The pensions industry has, after difficult debate, come up with some proposals on the thorny issue of whether and how surpluses in defined benefit pension schemes will be paid to employers.
The issue arises because in a defined benefit pension scheme, employers carry the responsibility for ensuring there is sufficient money in the fund to pay pensioners.
In a defined contribution scheme, however, both employees and employers pay a set amount into the fund each month and the size of the final pensions paid is determined by the growth in investments.
If employers bear the sole risk, it is argued, they should also be the beneficiaries if the pension fund has more money than it needs to satisfy actuarially calculated liabilities.
Peter Milburn-Pyle, chief actuary at the Financial Services Board, told the Pension Lawyers Association Conference in Johannesburg recently that a small task group, with representatives from a range of interest groups, was set up by the Pensions Advisory Committee to make recommendations. After four meetings it had come up with "a workable blueprint".
The FSB will now draft legislation to amend the Pension Funds Act which will be circulated for comment. The proposals will also affect the Income Tax Act.
The task group agreed that there was a case for paying out "excess" assets to the employer if a certain procedure was followed. The security of members' rights is paramount, and the application for the payout to employers has to be made by trustees.
"Excess assets" are the assets of the fund less the minimum assets, defined as enough to cover actuarial liabilities plus a contingency reserve. Qualifying members include those retrenched within a certain time period to prevent an employer from retrenching large numbers of staff so as to obtain the pension fund assets.
If an employer wishes to withdraw excess assets, there has to be an undertaking that, if in future years the fund falls into deficit, that becomes a legal liability of the employer's. The extent to which permission of individual members is required to ratify this pay-out has been left up to the trustees, Milburn-Pyle said.
The pay-out would also be liable for tax, and the Registrar of Pensions could reject the proposal.