MEMORANDUM: SUBMISSIONS ON PENSION FUNDS SECOND AMENDMENT BILL [B41 - 2001]

CLAUSE 1(a) Definitions

New definition: "accrued liability"

COSATU / FEDUSA
    1. The actuarial liabilities in respect of past service benefits (including accrued bonus service) of active members, with due allowance for future salary increases where these affect the benefits in respect of past service, and with due allowance for increases in pensions and deferred pensions at rates consistent with past practice, the current policy and the reasonable benefit expectations of members;
    2. The actuarial liabilities in respect of pensions in course of payment and deferred pensions, with due allowance for increases at rates consistent with past practice, the current policy and the reasonable benefit expectations of pensioners; and
    3. Any other accrued actuarial liability.

Actuarial liability must be calculated using the statutory valuation basis prior to the first restructuring or transfer event in the fund, unless the trustees satisfy the registrar that another valuation basis is objectively appropriate and is consistent with this basis."

{only required if the Cosatu version of the minimum benefit is to apply}

 

"actuarial surplus"

"actuarial surplus, in relation to a fund which is –

  1. subject to actuarial valuation, means the difference between –

    2. (b) exempt from actuarial valuation, means the difference between—

    Actuarial Society of South Africa:

    {agreed}

    Life Offices Association:

    (a) subject to actuarial valuation, means the difference between –

    (b) exempt from actuarial valuation, means the difference between—

    {agreed}

     

    "contingency reserve account"

    " 'contingency reserve account', in relation to a fund, means an account of the fund to which shall be credited or debited such amounts as the board of the fund concerned shall determine, on the advice of the valuator where the fund is not exempt from actuarial valuations, in order to provide for contingencies explicitly set out in the rules of the fund;

    Actuarial Society of South Africa:

    {unnecessary}

     

    "contribution holiday"

    'contribution holiday', in relation to a—

    (a) defined benefit category of a fund, means payment by the employer of less than the difference between the standard contribution rate as defined in generally accepted actuarial practice and the contribution payable by members; or

    (b) defined contribution category of a fund, means payment by the employer of less than the employer contribution rate defined in the rules prior to application of any credit balance in any employer reserve account or employer surplus account.

    COSATU

    Actuarial Society of South Africa

    {The standard contribution rate is defined in the UK terminology practice note and will be incorporated in the SA guidance notes shortly. However the change suggested by ASSA would be reasonable.}

    Life Offices Association:

    {agreed}

    "conversion"

    "'conversion', in relation to a category of a fund, means the change of the retirement benefit from defined benefit to defined contribution, or vice versa;";

    COSATU

    {unnecessary after the state law advisor version of the bill}

     

    "deferred pensioner"

    " 'deferred pensioner' means a member who has not yet retired but has left the service of the employer concerned prior to normal retirement age, as defined in the rules of the fund, leaving in the fund the member's rights to such benefits as may be defined in the rules;

    Life Offices Association:

    {agreed}

    "defined benefit category of a fund"

    "'defined benefit category of a fund' means a category of a fund other than a defined contribution category of a fund;"

    COSATU

    {The definition of defined benefit and defined contribution category in the state law advisor version of the bill will sort this out.}

    "defined contribution category of a fund"

    'defined contribution category of a fund' means a category of members in respect of whom the benefit on retirement has a value equal to the value of the fixed-rate contributions paid by the member and by the employer on behalf of the member, where such fixed rates are defined in the rules of the fund, less such expenses as the board of the fund determines should be deducted from the contributions paid, augmented by such investment returns as the board of the fund determines;";

    Actuarial Society of South Africa:

    (There is no such thing as a retirement contribution defined in the rules of funds. The point is addressed by specifying the fixed rate contribution less such expenses as the board of the fund determines should be deducted from the contributions paid.)

    Life Offices Association:

    {agreed}

    Institute of Retirement Funds

    (The guarantee is given effect to by transferring moneys from a contingency reserve account in which the funds required to satisfy the guarantee are accumulated to the member’s individual account.)

    "employer surplus account"

    "'employer surplus account', in relation to a fund, means an account of the fund to which shall be credited—

    (a) amounts allocated by the board of the fund in terms of section 15A for use by the employer;

    (b) such contributions as are specified in the rules to be credited to this account; and

    (c) investment return on the balance in the account from time to time at a rate determined by the board of the fund after taking account of the earnings of the fund,

    and to which shall be debited any surplus utilised by the employer;"

    COSATU
      • The clause should be deleted

    {This would be a consequence of the major decision to exclude the employer}

    Life Offices Association:

    {agreed}

    Institute of Retirement Funds

    {agreed. In order to deal with each participating employer in a multi employer fund; section 15E has been adjusted.}

    New definitions: "former members"

    COSATU

    {This is potentially too restrictive a definition – as funds move into the future, former members may relate to much more recent members. We would prefer the common English definition to apply, as modified by regulation.}

    "investment reserve account"

    " 'investment reserve account', in relation to a fund which has a defined contribution category, means an account of the fund to which shall be—

    (a) credited the gross investment earnings of the fund; and
    1. debited the investment returns credited to individual member accounts of members of defined contribution categories, the pensioner reserve account, any reserve accounts which provide benefits to members who belong to a defined benefit category and any contingency reserve accounts, and such expenses as the board of the fund determine are best levied against the gross investment earnings, including any tax payable on the investment buildup of the fund;";

    Life Offices Association
      1. the value of the assets held in respect of the members’ individual accounts and for any smoothing of investment returns to be credited to such accounts, with allowances for expenses, and
      2. the value of the balances in the members’ individual accounts.

    {This definition would permit a greater level of flexibility, without harming the intention behind the definition.}

    New definition: "investment reserve factor"

    COSATU

    {Necessary only if the COSATU submission with regard to minimum benefits is accepted.}

     

    "member surplus account"

    "'member surplus account', in relation to a fund, means an account of the fund to which shall be—

    (a) credited—

    (i) amounts allocated by the board of the fund in terms of section 15A to be used for the benefit of members; and

    (ii) investment return on the balance in the account from time to time at a rate determined by the board after taking account of the earnings of the fund; and

    (b) debited—

    (i) the cost of any benefit improvements funded from the account; and

    (ii) any expenses which would otherwise reduce benefits payable to members;"

    COSATU

    Actuarial Society of South Africa

    {This is unnecessary in legislation. The rules of a fund could separate it in this way.}

    "regulation"

    "regulation" means a regulation made and in force under this Act.

    COSATU

    "’regulation’ means a regulation made in consultation with all appropriate parties and with the scrutiny and agreement of Parliament and the National Labour and Economic Development Council and in force under this Act;"

    {This could not be supported. It would mean that all regulation under the Act would be subject to Parliamentary control. It would mean the same as making the regulation part of the legislation.}

    "repatriate"

    (definition deleted from the version of the Bill published as B41 – 2001)

    COSATU

    Actuarial Society of South Africa

     

    Life Offices Association.

      • The definition should be deleted.

    {This has been done}

    New definition: "pensioner reserve account"

    Association of Retired Persons and Pensioners

    {The provision is allowed implicitly – the law allows for a member surplus account, members include pensioners, the rules could therefore allow for the member surplus account to be split between active members, pensioners and former members.}

    "stakeholder"

    " 'stakeholder', in respect of a fund, means a current member, including a pensioner and a deferred pensioner, a former member and an employer participating in the fund;

    COSATU

    {If the Government view that the employer should participate prevails, such a definition is necessary in order to distinguish stakeholders (which include the employer and former members) from beneficiaries (which include only the current members and their dependants)}

    CLAUSE 3. Minimum benefits

    Section 14A(1)

    "14A. (1) Every registered fund shall provide the following minimum benefits to a member:
      1. The benefit paid to a member who is retrenched shall not be less than the minimum individual reserve;
      2. the benefit paid to a member if the fund is terminated in terms of section 28 or 29 shall not be less than the minimum individual reserve: Provided that, where the fair value of the assets of the fund after recovery of any debt owed by the employer in terms of section 30(3) is lower than the sum of the total of the minimum individual reserves for all members who are being included in the distribution of the assets after adjustment for any benefits paid previously and the cost of annuity policies which will provide equivalent pensions to all existing pensioners and deferred pensioners, the minimum individual reserve may be proportionally reduced by the ratio which the fair value of the assets bears to the total of all the minimum individual reserves adjusted for any benefits paid previously plus the cost of such annuity policies;

    (c) if a category of the fund is converted from a defined benefit category to a defined contribution category, the amount to be credited to the member's individual account shall not be less than the minimum individual reserve;

    (d) if a member is transferred from one fund to another, the transfer value shall not be less than the minimum individual reserve, provided such transfer is not the transfer of money to which the member has acquired a right following his or her resignation or dismissal from service;

    (e) starting with the pension increase to be granted on the surplus apportionment date, and at least once every three years thereafter, the pension increase to be granted to pensioners and deferred pensioners shall not be less than the minimum pension increase; and

    (f) if a member leaves the fund prior to retirement with a benefit in terms of the rules which is based upon the accumulation of the member's own contributions with interest, the member shall not receive less than the minimum contribution accumulation in respect of his or her own accumulated contributions and any share of the contributions paid on his or her behalf by the employer."

    COSATU
      • Section 14A(1)(a) should be amended to read

    "(a) the benefit paid to a member who [is retrenched] exits the fund, including on the grounds of liquidation, and despite any conversion of a fund, shall not be less than the minimum individual reserve."

    {The extension of the minimum individual reserve to resignation and dismissal is a major decision of principle but would be in line with worldwide trends to recognise pension contributions / benefits as deferred remuneration.}

    Actuarial Society of South Africa

    {agreed}

    {agreed – but only after collection from the employer of the deficit as a debt – this reduction would then only kick in if the employer is unable to pay}

    {achieved in the current wording}

    {not agreed}

    Institute of Retirement Funds

    {see Cosatu / PFA}

    Pension Funds Adjudicator / Metropolitan Employee Benefits / Municipal Gratuity Fund / A.J. van Schalkwyk

    {preferable wording to COSATU’s version if the principle is accepted}
      • 14A(1)(f) should be deleted.

    {consequence of changing 14A(1)(a) as above.}

    Association of Retired Persons and Pensioners.

    {In many funds this would cause a mini actuarial valuation where one is currently not required. On the other hand it would address a major concern amongst pensioners that their minimum increase could be delayed by years.}

     

     

    Municipal Gratuity Fund

    {14G requires the fund to consider if a retiree should benefit from reserve accounts. However the point remains valid. It is, however, a problem to find a solution.}

    {It does in the state law advisor version of the bill}

    Section 14A(2)(b)

    "(b) In respect of a fund which is registered prior to a date three months after the commencement date contemplated in paragraph (a)—
      1. subsection (1)(a), (c) and (d) shall apply from a date 12 months after the surplus apportionment date;
      1. subsection (1)(b) and (e) shall apply from the commencement date; and

    (iii) subsection (1)(f) shall apply from the scheme anniversary coincident with or next following the commencement date."

    COSATU

    "subsection (1) shall apply from the commencement date: Provided that the fund shall have a period of twelve (12) months after the surplus apportionment date to administer the payment of the minimum benefits in terms of paragraph (a) of subsection (1) accruing as at the commencement date."

    {This would deny funds and employers the window period built into the legislation.}

    Life Offices Association

    {agreed}

    Section 14A(3)

    "(3) If the employer exercises any right that the employer has in terms of the rules of the fund to terminate the fund prior to the commencement date or to change the basis upon which future benefits accrue prior to the date from which subsection (1)(a), (c) and (d) apply to the fund, the members may not seek redress against the employer in respect of any increase in value of the benefits that would occur as a result of the application of minimum individual reserves to the fund."

    COSATU / FEDUSA
      • The section should be deleted.

    {not agreed, unless Government accepts that the window period is to be removed.}

    Life Offices Association

    {agreed}

    CLAUSE 4. - Section 15A(1)

    "Rights to use of actuarial surplus

    15A. (1) All actuarial surplus in the fund, belongs to the fund."

    COSATU

    "All actuarial surplus in the fund, belongs to the fund and must be used for the benefit of members only."

    {Major decision of principle. In the view of the Government team, this would be wrong as employers have contributed to the surplus.}

    FEDUSA

    {as per Cosatu}

    Section 15A(2).

    "(2) Once actuarial surplus is apportioned to either the member surplus account or the employer surplus account in terms of sections 15B and 15C, members and the employer acquire rights to use such actuarial surplus as provided for in this section."

    COSATU
      • The clause should be deleted.

    {not agreed if the employer is to participate in surplus, in which case it is necessary to distinguish between a member surplus account and an employer surplus account}

    Life Offices Association

    {agreed}

    FEDUSA

    {as per Cosatu}

    Section 15A(3)

    "(3) After the commencement date, the only portion of the assets of the fund that may be utilised by, or for the benefit of, the employer is any credit balance in the employer surplus account: Provided that the employer may continue a contribution holiday, which the employer was already taking immediately prior to the commencement date, upon the following conditions:

    (a) The value of any contribution holiday taken by the employer during any period between the commencement date and the surplus apportionment date, augmented by the investment return earned by the fund, nett of expenses, must be added to the actuarial surplus to be apportioned at the surplus apportionment date, and must be debited to the employer surplus account after the surplus apportionment.

    (b) If the employer surplus account has a debit balance after such debit, the debit balance will represent a debt owed by the employer to the fund and the employer must redeem such debt within a period determined by the board of the fund, and the fund must then notify the registrar, in writing and in the prescribed manner, of the amount and terms of repayment of any such debt."

    COSATU
      • The clause should be deleted.

    {see previous comment on employer’s right to share in surplus}

    Section 15A(4)

    "(4) Any credit balance in the member surplus account must be used for the benefit of members as provided for in section 15D."

    COSATU

    {The clause can only be deleted if the Cosatu ban on employer participation is accepted}

    Life Offices Association

    {This is a misunderstanding of the regulation and the process that would give rise to the apportionment.}

    Section 15B

    "Apportionment of existing surplus

    15B(1)(a) Subject to paragraph (b), the board of a fund shall submit to the registrar a scheme for the proposed apportionment of any actuarial surplus (in this section referred to as the scheme) as at the effective date of the statutory actuarial valuation of the fund coincident with, or next following, the commencement date.

    (b) The board of the fund shall submit the scheme not later than 15 months after the effective date contemplated in paragraph (a): Provided that if the board of the fund elects to apportion actuarial surplus at a date earlier than the effective date of the next statutory actuarial valuation, it may do so if the statutory valuation date is advanced to such earlier date: Provided further that if the fund is liquidated in terms of section 28 or 29 at a date prior to the effective date of the next statutory evaluation, the effective date of the liquidation shall be the surplus apportionment date.

    (2) A scheme—

    (a) shall comply with such conditions as the registrar may prescribe by regulation; and

    (b) may involve—

    (i) the improvement of benefits to existing members and pensioners;

    (ii) increases to benefits or transfer values in respect of former members;

    (iii) the crediting of an amount to the member surplus account;

    (iv) the crediting of an amount to the employer surplus account; or

    (v) any two or more of the matters contemplated in subparagraphs (i) to (iv).

    (3) After taking account of the financial history of the fund in such manner as may be prescribed by regulation the board of the fund shall determine—

    (a) who may participate in the apportionment of actuarial surplus, and shall include in such apportionment such category of former members as may be prescribed;

    (b) what amount of actuarial surplus has to be retained in contingency reserve accounts;

    (c) an equitable distribution of the residual actuarial surplus between the various classes of stakeholders whom the board has determined shall participate in the apportionment, following which such portion as is due to the employer shall be credited to the employer surplus account; and

    (d) how, in the case of existing members and former members, the allocated portion of actuarial surplus shall be applied for their benefit, including the crediting of any portion to the member surplus account or to the mebers' individual accounts, as the case may be.

    (4) At least 75 percent of the members of the board of the fund duly constituted in terms of section 7A must approve the scheme.

    (5) Notwithstanding anything to the contrary in the rules of the fund, no person other than the relevant board, or, in the event of a deadlock within the board, the special ad hoc tribunal referred to in section 15L, and the registrar may approve the scheme.

    (6) An apportionment in terms of this section shall be of no force or effect unless—

      1. the scheme, including a copy of every actuarial or other statement taken into account for purposes of the scheme, has been submitted to the registrar;
      2. the registrar has been furnished with a certificate signed by the valuator stating whether or not the valuator finds the apportionment of the surplus between the stakeholders to be equitable and if not, why not, together with such additional particulars or such special report by the valuator as the valuator may deem necessary for purposes of this subsection;
      3. the registrar has been furnished with such additional report as he or she may require from an independent actuary appointed by him or her on such matters associated with the apportionment of the actuarial surplus as the registrar shall determine and including such information as may be prescribed: Provided that the registrar shall require such report where the board of the fund has been unable to reach agreement within the prescribed period, or where there are complaints in respect of the apportionment of surplus which have not been resolved to the satisfaction of the complainants concerned: Provided further that the costs resulting from the appointment of such independent actuary shall be borne by the fund;
      4. the employer and members have been informed of the scheme in a manner which is clear and understandable to the members and which gives details of the allocation of the actuarial surplus for the benefit of the various stakeholders, including the amounts of any actuarial surplus which it is intended to credit to the member surplus account and to the employer surplus account, respectively, and the costs of any benefit improvements for members and former members: Provided that—
      1. the type of information to be included in this communication may be prescribed, including a requirement that the independent actuary, the valuator or both shall certify that he or she is, or they are, satisfied that the communication material is objective and contains sufficient information to enable any stakeholder to judge the reasonableness of the scheme; and
      2. the communication shall be explicit about how and where any complaint should be lodged;
      1. the employer and members have had four weeks after receipt of the communication in which to complain to the board of the fund;
      2. the board of the fund has considered any objection contemplated in paragraph (e) before submitting the scheme to the registrar;
      3. the principal officer of the fund has furnished the registrar with details of all objections lodged with the board and the actions taken to address such objections;
      4. the registrar is satisfied that the scheme is reasonable and equitable and accords full recognition to the rights and reasonable benefit expectations of existing members and former members in respect of service prior to the surplus apportionment date; and
      5. the registrar has forwarded a certificate to the principal officer of the fund to the effect that all the requirements of this subsection have been fulfilled.

    (7) If the board of a fund fails to submit a scheme in terms of subsection (1) or if the registrar is not satisfied that the distribution is reasonable and equitable, the registrar shall refer the apportionment of the surplus to the special ad hoc tribunal referred to in section l5L, and such tribunal shall exercise the powers of the board in terms of this section and any reference in section 15B to the board shall be construed as a reference to the tribunal."

    COSATU

    "Payment of former members’ reasonable benefit expectations"

    "(1) (a) Subject to paragraph (b), the board of a fund shall submit to the registrar a scheme for the [proposed apportionment of any actuarial surplus] payment of minimum benefits to former members and current pensioners (in this section referred to as the scheme) as at the earlier of the effective date of the statutory actuarial valuation of the fund coincident with, or next following, the commencement date and the date of termination of the fund in terms of section 28 or section 29, or the date of transfer, or the date of conversion, or the date upon which retrenchments are effective.

    (b) The board of the fund shall submit the scheme not later than three months following the submission of the statutory actuarial valuation to the registrar but not later than 15 months after the surplus apportionment date.

    (c) Such scheme must give effect to the following requirements:

      1. The financial history of the fund must be determined and all transfers, conversions, dismissals (including retrenchments) and resignations that took place in the period from 1980 to the commencement date must be identified;
      2. The fund must then identify former members’ minimum benefits.
      3. The fund must calculate the difference between the minimum benefit and what members were paid on exit or conversion, expressed in present value.
      4. The former members’ benefits must be paid to them.
      5. The fund must determine additional payments to pensioners to remedy unfair labour practices. Pensioners must be paid their minimum pension increases."
        • Replace subsection (2) with the following:

      "(2) In the event that the redressing of past practices leads to a deficit in the fund:

          1. A plan for the funding of the deficit by the employer must be dealt with in terms of section 18 of the Act. \
          2. If there is no agreement on the funding scheme, and before the Registrar may exercise his discretion in terms of section 28 or 29, the matter must be referred to the Adjudicator."
        • Delete subsection (3).
        • Delete subsection (4).
        • Renumber subsection (5), subsection (3) and amend it as follows:

      "(3) Notwithstanding anything to the contrary in the rules of the fund, no person or persons other than the relevant board (or, in the event of a deadlock within the board, the [special ad hoc tribunal referred to in section 15L] Adjudicator, and the registrar may be required to approve the scheme."
        • Renumber subsection (6) as subsection (4) and amend it as follows:

      "(4) Such [apportionment] payment shall be of no force or effect unless:

          1. the scheme,l including a copy of every actuarial or other statement taken into account for the purposes of the scheme, has been submitted to the registrar;
          2. the registrar has been furnished with a certificate signed by the valuator stating whether or not the valuator finds the [apportionment of the surplus between the stakeholders to be equitable] payment to former members and pensioners of their minimum benefits to afford members full recognition of their reasonable benefit expectations and, if not, why not, together with such additional particulars or such a special report by the valuator, as he may deem necessary for the purposes of this subsection;
          3. the registrar has been furnished with such additional report, as he may require, from an independent actuary appointed by the registrar, on such matters associated with the payment to former members and increases to pensioners of their minimum benefits as the registrar shall determine and including such information as may be prescribed: Provided that the registrar must require such a report where the board of the fund has been unable to reach agreement within the prescribed period, or where there are complaints in respect of the apportionment of surplus which have not been resolved to the satisfaction of the complainants concerned: Provided further that the costs consequent upon the appointment of such independent actuary shall be borne by the fund;
          4. the employer, and members have been informed of the scheme in a manner which is clear and understandable to the members and which gives details of the [allocation of the actuarial surplus for the benefit of the various stakeholders,] payment to former members and increases to pensioners of their minimum benefits including the Rand amounts [of any actuarial surplus] which it is intended to credit to the member [surplus account and to the employer surplus account, respectively] and the Rand costs of any benefit improvements for members and former members: Provided that
            1. standards for the information to be included in this communication may be prescribed by regulation, including a requirement that the independent actuary and / or the valuator certifies that he or she is satisfied that the communication material is objective and contains sufficient information to enable the stakeholders to judge the reasonableness of the scheme, and
            2. the communication should be explicit about how and where any complaint should be lodged;
          5. the employer and members have had four (4) weeks after receipt of the communication in which to complain to the board of the fund;
          6. the board of the fund have considered such objections before submitting the scheme to the registrar; \
          7. the principal officer of the fund has furnished the registrar with details of all objections lodged with the board and the actions taken to address such objections;
          8. the registrar is satisfied that the scheme is reasonable and equitable and accords full recognition to the rights and reasonable benefit expectations of members and former members; and
          9. the registrar has forwarded a certificate to the principal officer of the fund to the effect that all the requirements of this subsection have been fulfilled.

      (5) If the board of a fund fails to submit a scheme as required by subsection (1) or the registrar doubts the equity of the scheme, possibly but not exclusively, as a result of outstanding complaints, the registrar shall refer the apportionment of the surplus to the [special ad hoc tribunal referred to in section 15K], Adjudicator, [who shall exercise the] whose powers in determining the dispute shall include the powers of the board in terms of this section: Provided that, if [the apportionment of actuarial surplus] a dispute regarding the payment to former members and increases to pensioners of their minimum benefits is referred to the [tribunal] Adjudicator, any reference in section 15B to the board shall be construed as a reference to the [tribunal] Adjudicator.

      {This revision involves a major decision of principle as it gives effect to Cosatu’s view that all surplus should be used for the benefit of members and former members.. If this decision goes in COSATU’s favour, then the COSATU wording would need careful review.]

      Actuarial Society of South Africa
        • Clause 15B(1)(a) does not cater for valuation exempt funds which is a problem because defined contribution funds which have been exempted from actuarial valuation may have amounts in employer reserve accounts which will be affected by section 15F.

      (This will be achieved through changing Regulation 2 to remove any exemption from actuarial valuation if a fund has surplus.)
        • Section 15B(1)(b): replace 15 months by 18 months.

      {agreed}

        • Delete section 15B(3)(b).

      {agreed}
        • Section 15B(6)(b): The valuator should certify only that
          • The surplus allocation process has complied with the provisions of the Act and the Regulations;
          • Where it was necessary for the trustees to apply their discretion, the exercise of such discretion was not unreasonable taking into account the demands of equity within the bounds of practicality and the circumstances of the particular fund.

      {This is no different to commenting on the equity of the apportionment as is stated in the draft bill. We could always accommodate their concern in the wording of the declaration submitted to the Registrar.}
        • Section 15B(6)(c): replace lines 46 to 48 with:

      "as may be prescribed: Provided that the registrar shall require such report [where the board of the fund has been unable to reach agreement within the prescribed period, or ]where there are complaints in respect"

      {agreed}
        • Section 15B(6)(h) should refer to accrued service.

      (Done)

      Life Offices Association
        • Section 15B(1)(a) should be clarified to cover the situation of defined contribution funds which include surplus but which are exempt from actuarial valuation.

      {This will be achieved by amending regulation 2 to remove their exemption from actuarial valuation.)

       
        • Delete the words "of a fund" following "board" in (1).

      {While not legally necessary, the use of "board of a fund" highlights the difference from the board of the employer.}
        • Application to former members should be subject to the board’s discretion taking into account negotiation between the stakeholders.

      {It is.}
        • "(5) Notwithstanding anything to the contrary in the rules of the fund, no person other than the relevant board, or, in the event of [a deadlock within the board] referral to the special ad hoc tribunal referred to in section 15L, the special ad hoc tribunal [referred to in section 15L], and the registrar may approve the scheme."

      {agreed}
        • In 15B(2)(b)(i), delete "and pensioners" because the pensioners are existing members.

      {agreed}
        • 15B(6) (e) should include former members.

      {agreed}

       
        • Complaints should be in writing.

      {agreed}
        • Any amendments which are required to achieve the scheme must also be submitted to the Registrar. Alternatively, does the approval of the scheme override the need for any amendments?

      {This is implicit and does not need to be included.}

       

      Institute of Retirement Funds
        • Section 15B(1)(a) should be clarified to cover the situation of defined contribution funds which include surplus but which are exempt from actuarial valuation.

      (This will be achieved by amending regulation 2 to remove their exemption from actuarial valuation.)

      FEDUSA
        • 15B(2) "(iii) the crediting of an amount to the member surplus account; or

      (iv) [the crediting of an amount to the employer surplus account; or

      (v)] any two or more of the matters contemplated in subparagraphs (i) to [(iv)] (iii).
        • 15B(3)(c): "(c) an equitable distribution of the residual actuarial surplus between the various classes of stakeholders whom the board has determined shall participate in the apportionment[, following which such portion as is due to the employer shall be credited to the employer surplus account]; and"

      {If the employer’s participation is to be excluded, then the differences between the Cosatu and Fedusa approaches will need to be considered.}

      Association of Retired Persons and Pensioners
        • Amend the introduction to section 15B(3) as follows:

      "(3) After taking account of the financial history of the fund in such manner as may be prescribed by regulation, which shall include a requirement that actuarial surplus is used first to compensate existing pensioners for past increases that were below the level set out in section 15K(4), the board of the fund shall determine—"

      {This will give pensioners priority over other stakeholders in having their minimum benefits introduced. Is this fair?}
        • 100% of the members of the board should approve the scheme and not 75%.

      {This is not practicable – one rogue member of the board could prevent adoption of a reasonable scheme – it will then have to be referred to the dispute resolution mechanism}

      Business South Africa / ENGEN Pension Fund

        • Increase the 15 months in 15B(1)(b).

      {Agree that the 15 months could be extended to 18 months as per ASSA request.}
        • Delete 15B(2)(b)(ii) with a corresponding change to (v).

      {Not agreed: It would be wrong to exclude former members.}
        • Amend 15B(3) to read

      "(3) After taking account of the financial history of the fund in such manner as may be prescribed by regulation, provided that such regulation may not require the board to adjust benefits paid to former members or the past increases given to pensioners, the board of the fund shall determine—"
        • Amend 15B(3)(a), (d) to remove reference to former members
        • Amend 15B(6)(d) and (h) to remove reference to former members

      {This is a major issue of principle, in that they are asking that former members be excluded. The Government team does not support BSA.}

      Section 15C Apportionment of future surplus

      "15C(1) The rules of a fund may determine any apportionment of actuarial surplus arising in the fund after the surplus apportionment date between the member surplus account and the employer surplus account.

      (2) If the rules of a fund are silent on the apportionment of actuarial surplus arising after the surplus apportionment date, any apportionment shall be determined by the board of the fund taking into account the interests of all the stakeholders in the fund: Provided that, notwithstanding anything to the contrary in the rules of the fund, neither the employer nor the members may veto such apportionment."

      COSATU / FEDUSA
        • The section shall be replaced by the following:

      "15C(1) Despite anything contained in the rules of a fund, actuarial surplus arising in the fund after the surplus apportionment date must be applied for the benefit of members.

      (2) The apportionment shall be approved by the board of the fund in the proper exercise of their fiduciary duties towards the members of the fund."

      {As per previous comment – this is excluding the participation of the employer}

      Actuarial Society of South Africa
        • "15C(1) The rules of a fund [may] shall determine any apportionment of actuarial surplus arising in the fund after the surplus apportionment date between the member surplus account and the employer surplus account.
        • Delete 15C(2).

      {Not agreed: legislation must cover the situation where the rules are not changed. Otherwise we will have a repeat of the existing problem at some time in the future.}

      Section 15D

      "Utilisation of surplus for benefit of members

      15D.(1) Notwithstanding anything to the contrary in the rules of a fund but subject to subsection (2), any credit balance in the member surplus account may only be used by the board of the fund to—

      (a) improve benefits for existing members;

      (b) improve the benefits previously paid to former members or the amounts previously transferred in respect of former members;

      (c) reduce current contributions due from members; and

      (d) meet, in full or in part, expenses which would otherwise reduce the proportion of the members' contributions that are invested for retirement.

      (2) The credit balance contemplated in subsection (1) after the apportionment of actuarial surplus as at the surplus apportionment date must be used as specified in the scheme submitted in terms of section 15B(1) if the scheme makes provision for the use of such credit balance."

      COSATU
        • The clause should be deleted.

      {Not agreed: this is a consequence of their forcing all surplus to be used for the benefit of members.}

      Actuarial Society of South Africa
        • Section 15D should also cater for the use of surpluses for pensioners out of a pensioner surplus account.

      {Where the member surplus account is split into more than one sub-account in terms of the rules – such as a sub-account for active members, one for pensioners, and one for former members – the rules can allow for this within the scope of the draft legislation.}

      Business South Africa
        • Delete 15D(1)(b).

      {Not agreed: BSA are looking to exclude former members, which is a position not supported by Government.}

      Section 15E

      "Utilisation of surplus for benefit of employer

      15E(1) Notwithstanding anything to the contrary in the rules of a fund, the principal employer or, with the approval of the principal employer, any or all other participating employers may use actuarial surplus allocated to the employer surplus account in terms of sections 15B and 15C for any of the following purposes, namely—
        1. funding a contribution holiday;
        2. payment of pensions, or an increase in pensions in course of payment, so as to compensate members for the loss of any subsidy from the employer of their medical costs after retirement;
        3. meeting, in full or in part, expenses which the employer is obliged to pay in terms of the rules of the fund;
        4. improving the benefits payable to all, or a category of, members, as determined by the employer;
        5. transferring part, or all, of the employer surplus account in terms of subsection (2) to the employer surplus account in another fund where the employer is a participating employer;
        6. on liquidation of the fund, payment in cash to the employer in terms of section 15I; and
        7. in order to avoid retrenchment of a significant proportion of the workforce, payment in cash to the employer in terms of section 15J.

      (2) The registrar may approve the transfer of a portion of the employer surplus account from the fund to the employer surplus account in another fund, if the following conditions are satisfied, namely, that—

      (a) the employer who has control of the employer surplus account in terms of the rules of the fund has similar control of the employer surplus account in the transferee fund;

      (b) employees of the employer are members or former members of the fund to which the transfer is made;

      (c) the employer applies to the registrar for approval of the transfer, giving such details and supporting reports as the registrar may require; and

      (d) the registrar is satisfied that such transfer is necessary in order to achieve an equitable distribution of the surplus between the funds."

      COSATU / FEDUSA
        • The clause should be deleted.

      {Not supported as this is a consequence of Cosatu’s desire to exclude the employer.}

      Others
        • Provision should be allowed for multiple employer funds.

      {agreed – see the LOA comment for the suggested wording}

      K. Andrew
        • "(1)(f) [on liquidation of the fund] on termination of the fund in terms of section 28 or 29, payment in cash to the employer in terms of section 15I; and"

      {agreed}

      Life Offices Association
            • "Notwithstanding anything to the contrary in the rules of a fund, [the principal employer or, with the approval of the principal employer, any or all other] a participating employer may use actuarial surplus allocated to the employer surplus account in terms of sections 15B [and], 15C and 15F for use by that employer for any of the following purposes, namely—

      {agreed}
            • (2)(a) should allow transfer if the transferring employer has been allocated an equitable portion of the employer surplus account in terms of the rules of the transferor fund.

      {agreed – it does; the }
            • Reword 15E(2)(b).

      {This refers to the January version – the latest version does reword the section.)

      Institute of Retirement Funds
        • Multiple employer funds should be accommodated. In these funds there is no principal employer.

      {agreed – see LOA version}

      Business South Africa / Engen Petroleum Limited
        • Replace 15E(1)(f) with "(f) payment to the employer in cash."
        • Delete 15E(1)(g).

      {This is a major issue of principle. The current provision was put in to preserve the savings ratio and prevent shocks to the economy from substantial disinvestments.}

       

      Section 15F

      "Existing employer reserve accounts

      15F(1) On or after the commencement date, the board of a fund may apply to the registrar to transfer all or some of the credit balance in an existing employer reserve account to the employer surplus account.
      1. The registrar may approve such transfer if he or she is satisfied that the allocation of actuarial surplus to such account was negotiated between the stakeholders in a manner consistent with the principles underlying sections 15B and 15C.

      (3) Any remaining portion of the credit balance in an existing employer reserve account shall be treated as actuarial surplus to be distributed in terms of section 15B."

       

      COSATU
        • The clause should be deleted.

      {If all surplus is to be used for the benefit of members, the clause is unnecessary. If the present regime of sharing between the employer and members is allowed, then such a clause is required.}

      Member of PCOF
        • "15F(1) On or after the commencement date, the board of a fund may apply to the registrar to transfer all or some of the credit balance in an existing employer reserve account as defined in the rules of the fund to the employer surplus account."

      {agreed}

      Institute of Retirement Funds
        • The statement in (2) that "was negotiated between the stakeholders in a manner consistent with the principles underlying sections 15B and 15C" is too vague and should be amended to show clear criteria for approval of the allocation to the employer surplus account.

      {The FSB would like some flexibility in interpreting the clause while retaining the key principles of informed consent to a proposal agreed by the board of the fund in the proper exercise of their fiduciary duties.}

      FEDUSA.
        • Replace the section with the following:

      "15F. Any employer reserve account as defined in the rules of the fund shall be dissolved and become part of the actuarial surplus."

      {Major issue of principle – such an approach is consistent with the employer not sharing in surplus.}

      Section 15G

      "Right to share in surplus accounts on exit

      15G.(1) Notwithstanding anything to the contrary in the rules of a fund, the board of a fund must consider the degree to which members, who are transferring to another fund or who are leaving the fund with payment of the benefit defined in the rules, should benefit from any credit balances in the member surplus account, investment reserve account and any contingency reserve accounts.
      1. Unless the board of the fund considers that it would be inequitable to remaining members, or that there are sound administrative reasons why it should not be done, in which case the board should determine some reasonable alternative, members who transfer out of the fund shall receive as part of their transfer values a share of any credit balances in the member surplus account and investment reserve account in the ratio that the liability of the fund in respect of the past service of the members transferring bears to the liability of the fund towards all its members in respect of past service at the date of transfer.

      (3) Notwithstanding anything to the contrary in the rules of a fund, existing members and former members may not participate in the employer surplus account when they transfer out of a fund or when they become entitled to a benefit, unless the relevant employer so directs."

      COSATU
        • The clause should be deleted.

      {This follows from their approach that members should get everything.

      Actuarial Society of South Africa
        • 15G(1) and (2) should be reworded to withhold only reserves which the actuary can justify to be appropriate for explicit future contingencies, such as an AIDS reserve, and employer reserves which have been clearly earmarked for employer use.

      {Achieved in the latest draft of the bill.}
        • The words "as part of the member’s transfer value" should be inserted into (2).

      (Done)
        • This could be achieved as follows:

      15G.(1) Notwithstanding anything to the contrary in the rules of a fund, members, who are transferring to another fund or who are leaving the fund with payment of the benefit defined in the rules, should receive as part of their transfer values or benefit payments a share of any credit balances in the member surplus account and investment reserve account and such contingency reserve accounts as the board deem appropriate in the ratio that the liability of the fund in respect of the past service of the members leaving the fund bears to the liability of the fund towards all its members in respect of past service at that date: Provided that the board may use a reasonable alternative if there are sound administrative reasons why such a calculation cannot be performed.

      (3) Notwithstanding anything to the contrary in the rules of a fund, existing members and former members may not participate in the employer surplus account when they transfer out of a fund or when they become entitled to a benefit, unless the relevant employer so directs."

      {agreed}

      FEDUSA
        • Delete 15G(3).

      {not agreed if the employer is to participate in surplus}

      Municipal Gratuity Fund
        • 15G(2): We propose that transfers of less than a specified percentage of the membership of the fund are exempted from the requirement to include portions of the investment and contingency reserves.

      {Small transfers cannot be excluded, if the principle is accepted that transfers should participate – rather the trustees are able to use an approximate method where full valuation is not practicable}
        • If investment reserves may go negative, and the fund is forced to pass some portion of this negative reserve to members who transfer out of the fund, this could cause dissatisfaction.

      (Not necessary: 15G(2) only requires that credit balances are distributed.)
        • Investment reserves may need to be withheld from members’ individual accounts on transfer into the fund, if members coming into the fund are to be expected to contribute a fair share of the investment reserve. They should then receive their share of the investment reserve on leaving the fund.

      (This in not constrained by the Bill or section 14.)

      Section 15H

      "Use of contents of any surplus accounts to fund deficits

      15H(1) If a fund has credit balances in any of its reserve accounts, the member surplus account or the employer surplus account and the fund is found to have a deficit following an actuarial valuation, including a valuation carried out for the purpose of distributing assets on liquidation of the fund, such credit balances shall be reduced in the same proportion by the amount of the deficit: Provided that no credit balance may be reduced by more than the amount to which the account was in credit.

      (2) If the deficit exceeds the credit balances in the reserve accounts, the member surplus account and the employer surplus account, the credit balances shall be applied in full to reduce the deficit and shall be reduced to zero."

      COSATU / FEDUSA
        • The clause should be deleted.

      {Not agreed: If reserve accounts or surplus accounts are permitted at all, there must be a clause to say what should happen to them if the fund is then in deficit.}

       

      Actuarial Society of South Africa
        • "15H(1) If a fund has credit balances in [any of its reserve accounts,] the member surplus account or the employer surplus account….

      {This presumes that reserves are really contingent liabilities against explicit future events. If this is accepted then the definition of a contingency reserve account may need to be strengthened. The FSB would support this.}

      Section 15I

      "Application of surplus accounts on liquidation of fund

      15I(1) On liquidation of a fund, any credit balances in any reserve accounts, the member surplus account and the employer surplus account may be drawn upon to secure the rights and reasonable benefit expectations of the members participating in the distribution: Provided that the credit balances in any such accounts shall be reduced by the same proportion.
      1. On liquidation of a fund, any remaining credit balances in the member surplus account, any contingency reserve accounts and any surplus which has not been allocated to the member and employer surplus accounts, shall be used for the benefit of the members and former members of the fund, in such manner as the liquidator, acting on the advice of the valuator, shall determine.

      (3) On liquidation of a fund, any remaining balance in the employer surplus account shall be paid to the employer unless the employer has been liquidated, in which case it shall be distributed amongst the members at the date of liquidation and such former members as are eligible in terms of the rules to participate in the distribution."

      COSATU
        • The clause should be deleted.

      {Not agreed. If any reserve or surplus accounts can be retained by trustees, then there must be rules as to how these will be disposed of, if the fund is liquidated.}

      Actuarial Society of South Africa
        • Clause (1) should refer to rights and reasonable benefit expectations in respect of accrued service.

      {Not agreed. The situation is different to transfer when such a qualification should apply.}
        • "(2) On liquidation of a fund, any remaining balance in the employer surplus account shall be paid to the employer unless the employer has been liquidated, in which case it shall be [distributed amongst the members at the date of liquidation and such former members as are eligible in terms of the rules to participate in the distribution] paid to any creditors of the employer."

      {This is an issue of principle.}

      FEDUSA
        • "(3) On liquidation of a fund, any remaining balance in the employer surplus account shall be [paid to the employer unless the employer has been liquidated, in which case it shall be] distributed amongst the members at the date of liquidation and such former members as are eligible in terms of the rules to participate in the distribution."

      {This is an issue of principle.}

      Section 15J

      "Use of employer surplus to prevent job losses

      "15J(1) A fund may apply to the registrar for permission to pay any credit balance in an employer surplus account to an employer where negotiations in terms of section 189 of the Labour Relations Act, 1995 (Act No. 66 of 1995), have confirmed the need to retrench employees if additional capital is not obtained.
      1. The application must be made to the registrar in the prescribed manner.
      2. The registrar may only grant an application, and issue a certificate to the applicant to the effect that the requested payment may take place, if the registrar is satisfied that—
        1. members have had full disclosure of the current financial position of the fund and the proposed distribution to the employer, and the need of the employer for additional capital in order to maintain employment;

      (b) members have had a reasonable opportunity to consider the proposal;

      (c) at least two thirds of the members currently in employment have approved the proposal; and

      (d) negotiations in terms of section 189 of the Labour Relations Act, 1995 (Act No. 66 of 1995), have confirmed the need to retrench more than 10 per cent of the membership of the fund at the previous financial year end will be retrenched if the payment is not made."

      COSATU
        • The section should be replaced as follows:

      "15J(1) A fund may apply to the registrar for permission to [repatriate] allocate actuarial surplus to an employer where the employer would otherwise have to retrench a significant number of its employees, provided that an independent auditor appointed by the fund has certified the extent of the operational requirement and that the negotiations in terms of section 189 of the Labour Relations Act, 1995, as amended from time to time, have confirmed the [need for] necessity of such retrenchments if additional capital is not obtained.

      (2) The application must be made to the registrar in the prescribed manner.

      (3) The registrar may only grant an application if the registrar is satisfied that –
        1. members have had full disclosure of the report of the auditor and the current financial position of the fund including the proposed distribution to the employer, in both cases in Rand, and the need of the employer for additional capital in order to maintain employment;
        2. members have had a reasonable opportunity to consider the proposal and have been provided with all the information necessary to make an informed decision regarding their rights and reasonable benefit expectations, including but not limited to, any information that they may require to exercise their rights under the Labour Relations Act, 66 of 1995;
        3. at least [two thirds] seventy five percent of the members currently in employment have approved the proposal in writing;
        4. the payment will not prejudice the rights and reasonable benefit expectations of the members and may not affect the rights and reasonable benefit expectations of former members or pensioners;
        5. the payment is necessary in order to avoid a significant reduction in the number of employees employed by the sponsoring employer; and
        6. the registrar must, on being so satisfied, issue a certificate to the applicant to the effect that repatriation of the requested amount may take place."

      The modifications strengthen the provisions in the bill. If experience shows that employers may seek to manipulate this clause, the strengthening may be warranted.}

      FEDUSA

        • Replace 15J(3)(c) with

      "(c) at least [two thirds] seventy five percent of the members c

      urrently in employment have approved the proposal in writing;"

      {See comment on Cosatu.}

      Section 15K(1)

      "15K(1)(a) In determining the member's individual account in relation to an individual member of a defined contribution category of a fund, the board of the fund shall take into account the sum of the fixed-rate contributions paid by the member and the employer on behalf of the member, less such expenses as the board of the fund determines should be paid out of the contributions plus any actuarial surplus apportioned to such account, augmented by such investment returns as the board of the fund determines having regard to the gross investment return earned by the fund and such expenses as the board of the fund determines should be paid out of the gross investment return: Provided that the board of the fund may elect to smooth these investment returns over a period which may not exceed 10 years.
            1. Where the board of the fund permits members to exercise choice over the investment portfolio into which members' and employers' contributions are invested on behalf of the member, the reference to 'gross return earned by the fund' in paragraph (a) shall be construed as a reference to the gross return that would have been earned on the investment portfolios selected by the member taking into account the timing and amount of money invested on behalf of the member."

      Life Offices Association
        • 15K(1)(a) …..augmented by such investment returns as the board of the fund determines having regard to the gross investment return earned by the fund on the assets backing the fund’s liability in respect of the member and such expenses as the board of the fund determines should be paid out of the gross investment return
        • delete 15K(1)(b)

      {This is a reasonable alternative to the wording in the bill, although the latter is not wrong.}

      Section 15K(2)

      "(2) In determining the minimum contribution accumulation of a member the board of the fund shall take into account the value of the member's contributions, less such expenses as the board of the fund deems appropriate to deduct from the contributions, augmented by interest at a rate which is reasonable in relation to the investment return earned by the fund if all investment decisions are made at fund level or in relation to the investment return appropriate to the investment portfolios selected by the member if investment decisions are made by the individual member, nett of such expenses as the board of the fund determines should be offset against the investment return, together with such share of the employer contributions paid in respect of the member as has vested in the employee in terms of the rules of the fund, augmented with the same rate of interest: Provided that the board of the fund may elect to smooth these interest rates over a period which may not exceed 10 years."

      COSATU
        • The gross investment return earned by the fund should be used.

      "(2) In determining the minimum contribution accumulation of a member the board of the fund shall take into account the value of the member's contributions, less such expenses as the board of the fund deems appropriate to deduct from the contributions, augmented by interest at a rate which is reasonable in relation to the gross investment return earned by the fund if all investment decisions are made at fund level or in relation to the gross investment return appropriate to the investment portfolios selected by the member if investment decisions are made by the individual member, nett of such expenses as the board of the fund determines should be offset against the investment return, together with such share of the employer contributions paid in respect of the member as has vested in the employee in terms of the rules of the fund, augmented with the same rate of interest: Provided that the board of the fund may elect to smooth these interest rates over a period which may not exceed 10 years."

      {Agreed}

      Actuarial Society of South Africa
        • The date from which the reasonable rate of interest is payable should be included. They suggest the commencement of the Act, in which case the clause would read:

      "(2) In determining the minimum contribution accumulation of a member the board of the fund shall take into account the value of the member's contributions, less such expenses as the board of the fund deems appropriate to deduct from the contributions, augmented as from the commencement date by interest at a rate which is reasonable in relation to the gross investment return earned by the fund if all investment decisions are made at fund level or in relation to the gross investment return appropriate to the investment portfolios selected by the member if investment decisions are made by the individual member, nett of such expenses as the board of the fund determines should be offset against the investment return, together with such share of the employer contributions paid in respect of the member as has vested in the employee in terms of the rules of the fund, augmented with the same rate of interest: Provided that the board of the fund may elect to smooth these interest rates over a period which may not exceed 10 years."

      {Agreed}
        • The rate must make allowance for individual investment choice.

      (Done)
        • Some funds include only member contributions. The clause should allow for the deduction of expenses from these member contributions.

      (Done)

      A.J. van Schalkwyk
        • Supports the payment of a reasonable rate of interest.

      (Done)

      Section 15K(3)

      "(3) In determining the minimum individual reserve of a member of a—

      (a) defined benefit category of a fund, the board of the fund shall take into account the fair value equivalent of the present value of the member's accrued deferred pension: Provided that where there is not a uniform rate of accrual over the full period of membership of the fund, the accrued deferred pension shall be calculated assuming a uniform rate of accrual as if the member had remained in service until normal retirement age as defined in the rules of the fund: Provided further that the fair value equivalent and the present value shall assume rates of increase before and after retirement, mortality rates and rates of discount as prescribed by the registrar by notice in the Gazette;"

      COSATU
        • Replace clause 15K(3)(a) with the following:

      "defined benefit fund, the [actuarial] accrued liability multiplied by the investment reserve factor."

      {Major decision of principle: Government favours the use of a standard across all funds where the standard is derived by a representative committee.}

      Actuarial Society of South Africa
        • The definition should refer to the member’s accrued deferred pension, which is based on service and final average salary.

      (Done)
        • The definition should allow for a split accrual rate.

      (Done)

      Life Offices Association
        • ……as if the member had remained in service until normal retirement [age] date as defined in the rules of the fund:
        • Add at the end of the section: ": Provided that the value shall not be less than the minimum contribution accumulation".

      {Agreed (to both points)}

      Business South Africa
        • The main assumptions to be used should be prescribed in the Bill and should not be left to regulation. These assumptions should be developed by the Actuarial Society of South Africa.

      {Not agreed – the UK example on the MFR shows the mistake of hardcoding assumptions – as economic circumstances change, the assumptions must be changed.}

      Section 15K(3)(b)

      "(b) defined contribution category of a fund, the board of the fund shall take into account the value of the member's individual account together with a share of the investment reserve account, the member surplus account and such contingency reserve accounts as the board of the fund may determine should be included in terms of section 15G, in the proportion that the member's individual account value as at the effective date of the calculation bears to the total of all members' individual account values as at that date or such other method of apportionment as the board of the fund deems reasonable."

      COSATU
        • Replace clause 15K(3)(b) with the following:

      "defined contribution fund, the value of the member’s individual account, including full employer contributions for retirement benefits, together with a share of the investment reserve account and any contingency reserve accounts, in the proportion that the member’s individual account value as at the effective date of calculation bears to the total of all members’ individual account values as at this date."

      {This is a decision of principle. If the board is to be allowed to keep some contingency reserves back, then the wording suggested in the bill should be allowed.}

      Actuarial Society of South Africa
        • Add "and any contingency reserve accounts to which he is reasonably entitled."

      (Done)
        • Provision should be made for approximate methods to do the calculations.

      (Done – with the words "or such other method of apportionment as the board of the fund deems reasonable).

      Life Offices Association
        • The "member’s individual account" is undefined

      (Done).
        • Provision should be included for a term such as "equitable share as defined in the rules of the fund".

      {If necessary, this could be added to the definition of "member’s individual account".}
        • Not all reserve accounts should be allocated proportionately; the board should have flexibility in this regard. In particular members should not be entitled to a share of any reserve set aside to meet the fund’s liability for tax.

      (Done)

        • The share of reserves should not automatically vest in the member on transfer.

      {The draft bill does not require this.}

      Section 15K(4)

      "(4) In determining the minimum pension increase the board of the fund shall take into account the lower of—
      1. the average rate of increase across all pensioners paid from the fund and all deferred pensioners that would result from—

      (i) accumulating the liabilities for pensioners at their dates of retirement and deferred pensioners at their dates of termination of service, adjusted to an equivalent fair value of assets, less pension payments, cash amounts paid on retirement and those expenses that the board of the fund deems reasonable, augmented by the investment return earned on the assets of the fund less such expenses as the board deems reasonable, but the board of the fund may use the investment return earned on the assets backing pensioner and deferred pensioner liabilities instead of using the investment return earned on the assets of the fund if such assets have been invested separately from the other assets of the fund;
        1. dividing the amount calculated in terms of paragraph (i) by the present value of current pensions and deferred pensions after making allowance for future pension increases at the rate determined by the board, mortality and expenses; and

      (iii) deducting the value of the current pensions and deferred pensions from the amount calculated in terms of paragraph (ii); and

      (b) the amount required to increase the pension to the pension payable in the month following retirement, nett of the commutation of any portion of the pension for cash or the deferred pension at the date of termination of service, increased by the change in the consumer price index from the date of retirement in the case of a pensioner or the date of termination of service in the case of a deferred pensioner, to the effective date of the calculation of the increase: Provided that the board may average the rate of increase in question across all pensioners and deferred pensioners."

       

      COSATU
        • Replace the first sentence by

      "In determining the minimum pension increase the board of the fund shall take into account the greater [lower] of –

      {This will require all funds to give full inflationary increases. Many funds have never sought to be able to do this. There would be a considerable cost implication.}

      Actuarial Society of South Africa
        • The calculation implies that there should be an individual calculation for each pensioner, from his retirement date. This will be impractical, and may be unachievable. It is suggested that this should be on a broad-based approach rather than applying individually to each pensioner.

      (Done with the last comment – "Provided that the board may average the rate of increase in question across all pensioners and deferred pensioners.")
        • If the board allocates assets to pensioners, the return appropriate to the pensioners should be used.

      (Done)
        • The term "can be afforded" should be replaced by reference to "net investment return earned on the pensioner assets, after deduction of any taxes, expenses and the actuary’s post retirement interest assumption, with adjustments for mortality profits or losses".

      This has been achieved in the latest version of the Bill. The comment does highlight the need to change the investment return to "gross" rates

        • The necessary adjustments to the calculations should be made to allow for cases where pensions were increased to replace an employer liability to post-retirement medical aid.

      This is achieved in the suggested amendment below.

        • This could be achieved by amending the draft bill as follows:

      (a) (i) accumulating the liabilities for pensioners at their dates of retirement and deferred pensioners at their dates of termination of service, adjusted to an equivalent fair value of assets, less pension payments, cash amounts paid on retirement and those expenses that the board of the fund deems reasonable, augmented by the gross investment return earned on the assets of the fund less such expenses as the board deems reasonable, but the board of the fund may use the gross investment return earned on the assets backing pensioner and deferred pensioner liabilities instead of using the gross investment return earned on the assets of the fund if such assets have been invested separately from the other assets of the fund: Provided that, if there have been subsequent increases to pensions that have been funded otherwise than through the nett investment return earned by the fund on the assets backing the pensioner liabilities, the liability for such increases adjusted to an equivalent fair value of assets shall be added to the amount being accumulated;

      {Agreed}

      Life Offices Association
        • "invested separately" needs to be defined.

      {These are the common English meanings of the words. A definition is not required.}
        • Criteria for "affordable" need to be determined.

      (Done)

      Association of Retired Persons and Pensioners
        • Delete the proviso at the end of (b).

      {This is directly contrary to the request of ASSA to be allowed to average.}

      Members of PCOF
        • Section 15K throughout uses the words "shall take into account" (highlighted in italics above). Should this not be "shall determine"?

      {Agreed. The "shall take into account" was inserted at the suggestion of the state law advisor and does weaken the argument.}

      Section 15L

      "Specialist tribunal

      15L (1) Where the board of a fund is unable to reach agreement on the apportionment of an actuarial surplus in terms of section 15B within the prescribed period, or if the registrar is not satisfied that the scheme submitted by the board in terms of section 15B is reasonable and equitable or if the registrar considers that unresolved complaints require investigation which may lead to a review of such scheme, the registrar shall appoint a special ad hoc tribunal to perform the functions of the board set out in section 15B.
      1. The tribunal shall consist of at least three members who must all be independent of any stakeholder in the fund, and of whom—

        2. (a) one must be a lawyer who satisfies the conditions set out in section 30C(2): Provided that such lawyer may also be the Adjudicator; and

        (b) one shall be an actuary who has experience in retirement fund financing.

      2. The tribunal shall make the apportionment within such period as may be determined by the registrar.
      3. Three members of the tribunal shall constitute a quorum.

      (5) The tribunal shall elect a chairperson from amongst its members and such chairperson shall have a deliberative vote but no casting vote.

      (6) At least two-thirds of the members of the tribunal must agree to any decision or step taken in the exercise of the powers contemplated in section 15B(7).
      1. The tribunal may follow any procedure which it considers appropriate in conducting an investigation, including procedures in an inquisitorial manner, and affording any stakeholder the right to a hearing.
      2. Notwithstanding section 22 of the Financial Services Board Act, 1990 (Act No. 97 of 1990), the tribunal may obtain copies of any document or correspondence contained in the files of the registrar relating to a fund in connection with which the tribunal is conducting an investigation.

      (9) (a) For purposes of an investigation, the tribunal may—

      (i) under the hand of the chairperson, summon any person who in the opinion of the tribunal may be able to give material information concerning the subject matter of the investigation or who is believed by the tribunal to have in his or her possession or custody or under his or her control any book, document, record or thing which has any bearing on the subject matter of the investigation, to appear before it at a time and place specified in the summons, to be questioned or to produce that book, document, record, or thing, and may retain for inspection any book, document, record or thing so produced;
        1. through the chairperson administer an oath to, or accept an affirmation from, any person summoned under subparagraph (i) and question that person and require the person to produce any book, document, record or thing in his or her possession or custody or under his or her control.

      (b) A summons referred to in paragraph (a) shall be served in the same manner as a summons for the attendance of a witness at a civil trial in a magistrate's court.

      (c) In connection with the questioning of any person summoned under this section or the production by such person of any book, document, record or thing, the law relating to privilege as applicable to a witness summoned to give evidence or to produce a book, document, record or thing in a civil trial before a court of law shall apply.

      (d) (i) Any person summoned in terms of this subsection or who has given evidence before a tribunal shall be entitled to the same witness fees as if he or she had been summoned to attend or had given evidence at a civil trial in a magistrate's court held at the place where the investigation is held.
        1. Any fees which may become payable in terms of subparagraph (i) shall be paid by the fund.
      1. The tribunal shall keep, whether in writing or by mechanical or electronic means, a permanent record of the proceedings relating to the determination of a matter before it including the apportionment of actuarial surplus and any evidence given.
      2. After the tribunal has completed an investigation, it shall send a statement containing its determination and the reasons therefor, signed by the members of the tribunal, to all parties concerned as well as to the registrar.
      3. Any costs arising from the work of the tribunal, including periodical allowances or compensation for personal expenses of the members of the tribunal, shall be recovered from the fund out of the surplus being apportioned if the tribunal satisfies the registrar that such costs were reasonably incurred in the performance of the required functions.

      (13) Any member of the public may obtain a copy of the record on payment of a fee determined by the registrar."

      COSATU\
        • This clause should be deleted. They favour the use of the Adjudicator.

      {The Adjudicator’s hands are full with his existing case load – disputes of right in terms of the law. These are disputes of interest.}

      Actuarial Society of South Africa
        • There should be one tribunal organization with representatives in each location, but all reporting to a central body to ensure uniformity.

      {Agree that there should be pooling of criteria to ensure uniformity.}
        • Actuarial input will not always be essential.

      {Agreed, but the same could be said for legal input.}
        • Any person serving as a member of a tribunal should be indemnified in the Act against any action flowing from decisions made by such tribunal.

      {Agreed. This will require an amendment to the section.}

      Life Offices Association
        • Centralise the ad hoc tribunals under the control of the Pension Funds Adjudicator.

      {The PFA was put in place to deal with disputes of right, not disputes of interest. Centralisation may be valid, but the PFA may not be the appropriate party.}

        • If this is not accepted,
          • Parties should have a right of appeal to the Appeal Board

      (they do)
          • The tribunal members should be independent of the FSB.

      (it will be)
          • 15L(2)(c) should be added:

      "(c) The remaining member must have experience in retirement fund business."

      {agreed}
        • 15(9)(d)(i) Witnesses should be reasonably remunerated for their time and expenses.

      {agreed – but further consultation may be necessary}

      Institute of Retirement Funds
        • Centralise the ad hoc tribunals under the control of the Pension Funds Adjudicator.

      {as before}

      Pension Funds Adjudicator
        • 15L(1) Where the board of a fund is unable to reach agreement on the apportionment of an actuarial surplus in terms of section 15B within the prescribed period, or if the registrar is not satisfied that the scheme submitted by the board in terms of section 15B is reasonable and equitable or if the registrar considers that unresolved complaints require investigation which may lead to a review of such scheme, the registrar shall [appoint a special ad hoc tribunal to perform the functions of the board set out in section 15B] refer the matter to the Adjudicator or to an arbitrator to be chosen from a panel of arbitrators consisting of actuaries and lawyers who are attached to and institutionally associated with the Adjudicator’s office."

      {What does "attached to and institutionally associated with" mean?

      As a compromise, it might be reasonable to introduce the PFA or one of his staff as an automatic member of the tribunal.}

       

      FEDUSA
        • No objection to the use of special ad hoc tribunals.

      Association of Retired Persons and Pensioners
        • They support the idea of arbitration but concede in their oral presentation that they support the concept that unresolved objections should be taken into account by the special tribunal.

      Business South Africa
        • They support the use of arbitration for small funds.

      {Arbitration is not noticeably different in our opinion to a specialist tribunal. It is simply who decides on the arbitrator.}

      NACTU
        • They support the use of special tribunals to handle all dispute resolution within funds.

      {The PFA’s office is not uniformly welcomed.}

      CLAUSE 5 Addition to section 30.

      "Amendment of section 30 of Act 24 of 1956, as amended by section 17 of Act 103 of 1979 and section 25 of Act 104 of 1993

      1. Section 30 of the principal Act is hereby amended by the addition of the following subsection:

      "(3) If a registered fund is terminated or dissolved in terms of section 28 or 29 after the date from which minimum individual reserves are payable on transfer or retrenchment, and the fair value of the assets of the fund, less any current liabilities, is less than the sum of the minimum individual reserves payable in respect of the existing members and former members who may participate in the distribution of the assets (with appropriate adjustment for benefits previously paid in the case of former members) and the cost of annuity policies which will provide equivalent pensions for the existing pensioners and deferred pensioners, the shortfall shall represent a debt payable by the employer to the fund.".

      COSATU / FEDUSA
        • Replace clause (3) by the following

      "(3) If a registered fund is terminated or dissolved in terms of sections 28 or 29 after [the date from which minimum individual reserves are payable on transfer or retrenchment,] the commencement date of the Act, and the fair value of the assets of the fund, less any current liabilities, is less than the sum of the minimum individual reserves payable in respect of the members and former members who will participate in the distribution of the assets (with appropriate adjustment for benefits previously paid in the case of former members), the shortfall shall represent a debt payable by the employer to the fund."

      {This would deny a window period for funds that could not afford the new minima.}

      Actuarial Society of South Africa
        • If there is more than one employer participating in the fund, there should be clarity as to which employer is responsible. This could be addressed through the following: ": Provided that, where more than one employer participates in the fund, the deficit shall be distributed amongst such employers in a manner deemed reasonable by the liquidator."

      {Agreed}
        • This section should not apply to defined contribution funds.

      {A fund that is exempt from actuarial valuation cannot experience a deficit. Once subject to actuarial valuation, a defined contribution fund can experience a deficit. In the case of hybrid funds, or mixes of defined benefit and defined contribution, the employer will remain responsible. If a defined contribution fund pays pensioners from the fund, the employer must remain responsible. The bill is therefore reasonable for funds that are not exempt from actuarial valuation. We therefore suggest that the first sentence is amended by adding the words "which has not been exempted from actuarial valuation" after " registered fund".}

      Life Offices Association
        • A term of 7 years should be set to this liability. Alternatively the liability should apply only if the employer had the powers in the rules specified in terms of section 14A(3) and failed to exercise them prior to the date specified therein.

      {Not agreed}

      Business South Africa
        • Delete the clause.

      {Not agreed}

      CLAUSE 6 AMENDMENT TO SECTION 30H OF THE ACT

      Amendment of section 30H of Act 24 of 1956, as inserted by section 3 of Act 22 of 1996

      1. Section 30H of the principal Act is hereby amended by the addition of the following subsection:

      "(4) The Adjudicator shall not have jurisdiction over complaints in connection with a scheme for the apportionment of surplus in terms of section 15B which relate to the decisions taken by the board of the fund or any stakeholder in the fund or any specialist tribunal convened in terms of section 15L."

      COSATU
        • Subsection (4) added to section 30H should be deleted.

      {see principles note}

      Life Offices Association
        • They would prefer all the special ad hoc tribunals to be under the control of the Pension Funds Adjudicator.

      {see principles note}

      FEDUSA
        • No objection to the exclusion of the jurisdiction of the Pension Funds Adjudicator in disputes relating to the apportionment of surplus in terms of section 15B.

      {see principles note}