RETIREMENT MATTERS COMMITTEE OF THE ACTUARIAL SOCIETY OF SOUTH AFRICA

Comments on the Pension Funds Amendment Bill, 2007

The Retirement Matters Committee of the Actuarial Society of South Africa has considered the proposed amendments to the Pension Funds Act as set out in the draft Pension Funds Amendment Bill, 2007.

The Committee had given its comments on the proposed amendments in November 2006, and is pleased to note that heed has been paid to many of its comments. The proposed Bill is an improvement on the earlier draft.

There are some areas that, in our view, require correction, as follows:

1. Section 1(c) defines an administrative penalty. The definition is very wide and we suggest that the term “in terms of Section 37” be added to the definition, since this is the section that sets out details of the penalties.

2. Section 1(f)(a) defines a contribution holiday for a defined benefit fund. The wording “the difference between the” and “and the contribution payable by the members” should be deleted.

3. Section 11(6)(b) covers the date of commencement of “improper uses of surplus”. This should read … the period from the later of 1 January 1980 or the date of the fund’s commencement …”.

4. Section 11(6)(c)(iii) deals with the date of commencement of executive benefits that are demed not to be “improper uses” of surplus. The date should read “… has existed in the fund in its current from since the later of 1 January 1980 or the inception of the fund …”.

In our earlier comments we drew the Registar’s attention to the following, and we do so again in respect of the Bill:

5. The Bill continues to use the phrase “improper use of surplus”, which implies wrongdoing on the part of the employer. The judge in the recent High Court ruling expressed dismay at the use of this phrase because the so-called “improper” uses of surplus were completely legal and thus cannot be deemed to be “improper”. The phrase should be replaced with a more appropriate term such as “Employer use of surplus” or “Prior use of surplus”.

6. The Registrar gives himself the power to reject Contingency Reserves [definition of Contingency Reserve Account] and actuarial valuations [15B(9) and (10)]. If the Registrar rejects a valuation and/or a contingency reserve and the fund becomes financially unsound as a result of the fund not having the assets that would otherwise be retained, is the Registrar liable for compensation to the fund? We advise caution in this regard. The Committee is of the view that the valuator, who is bound by the guidelines contained in the relevant Professional Guidance Notes issued by the Actuarial Society of South Africa (“ASSA”), is best placed to judge the financial soundness of a fund . We further point out that ASSA is actively guiding valuators to have their work peer reviewed by an independent actuary which will assist in ensuring that reserves are appropriate.

7. The definition of “contribution holiday” does not specify the method of funding. We suggest that the Projected Unit Method of funding be specifically stated.

8. The vexed question of what an “executive” is, is not addressed in the amendment [15B(6)(a)(i)]. This should be addressed for clarity. A possible suggestion is that an executive is a person who reports to the CEO.

ARTHUR ELS

CONVENOR – RETIREMENT MATTERS COMMITTEE