MCPF: A Progressive Councillors Fund

The Municipal Councillors Pension Fund is an autonomous body exclusively designed to cater for Municipal Councillors. All municipalities can participate in the Fund, and contributions are made in accordance with the MCPF Fund Rules in conjunction with the Pension Fund Act and subsequent government notices. Member contributions are invested in a diversified portfolio to ensure members’ retirement savings grow as much as possible. The Fund invests in different asset classes such as cash, bonds, property, and international investments.

We spoke to (Acting) Principal Officer and Company Secretary, Mr Elias Msiza, about the Fund, its investment strategy that garners maximum returns, and the Funds investment philosophy to provide members with the best possible benefits on retirement.

Can you please provide us with an overview of the Fund, focussing on its membership requirements, and how it is managed?

EM: The Municipal Councillors Pension Fund (MCPF) was established on 1 May 1988 in terms of the Pension Benefits for Councillors of Local Authorities Act 105 of 1987. On 1 December 2000, the Fund was restructured to a Defined Contribution Umbrella Fund that caters specifically and exclusively for councillors of all South African municipalities. All councillors of participating municipalities, irrespective of their age and political affiliation, are entitled or permitted to become members of the Fund. The Fund has been in existence and catering for the retirement needs of councillors for 34 years. Our vision of providing a reliable and sustainable Fund for our members, as well as our mission to provide members with the best possible benefits that give them the maximum return on investments through the management of the financial contributions of municipalities and members, has always been the driving force of the Fund. Currently, 60% of all councillors in South Africa belong to the Fund. This equates to an amount of 5 600 members, and a majority of the market share in local government. This shows the confidence that councillors have shown over the years in the value that MCPF investments deliver.

The MCPF is also highly recognised by the employer body, the South African Local Government Association (SALGA), and in terms of the Rules it is managed by its members through their nominated representatives from all nine provinces. The Board is constituted by 13 trustees – one from each province, one trustee from SALGA, two independent trustees, and the Principal Officer.

As of December 2017, through the intervention of the Financial Services Board (FSCA), the Fund is being managed by Curators whose sole responsibility is to rectify governancerelated challenges that were experienced by the Fund.

Please elaborate on retirement payouts and how you ensure that the Fund remains sustainable.

EM: MCPF membership is dependent on our member councillor’s term of office. As we know, political office in South Africa is limited to five years, and every five years the Fund experiences significant outflows as a result of members who have not been re-elected. The Fund’s investment strategy is therefore crafted to allow liquidity, and this enables us to make payments due to members who are not re-elected.

Our investment philosophy is to provide members with a benefit at retirement that is sufficient to maintain their standard of living after retirement. Consistent with the purpose of the Fund, the investment philosophy focuses on targeting a good investment return relative to inflation over the medium to long term. The value of the asset fund currently stands at over R2,6 billion.

And how does the MCPF compare in terms of costs, benefits and performance to other pension funds?

EM: We take pride in our competitive administration costs, which saw the Fund recently making marked improvement to the funeral cover. This improvement resulted in doubling the amount of funeral cover at no additional cost to members.

The MCPF is self-administered, and this allows the staff to take full responsibility in servicing members efficiently and diligently. One of the positive impacts of this is the significantly reduced turnaround time in paying out members’ benefits. There are no shareholders and this translates to all returns from investments being shared amongst members.

Various benefits are offered by the Fund to its members. Can you elaborate on these benefits?

EM: The Fund provides its members with retirement benefits, death claim benefits – which are payable to the beneficiaries of the member in the unfortunate event of his or her death – funeral cover benefits, disability benefits, and pension-backed housing loan guarantees.

Active members are entitled to the value of their member share when they retire, resign, are dismissed, or are retrenched. They are also entitled to death, disability and funeral cover benefits.

Deferred members (these are former councillors who were previously members of the Fund and on ceasing to be councillors decided to preserve their benefits and remain in the Fund) continue to grow their member share with net Fund returns until they decide to withdraw from the Fund or retire. A deferred pensioner is a non-contributing member, and is not entitled to death, disability, and funeral cover benefits. There’s also Beneficiary Trust Members, who are beneficiaries of deceased members. Their benefits consist of their proportion of the deceased member’s share plus a lump sum death benefit. They are not entitled to death and disability benefits, however, beneficiaries who are spouses or children of the deceased member, are entitled to funeral cover.

How is the Fund improving lives? Please provide examples of the differences you have made to the lives of members of the MCPF.

Preparing for a presentation with MCPF members

EM: Even though the Fund is not a Financial Services Provider (FSP), we have partnered with Standard Bank to provide pension-backed housing loan guarantees that will enable qualifying councillors to have access to decent homes.

We also continue to trace and reach out to Beneficiary Trust Members, so that they can access the benefits they are entitled to.

What are your thoughts on the proposal for rationalisation/ restructuring and/or consolidation of the Municipal Councillors Pension Fund and potential consolidation and amalgamation with the Public Office Bearers?

EM: The rationale behind this proposed amalgamation is to bring equitability in the remuneration dispensation of all political office bearers across all three spheres of government. Our members believe that there is a significant divide in the benefits of political office bearers compared to their counterpart at the other two spheres of government.

I believe that in the interest of significantly reducing administration costs, and protecting and preserving the accumulated retirement savings of members, proposed amalgamation might be a good solution. We know that with increased economies of scale, the cost of insured benefits, as well as costs of administration, tend to get significantly lower.

As the MCPF we will support this proposed rationalisation/restructuring if it is approved as it will ensure that more money is invested towards members’ retirement. The Fund aims to retain members based on sound governance, strong investment performance, choice of asset classes, and managers that have been chosen.

Currently the administration costs of the MCPF remains competitive when looking at the industry and the number of members, and we will continue to look out for the best cost structure that will benefit our members.

Improved performance requires commitment from every individual at every level, how do you ensure a culture of excellence within the organisation? Please unpack what have been some of the Fund’s greatest successes.

EM: The Fund is professionally managed and the interests of members are put first. The Curators, Management and MCPF staff remain committed to treating customers fairly and serving our members diligently and to their satisfaction.

The Curators have made significant recoveries in the capital amount of R120 000 000 (one hundred and twenty million rand). They have also progressed and reallocated this money to all qualifying members (current, exited and deceased members’ beneficiaries).

The Fund’s investments continue to grow (currently over R2,6 billion) and the MCPF continues to be guided by its appointed Investment Advisors, Selekane Asset Managers. The Investment Policy Statement (IPS) has been finalised and the Fund is Regulation 28 compliant. The MCPF has also diversified its assets by appointing additional asset/equity managers.

What are your aspirations for the Fund and for its members?

EM: I would like to see the Fund continue to be an agent of change and a trusted custodian of our members’ benefits, ensuring that lives are significantly improved in line with our investment philosophy.

I would also like to see our members recognise the importance of saving for the future. We know that the political careers of our members is unpredictable, and have first-hand experience of how after members’ political careers end, most become indigent as a result of non-payment of contributions. Some have opted to stop contributing, and this has negatively affected their investments and their risk benefits. This situation must be corrected.

What have been some of the challenges brought about by the COVID-19 pandemic? Please provide some insight into how the management team of the Fund handled these challenges?

EM: The impact of COVID-19 is evident on many fronts. Since the start of the pandemic, the Fund has experienced a spike in death claims and this has increased our claim profile with the underwriter.

The Fund conducts member feedback sessions and engagement sessions on an annual basis. As a result of COVID-19, we were unable to meet members face to face. The management team came up with a COVID-19 contingency plan and used a multimedia strategy to reach out to Fund members. We were able to roll out virtual provincial member engagement meetings, and this has proven to be an effective strategy.

We continue to communicate with members using different platforms such as SMSs, emails and social media posts, as well as local government publications.

Is there any particular message you would like to send to councillors, as well as the citizens of South Africa during these difficult times? The MCPF remains the fund of choice for municipal councillors in South Africa. We do not share members’ investment returns with shareholders, instead, we share the declared returns between the members of the Fund.

EM: As mentioned, we experience significant outflows as a result of members exiting the Fund following the local government elections. The ‘bulk exit project’ will ensure that those members are paid within a reasonable period. We have partnered with municipalities and will provide training to them on how to assist exiting members expeditiously.

The MCPF remains the fund of choice for municipal councillors in South Africa. We do not share members’ investment returns with shareholders, instead, we share the declared returns between the members of the Fund.

We encourage all members of the MCPF and their families to continue observing all COVID-19 protocols, and in this way we will all remain safe and continue to build a better South Africa for all together.

Head Office The Willows Office Park Block 1 Unit 1&2 276 George Road Erand Gardens, Midrand P.O. Box 283, Half Way House, Midrand 1685 Tel: 086 111 2014 Fax: 086 674 5579 E-mail: info@mcpf.co.za