Abstract
The Pension Funds Second Amendment Act, 2001 required funds to provide statutory minimum benefits for exiting members and pensioners. Any surplus arising at the statutory valuation following the promulgation of this Act was to be distributed - initially to former members and pensioners to top up their benefits to the statutory minimum, and then equitably to all stakeholders. Surplus available in retirement funds was originally estimated at R80bn, but the surplus distributed by May 2012 was only about R47,6bn. This paper considers some reasons for this discrepancy and, in particular, gives an analysis of 447 surplus valuation reports. It shows that, by strengthening their valuation assumptions and motivating contingency reserves, actuaries reduced the surplus by R10bn for these 447 funds. The paper questions whether the strengthening of valuation bases was justified and examines critically the new actuarial methods introduced following the promulgation of the Act.
Highlights
1.1 Before the promulgation of the Pension Funds Second Amendment Act (PFSAA)1 on 7 December 2001, the surplus in retirement funds was estimated at R80bn
2.2.2 Andrew sets out the conflicting positions of labour and business in August 2000 when discussions crystallised into a deadlock: Labour’s position was that: ——former members who had transferred to a defined contribution (DC) fund should have received at least their accrued liability multiplied by the ratio of the fair value of assets to the actuarial value of assets, and past transfers should be amended to reflect this; and ——actuarial surplus belonged to the retirement fund and should be used for the benefit of the members of that fund unless it could be shown to have resulted from deliberate over-contribution by the employer
There may be some bias in the sample as most of the reports were completed earlier than average and viable analysis-of-surplus information was available for these funds
Summary
1.1 Before the promulgation of the Pension Funds Second Amendment Act (PFSAA) on 7 December 2001, the surplus in retirement funds was estimated at R80bn. Section 15B of the PFSAA required that the surplus at the statutory valuation following the promulgation of the Act (the ‘surplus valuation’) should be distributed. Cit.) sets out the conflicting positions of labour and business in August 2000 when discussions crystallised into a deadlock: Labour’s position was that: ——former members who had transferred to a DC fund should have received at least their accrued liability multiplied by the ratio of the fair value of assets to the actuarial value of assets, and past transfers should be amended to reflect this; and ——actuarial surplus belonged to the retirement fund and should be used for the benefit of the members of that fund unless it could be shown to have resulted from deliberate over-contribution by the employer (i.e. payment by the employer of more than the amount recommended by the actuary). Restitution would be extended to all former members, but only if there was sufficient actuarial surplus at the actuarial valuation following the promulgation of the PFSAA In such cases, there would be a compulsory distribution of surplus, but thereafter the former members’ rights would cease. 2.3 WHAT SURPLUS? 2.3.1 It is clear from the Pension Funds Act, 1956 (“the Act”) and the PFSAA that the surplus valuation is a financial-soundness valuation to determine both the reserves to be held and the contribution rate required in the future
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