A significant area of confusion in the current demutualisation of Old Mutual and that of Sanlam before it, concerns who qualifies for free shares in the various types of retirement funds.
The problem is that there is no clear cut answer.
Chris Newell, who is an executive consultant and actuary at Old Mutual Actuaries and Consultants and the immediate past president of the Institute of Retirement Funds, says the simple answer is that anyone or any institution (like a retirement fund) that has a policy of assurance qualifies for free shares.
However, a retirement fund which merely uses Old Mutual Asset Managers to manage its assets does not qualify for free shares.
Both Old Mutual and Sanlam have retirement products for individuals and for retirement funds. If you have a product such as a retirement annuity, a preservation fund or an annuity in your name you will qualify for free shares under the same conditions as an ordinary policyholder.
If you are a member of an umbrella fund managed by Old Mutual (such as Protektor), or are a member of a retirement fund which has a policy with Old Mutual (such as its popular guaranteed product), then the fund qualifies for the free shares.
Newell says that if you are a member of a fund that qualifies for free shares then it will be up to the trustees of the fund to decide how to allocate the free shares.
He says many factors from the timing of demutualisation, to the date of becoming a member or withdrawal as a member, to the type of fund will have to be taken into account to see whether or not and how members will benefit from the windfall.
However, in all cases retirement fund members will be highly unlikely to receive either shares or cash directly. The windfall will probably be passed on as improved benefits.
Newell says the trustees will have to look at questions of equity in each case. At the moment Old Mutual is training consultants to give advice to fund trustees on what issues need to be taken into account.
Some of the issues may have to be decided by negotiation between fund members and employers. For example, where a defined benefit fund has a policy with Old Mutual, the employer could argue that it owns the share windfall, which could be taken through a contribution holiday.
However, the vexing question of who owns the surplus still has to be decided and this would have to be taken into consideration.
Newell says in cases where the windfall of free shares is passed on to members, a number of factors will have to be taken into account.
For someone who left a fund before December 31, 1997 - the date on which all policies were evaluated for free shares, the value of their benefits would not have been included in the value of the fund's policy and so they should not be included when deciding to whom benefits should be given. However, for anyone who left after December 31, 1997 the value of their benefits would have been included and thus the fund would have received shares on their behalf.
Newell says this is relevant even when a member has left before September 25, 1998 (the cut off date used by Old Mutual for its members). He believes it is fair to pass on additional value to these (ex-)members and trustees should seriously consider this.
One problem is tracing these members and this could be costly. Some of the value gained from the shares may have to be set aside to cover this.
Using the same arguments, people joining the fund before December 31, 1997 should receive additional benefits but anyone joining on or after January 1, 1998 should not.
Newell says benefits could be passed on in a number of different ways, such as declaring higher bonuses or increasing pensions. But the windfall could also be used to get a fund out of trouble if it is in deficit.
Newell is confident of one thing. It is not going to be easy as every fund "will be different".