A summary of this committee meeting is not yet available.
FINANCE PORTFOLIO COMMITTEE
30 AUGUST 2006
PENSION FUNDS ACT: FINANCIAL SERVICES BOARD BRIEFING ON PROPOSED AMENDMENTS
Chairperson: Mr N Nene (ANC)
Documents handed out:
Financial Services Board Presentation of Proposed General Amendments to the Pensions Funds Act: Part1 & Part2
The Financial Services Board presented the Committee with changes it proposed making to the Pensions Funds Act. They did not involve any changes to policy or to existing principles but were a response to some of the operational challenges the Financial Services Board was facing. For example, various provisions had to be added to give more power to the registrar to tell funds to refrain from doing certain activities coupled with the power to revoke the approval of any fund administrator.
There were many problems with the concept of the “surplus” so changes were needed. The Financial Services Board wanted to include “improper uses” in the definition of “actuarial surplus” and include transfers and other special payments in the definition of “contribution minimum benefits.”
The Committee was dissatisfied with the lack of detail in the presentation. They agreed that they required a more detailed and comprehensive presentation from the Board before they could apply their minds to the proposed amendments.
Financial Services Board (FSB) presentation
Mr J Boyd, FSB Deputy Executive Officer of Pension Funds, began by saying that the proposed amendments did not involve any changes to policy or to existing principles. This would be left to the pension fund reform process that was going to begin shortly. The proposed changes here were a response to some of the operational challenges the FSB was facing. Some of these challenges arose from some of the determinations by the Pension Funds Adjudicator, certain issues had to be clarified and other issues flowed from the bulking/secret profits activities of some fund administrators.
To begin with, the FSB wanted all Bargaining Council Funds (BCFs) to be regulated by the Pension Funds Act with current registered funds remaining registered. Unregistered funds had to register on or before 1 January 2008 and all BCFs had to undergo surplus apportionment.
Mr Boyd said that various provisions had to be added to give more power to the registrar. For example, the registrar needed the power to tell funds to refrain from doing certain activities coupled with the power to revoke the approval of any fund administrator. The registrar also needed the power to alter the basis of management of funds, to issue directives and to impose administrative penalties. The FSB also wanted to widen the definition of “adjudicator” to enable the Minister to appoint a deputy/acting adjudicator.
For death benefits, an amendment to Section 37C was required so that upon the death of the pensioner, the spouses and children’s benefits could only be paid to those individuals and could not be redirected to other beneficiaries. On the issue of divorce orders, benefits to non-member spouses would be payable on production of the divorce order.
The FSB had a statement of intent with the Treasury and were still in consultation with them on a number of issues such as the compulsory transfers between retirement annuity funds and the clarification of the responsibilities and duties of trustees of retirement annuity funds.
Mr M Codron, FSB Chief Actuary, added that Section 14 that allowed for the transfer of assets and liabilities between two funds or one fund and another not registered under the Act was no longer needed in certain cases. The reason for this was that in practice, the Registrar did not add any value to the process. Thus, this requirement should be removed where both funds were exempt, one fund valuation was exempt and the other was not registered under the Act and where there were two participating employers in a valuation exempt fund.
An area that required major review was the Surplus Apportionment Act. The Act came into force on 7 December 2001 and the Surplus Apportionment date was a fixed date during the period of 7 December 2001 to 7 December 2004. Funds had 18 months to submit their schemes and the last scheme was due to be submitted on 7 June 2006. Former member representatives (FMR) had to be appointed if there was a surplus. The surplus value was the actuarial valuation less the acceptable contingency reserves, less the costs of the exercise and plus any misuses (which were defined in the Act).
The surpluses were dealt with in two tiers. In the first tier split, former members who left after 1 January 1980 received minimum benefits. Current pensioners would receive minimum increases. If the surplus was not enough, the above disbursements were reduced proportionately. The second tier split would occur if there was a residual surplus. It had to be shared between the current members, the former and current members (again) and the employers. Whether this would occur was based on the financial history of the fund after the determination of the trustees.
To submit the scheme to the FSB, 75% of the trustees had to agree and the FMR had to approve the plan as well. The trustees had to communicate this information to all the fund members and allow 12 weeks for any objections which had to be considered and resolved. The fund would then be submitted to the registrar.
If the registrar agreed that the scheme was reasonable and equitable and it recognised the rights and reasonable benefit expectations of all the stakeholders, it was approved. If not, the submission would be queried. An ad hoc tribunal would be appointed if the scheme was not submitted, if the board or FMR requested it or if the registrar was not satisfied. The tribunal‘s decision was binding on all the parties.
Mr Codron said that there were many problems with the concept of the “surplus” so changes were needed. The FSB wanted to include “improper uses” in the definition of “actuarial surplus” and include transfers and other special payments in the definition of “contribution minimum benefits.” They also wanted to exclude funds that commenced after 7 March 2002 as the rules that regulated them were in line with the current legislation. For pensions, the amounts and dates for minimum increases had to be clarified.
The definition of “improper uses” had to be changed as well. “Cost” had to include fund return up to surplus date and thereafter to date of settlement. The meaning of selected members also had to be clarified along with who an employer was for the purposes of “improper uses.” Also, the actuarial report had to be considered as part of the surplus scheme and if not satisfied with the valuation, the registrar should be allowed to request a tribunal.
The FSB wanted also wanted nil schemes (that had no surplus) to be submitted to the registrar, members and former members, and the registrar should be allowed to object to the scheme on acceptable grounds. For umbrella funds, each participating employer should be treated as a separate fund for surplus purposes.
Mr I Davidson (DA) said that the appropriate thing was for the FSB to provide the Committee with the proper motivation for why these changes were necessary. He was unhappy about the presentation and he simply did not understand what was going on.
Dr M Van Dyk (DA) echoed these sentiments by saying that the Committee needed a presentation by the FSB outlining their current practices, what went wrong and what the reasons were for the amendments.
The Committee agreed that they required a more detailed and comprehensive presentation from the FSB before they could apply their minds to the proposed amendments.
Mr Boyd apologised for the inadequate presentation and promised to provide the Committee with a more comprehensive presentation in the near future.
The meeting was adjourned.