to the board and the provision of information to NAMFISA when requested.

Each of these obligations carries a price tag. Actuarial calculations, external audits, legal counsel, compliance monitoring, technology upgrades, cybersecurity measures and system maintenance all generate additional outlays.

Professional service providers are already adjusting their contracts. Administrators, consultants, actuaries and other advisers have begun submitting fee-increase proposals linked directly to the new regulatory requirements.

These higher expenses translate into lower net returns for members. Every dollar spent on governance or compliance is a dollar that cannot be invested for retirement, potentially reducing long-term savings growth.

Considering structural options

Evaluating whether to maintain an autonomous scheme or join a larger umbrella arrangement has become a central discussion point for trustees.

Assessing long-term viability

When a fund’s expense ratio approaches levels that significantly erode investment returns, trustees should consider whether costs remain proportionate and deliver value.