Your hopes of receiving a windfall from one or more of your former pension funds may be dashed if the government adopts proposals to change current legislation on the distribution of surpluses in retirement funds.
Surplus assets estimated at R80 billion are sitting in South African retirement funds. Current and former fund members and pensioners are expecting to get a share of the surplus when it is distributed.
The Pension Funds Second Amendment Act, which came into effect in December last year, ended years of wrangling between organised labour, business and the government over who owns the surplus assets.
The Act sets out procedures for distributing an existing surplus in a fund. It lays down minimum benefits for people who leave funds, minimum pension increases, as well as other measures which attempt to prevent future surpluses from arising.
The distribution of current retirement fund surp|uses must take place within the next four-and-a-half years. All funds which currently have surplus assets have to come up with a surplus distribution scheme after their next actuarial valuation.
As far as the rights of former fund members are concerned, the legislation gives all members who belonged to funds at any time from January 1980 until now the right to share in any current surplus in those funds.
But it emerged at the Financial Planning Convention in Durban this week that proposed changes to the legislation may deprive certain former members from sharing in a surplus.
Desiree Partridge, a member of the legal and technical committee of the Institute of Retirement Funds, said that, in terms of a Bill currently being prepared, two conditions will have to apply for former members to have a claim to a surplus in their former fund going back to 1980:
- If their employers moved them out of that fund. For example, when a defined benefit fund was closed, and members were moved into a defined contribution fund. This was a common practice in the 1980s; or
- If employees had to leave a fund because of mass retrenchments.
However, all other former members will only have a claim on a surplus of funds going back to 1994.
Jeremy Andrew, the chief actuary at the Financial Services Board and who is drafting the Bill, told Personal Finance that he is waiting for formal agreement from labour and business before submitting the proposal to the government. If the government approves the proposal, it will have to go through the normal parliamentary process before it becomes law.
Also at the FPI Convention, Advocate Malcolm Wallis, a pension law expert, said that when pension funds were introduced, the concept was that employers and employees would each contribute to a fund in order to provide employees with a pension.
As the amount of the pension was defined, there was always the risk that fixed contributions would be inadequate to achieve the pension promised. Thus employers bore the risk of having to increase their contributions in order to secure the solvency of the fund.
The stock market booms in the 1970s, 1980s and 1990s meant that funds' investments performed better than expected. This enabled employers to make substantially lower - or even no - contributions to a fund.
Too often when a surplus emerged in a pension fund, it was treated as a pot of gold available to employers, Wallis said. This was a one-sided abandonment of the bargain between employer and employee that both would contribute to the pension fund.