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Join the Pension Lawyers Association for a panel discussion on the practical implications and processes of surplus schemes and minimum benefits. Explore topics such as the establishment of distributable surplus, apportionment methods, former member top-ups, and more. Gain insights on the costs, challenges, and final distribution involved in surplus schemes. Understand the complexities of minimum benefits for active members and pensioners, including pension increase policies based on equities or bonds. Don't miss this informative session on essential pension fund considerations.
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Pension Lawyers Association Panel discussion – 15 August 2006 Practical Actuarial Issues of Surplus and Minimum Benefits – Coral van Zyl
Discussion topics • Process for surplus schemes • Practical implications of surplus schemes • Process for minimum benefits • Practical implications of minimum benefits
Process for surplus schemes • Establishment of distributable surplus • - Valuation of retirement fund at surplus • apportionment date (SAD) – including • allowance for minimum benefits • - Establish any required contingency reserves • - Make allowance for the cost of exercise • - Finalise any improper use amounts • - Balance is distributable surplus
Process for surplus schemes • Establish scheme for apportionment of • surplus • - Former member top-ups • - Minimum pension increases • - Scheme to apportion residual surplus • apportioned between all stakeholders • method deemed equitable is per historical • contributions
Process for surplus schemes • Practical implementation • - Payment of top ups • - Communication to all stakeholders
Practical implications - Surplus schemes • Costs of the exercise • Time consuming data gathering • Incomplete data records • former member data • historical financial information • minutes of Trustee meetings • previous actuarial valuations
Practical implications - Surplus schemes • Possible to have enough information for a former member to do top-up calculation, but former member cannot be traced. • Apportionment of residual surplus • not always considered palatable to redistribute to former members • possibility for disputes
Practical implications - Surplus schemes • Final distribution of surplus • more detailed former member information required • cost of tracing a member taken out of the individual member’s top up amount • costs of distribution may negate benefit of top-ups for smaller amounts
Post surplus? • Funds behind on statutory valuations and reviews after the SAD • Surplus monies existing in Funds where nil schemes were submitted – not all Funds will have amended Rules for future surplus • Deficits could arisen in Funds where surpluses were distributed • Section 14’s where surpluses have not been transferred need to be revisited
Minimum benefits: • Active members: • BN 37 of 2003 - Trustees decide between : • 40% of Earnings Yield • Index linked gilts minus 0.2% (prior to March 2006 was ILG minus 0.95%) • Payment of minimum benefits to exiting members from 12 months after SAD • Pensioners: • Trustees establish pension increase policy • Apply minimum pension increase every three years
Practical implications – Minimum benefits • Trustees choose between a method effectively based on equities versus one based on bonds • Trustees may not understand the differences • Probable mismatch either way to actual fund return • Market related – could result in inconsistencies from month to month • Member queries more complicated to resolve
Practical implications – Minimum benefits • Pension increase policy • enables decision-making by Trustees • complex to understand • minimum increase in a year of good investment returns are low
