1 / 64

Pension Fund Surplus Dispute - Let Bygones Be Bygones!

This article discusses the ongoing dispute over pension fund surplus, not about ownership but whether it exists. The estimated surplus ranges from R80 to R200 billion, impacting future pensions and the economy. Overseas-owned companies disinvesting from pension investments is a concern. Examples of past fund practices are highlighted. The article emphasizes the need to address the issue and protect pension reserves.

sharlenea
Download Presentation

Pension Fund Surplus Dispute - Let Bygones Be Bygones!

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Background Pension Fund Dispute The dispute is not about who owns the surplus, But rather about whether or not it is a surplus Members’ reserves Employers’ surplus

  2. Background The dispute is not about who owns the surplus, But rather about whether or not it is a surplus COSATU’s ordinary surplus versus extraordinary surplus

  3. Let bygones ... ... be bygones! - R80 to R200 billion -

  4. Let bygones be bygones! - R80 to R200 billion - FSB estimate excludes impact of company contribution holidays over the past decade.

  5. Let bygones … … be bygones! - R80 to R200 billion - “Future pensions under-funded”

  6. * Future pensions under-funded Like planting crops …. If the seeds go missing, there’ll be no crop to harvest…. Current pension contributions will impact on the economy of our country over the next few decades ……..

  7. Let bygones … … be bygones! - R80 to R200 billion - Overseas-owned companies are dis-investing us of our pension investments

  8. Let bygones be bygones! - R80 to R200 billion - Converting pension reserves into company profits is stripping our country of its savings

  9. Examples of what has happened over the past 20 years ….

  10. Sentrachem Pension Fund February 1992 Surplus R5 million R650 million Pension Fund March 1998 Surplus R408 million 6 000 Members transferred & retrenched

  11. Sentrachem Pension Fund February 1995 Shortfall on budgeted investment returns of R57 million R650 million Fund March 1998 Members transferred & retrenched * Surplus of R408 million The Bill will not fix this Fund’s practice

  12. Revlon Pension Fund Negotiated mass-transfer --- At the time of the transfer the Pension Fund was under-funded by 30%

  13. Revlon Pension Fund After the conclusion of the negotiation but immediately prior to the transfer, the actuary was instructed to re-value the Fund using a 9% post-retirement interest rate. This had the effect of changing the funding level from being 70% funded to being 94% funded

  14. Revlon Pension Fund After the conclusion of the negotiation but immediately prior to the transfer, the actuary was instructed to re-value the Fund using a 9% post-retirement interest rate. This had the effect of changing the funding level from being 70% funded to being 94% funded The Bill will not fix this Fund’s practice

  15. Revlon Pension Fund “What effectively has been achieved by amending this basis has been that every member in the pension fund at the time of transfer was given a fair share of the assets which existed at that time”

  16. Revlon Pension Fund “What effectively has been achieved by amending this basis has been that every member in the pension fund at the time of transfer was given a fair share of the assets which existed at that time” The Bill will not fix this Fund’s practice

  17. IBM Pension Fund ………………………………. Unanimous decision by trustees in favour of granting an inflation-related increase to pensioners.

  18. IBM Pension Fund The Fund actuary confirmed that provision had been made for an inflation related increase ………….. Based on investment returns, sufficient funds were available

  19. IBM Pension Fund “Company overruled trustees’ decision”

  20. IBM Pension Fund The Adjudicator: “In truth the employer is seeking to get the best deal for itself in the distribution of surplus and is holding out on its position by refusing to pay a special increase beyond the normal practice (Two-thirds of CPI)”

  21. IBM Pension Fund “In truth the employer is seeking to get the best deal for itself in the distribution of surplus and is holding out on its position by refusing to pay a special increase beyond the normal practice (Two-thirds of CPI)” Regulation 15 Actuarial surplus Murphy surplus Investment Reserve Actuarial Value of Assets Market Value of Assets

  22. Reflects Common Practice in SA Murphy’s Law Pension Funds Adjudicator, Professor John Murphy, states: “Surplus is simply the difference between the assets and the liabilities” R20 m Murphy surplus Investment Investment reserve Market Value of Assets required to fund liabilities R120 m Actuarial Value of Assets R100 m Actuarial Value of Accrued Liability R100 m 100% funding

  23. Murphy’s Law “The attempt to separate out the investment reserve from the surplus is sophistry” Regulation 15 Actuarial surplus Investment Reserve Market Value of Assets “Market Value Surplus” Actuarial Value of Assets Reflects Common Practice in SA

  24. Surplus according to Regulation 15 15 (2) [d] a comparison of the actuarial value of assets with the accrued liabilities, on the bases contemplated in paragraph (b) (iv) and [c] (ii), showing the resultant surplus or deficiency and, in the case of a deficiency, the percentage ratio of assets to liabilities. R20 m Investment Investment reserve Market Value of Assets required to fund liabilities R120 m Actuarial Value of Assets R100 m Actuarial Value of Accrued Liability R100 m 100% funding

  25. Regulation 15 Not … section 15 of the Pension Funds Act …

  26. Regulation 15 Every Pension Fund must report its statutory valuation in terms of this Regulation… and make good deficiencies in terms of 15 [2] if they exist.

  27. Murphy’s Law of Surplus “There is no legal definition of a surplus either in the statute, the rules, or the common law. After a textual analysis of the language of the rule (reserve value) I held that actuarial reserve value equates to the applicants actuarial liability” 120% funding R20 m Market Value of Assets required to fund liabilities R120 m Investment Investment reserve 100% funding Regulation 15 Actuarial Value of Assets R100 m Actuarial Value of Accrued Liability R100 m

  28. ? R100 billion Overseas Sentrachem Revlon IBM Anglo Independent Procter & Gamble Britain USA France Germany Holland

  29. ? R100 billion Overseas Sentrachem Revlon IBM Anglo Independent Procter & Gamble Britain USA France Germany Holland The Bill will not fix this practice

  30. Nedlac Pension Debate • *Savings better • in hands of business! • Really?

  31. Nedlac Pension Debate Savings Members … stays in the Fund Companies … share dividends

  32. Surplus means: ? Market Value Surplus Regulation 15 Surplus Actuarial Actuarial surplus surplus Investment Reserve Investment Market Value of Assets Reserve Actuarial Value of Assets Actuarial Value of Assets In the case of valuation reports In the case of transfer values

  33. Liabilities means Assets! “It is correct that many transfers have taken place with members receiving, as a transfer value, the accrued liability……..” R20 m Investment Investment Investment reserve R20 m Market Value of Assets required to fund liabilities Regulation 15 [2] [b] [ii] R120 m Regulation 15 [2] [c] [I] [cc] Actuarial Value of Accrued Liability R100 m Regulation 15 [2] [b] [iii] Actuarial Value of Assets R100 m The money backing the debt The Debt

  34. Liabilities means Assets! “It is correct that many transfers have taken place with members receiving, as a transfer value, the accrued liability……..” R20 m Investment Investment reserve Market Value of Assets required to fund liabilities Regulation 15 [2] [b] [ii] R120 m Regulation 15 [2] [c] [I] [cc] Actuarial Value of Accrued Liability R100 m Regulation 15 [2] [b] [iii] Actuarial Value of Assets R100 m The money backing the debt The Debt

  35. Liabilities means Assets! “It is correct that many transfers have taken place with members receiving, as a transfer value, the accrued liability……..” R20 m Investment Investment reserve Market Value of Assets required to fund liabilities Regulation 15 [2] [b] [ii] R120 m Regulation 15 [2] [c] [I] [cc] Actuarial Value of Accrued Liability R100 m Regulation 15 [2] [b] [iii] Actuarial Value of Assets R100 m The money backing the debt The Debt

  36. Liabilities means Assets! “It is correct that many transfers have taken place with members receiving, as a transfer value, the accrued liability……..” Market Value of Assets required to fund liabilities Regulation 15 [2] [b] [ii] R120 m Regulation 15 [2] [c] [I] [cc] Actuarial Value of Accrued Liability R100 m Regulation 15 [2] [b] [iii] Actuarial Value of Assets R100 m The money backing the debt The Debt

  37. Liabilities means Assets! “It is correct that many transfers have taken place with members receiving, as a transfer value, the accrued liability……..” Implicitly revalued the assets Market Value of Assets Regulation 15 [2] [b] [ii] R120 m R100 m Regulation 15 [2] [c] [I] [cc] Actuarial Value of Accrued Liability R100 m Regulation 15 [2] [b] [iii] Actuarial Value of Assets R100 m The money backing the debt The Debt

  38. Memorandum versus The Bill Portion left behind “With the benefit of hindsight it was not fair to have given transferring or retrenched members no share of this provision against a fall in the stock market. Having decided this, it is necessary to legislate in order to give them any share, because ….. 30% Investment Reserve Actuarial Value of Assets R100 million But, the proposed legislation does not fix the past, rather it legitimizes the past

  39. Memorandum versus The Bill “ … secondly, most of the transfers had occurred more than three years ago, and, even though members may now feel that they did not get what was promised in whatever agreement was signed between the union and the employer, they would be unsuccessful in claiming anything through the courts because their claim would have become prescribed….” Portion left behind 30% Investment Reserve Actuarial Value of Assets R100 million

  40. Draft Bill & Supporting Regulation Example November 2000 100% funding Market Value of Assets required to fund liabilities Actuarial Value of Accrued Liability Draft Minimum Value R100 m R70 m R130 m Regulation 15 [2] [a] 15 [2] [c] [I] & [ii] Draft Regulation 33 Regulation 15 [2] [b] [Iii]

  41. Draft Bill & Supporting Regulation COSATU’s 100% funding Market Value of Assets required to fund liabilities Actuarial Value of Accrued Liability Draft Minimum Value R100 m R130 m R130 m Regulation 15 [2] [a] 15 [2] [c] [I] & [ii] Draft Regulation 33 Regulation 15 [2] [b] [Iii]

  42. Draft Bill & Supporting Regulation COSATU’s Market Value of Assets required to fund liabilities Actuarial Value of Accrued Liability The problem with this proposal is that if it is considered to be new legislation and is applied retrospectively, then Business South Africa will oppose it in court - they have little option but to do so, and the delays will give companies an additional few years to strip out the so- called surpluses …... Draft Minimum Value R100 m R130 m R130 m Regulation 15 [2] [a] 15 [2] [c] [I] & [ii] Draft Regulation 33 Regulation 15 [2] [b] [Iii]

  43. Draft Bill & Supporting Regulation NACTU Market Value of Assets required to fund liabilities Actuarial Value of Accrued Liability If the transfer of full value of the assets reserved to fund a benefit was negotiated and agreed, then that is what must be paid…. if not then, then now ….. If the actuary signed a Section 14 transfer certificate stating that all the same assumptions were used as were used in the last statutory valuation, and then changed the assumptions relating to the assets, then it’s time to put it right …. Draft Minimum Value R100 m R130 m R130 m Regulation 15 [2] [a] 15 [2] [c] [I] & [ii] Draft Regulation 33 Regulation 15 [2] [b] [Iii]

  44. Transfer Certificate “The transfer amount in respect of each member ….. …. using the same valuation bases as was used for the most recent actuarial valuation ….” In reality, the actuary changed the assumptions relating to the valuation of the assets, changing the valuation bases to some 40%less than what it was, and did not report this in his statement to the FSB. Now the Bill proposes that if this 40% was used for a company contribution holiday, it should not be paid to members …. In addition, the Bill will now prevent any member from claiming this lost 40% …..

  45. The Bill & Supporting Regulation Bill protects Funds from correcting past inequities ….. “…. If there is not sufficient surplus in the fund to allow the top-up, then the top-up must be proportioned down ……”

  46. British Definition “Cash equivalent” should be read as reference to “transfer value”. “It is a fundamental requirement, stemming from the legislation, that a cash equivalent should represent the actuarial value of the benefits which would otherwise have been preserved. Such actuarial value should represent the expected cost within the scheme of providing such benefits and should be assessed having regard to market rates of return on equities, gilts or other assets as appropriate.”

  47. British Transfer Value 100% funding Market Value of Assets set aside to fund liabilities British Transfer Value Cash equivalent Actuarial Value of Accrued Liability R100 m R130 m R130 m Regulation 15 [2] [a] 15 [2] [c] [I] & [ii] Regulation 15 [2] [b] [Iii]

  48. Transfer of Defined Benefit to Defined Benefit Example Investment Reserve R20 m 100% funding Market Value of Assets set aside to fund liabilities Accrued Value of Actuarial Liability Actuarial Value of Assets R100 m Transfer liability Transfer Assets R120 m R100 m R100 R100 Regulation 15 [2] [b] [Iii] Ignore

More Related