Pension Funds Adjudicator Professor John Murphy has thrown a cat among the pigeons of the R480 billion retirement industry with a claim that actuaries sometimes have excessive powers over the benefits you get when you leave a retirement fund.
He says that if two people of the same gender worked at the same company for the same length of time and received the same salary and both decided to leave the fund before retirement, one could get R100 000 and the other could get R200 000.
Murphy stresses that though most actuaries do act fairly when calculating your withdrawal and transfer benefits, the rules of the fund sometimes give them too much discretion.
Unless their powers are limited, he warns, you could be the victim of an unfair decision.
Withdrawal and transfer benefits are a hot issue. Many of the country's 11 million retirement fund members have moved or are moving out of the traditional defined benefit retirement funds to defined contribution funds, where you and not your employer carry the investment risk.
Fair withdrawal benefits when you leave one job for another are crucial because this is the money that you need to make provision for your old age.
Murphy says what amounts to a fair benefit differs from fund to fund.
Some funds are "particularly ungenerous" and only give you back your own contributions to the fund plus minimal interest.
Other funds are more generous. Some give you your contributions, your employer's contributions and a reasonable rate of interest on the money and some give you your actuarial reserve.
This is the amount of money the fund holds to meet its liability for your pension.
The trouble is, says Murphy, that the determination of this reserve is not objective but involves a lot of discretion on the part of actuaries.
Actuaries must decide on the method used to calculate the value of your withdrawal, making assumptions about the future events which affect a fund's assets and liabilities such as the expected average life of the workforce, turnover in staff and the rate of return on investments.
"The rules of some funds allow actuaries extremely wide discretion in this regard", says Murphy.
"Potentially, two employees with the same promise of retirement benefits, are the same age and earning the same salary and who leave on the same day can end up with very different withdrawal benefits because the actuary uses different methods and assumptions."
This means that actuarial decision-making can become arbitrary and discriminatory, says Murphy.
He says the rules of your fund should set a method of calculating withdrawal and transfer benefits and must require that these be applied consistently.
Rules which do not do this and which give the actuary unfettered discretion may even be unconstitutional, Murphy says.
"The moment has arrived for actuaries, like the rest of us, to ensure that their practices fall within the new constitutional order.
"A balance must be struck between the need for flexibility and the right of pension fund members to have their investment values determined in a transparent, predictable and objectively determinable way," says Murphy.
Andre Pienaar, convenor of the retirement matters committee of the Actuarial Society of South Africa, says Murphy's claims are exaggerated and disagrees that actuaries have too much power to decide on the value of your benefits.
Actuaries always use the same method to calculate benefits within a particular fund, he says. While the assumptions that they use can vary, there is a good reason for this because they first analyse the experiences of the fund and base their assumptions on that.
Peter Milburn-Pyle, an actuarial consultant for Sedgwick, Noble Lowndes and former chief actuary of the Financial Services Board (FSB) says the typical pension fund actuary has far less discretion than is popularly imagined.
Although actuaries have to exercise some judgment, they do so within limits. Also their decisions are subject to statutory supervision by the FSB, he says.
But Murphy is adamant that something should be done to limit the power of actuaries.
It is in actuaries' own interests and those of retirement fund members, he says, to make sure that the basis of their calculations is clear and consistent. He is preparing decisions on three complaints from retirement fund members which could set a precedent on the issue.