Issue: December 2006/ January 2007
PENSION FUNDS ACT
Kings of the castle
The Registrar and the Adjudicator are to get more muscle. Act amendments also have a curious omission on fund surpluses that leaves some fund members unprotected.
A surprise in the proposed amendments to the Pension Funds Act, circulated for public comment by the Financial Services Board in October, is really for what hasn’t been included.
In particular, the proposals make no provision for the Unclaimed Benefits Fund (UBF) that the Registrar of Pension Funds wants so badly to establish. The idea of the UBF is to protect the proportions of “surplus” earmarked for people who cannot be found by the funds of which they had been members. This omission implies that retirement funds, when they are unable to find some of their former members, will be able to distribute these former members’ shares of the surplus among remaining members and other stakeholders.
The amendments aren’t intended to give effect to the major policy changes intended by National Treasury two years ago. Instead, according to attorney Rosemary Hunter, there are two main purposes. One is to correct some of the drafting errors in the minimum-benefits and surplus-apportionment provisions of the Act. The other is to give the Registrar additional powers for control over trustees and fund administrators in the interests of members.
If the Act is changed as contemplated in the proposed amendments:
- The Registrar will be empowered to disallow “contingency reserve accounts” he thinks are being used to “hide” surplus that might otherwise be available for apportionment. He will also be able to reject a surplus-apportionment scheme if he does not believe the valuation report (on which it’s based) was prepared on actuarially sound and acceptable principles;
- When determining whether a fund has “surplus” available for apportionment, the amount of any “past improper use of surplus” will have to be taken into account;
- The amount of “past improper use” for which an employer may be held liable will have to be increased from the date of its “use” to the date on which the employer pays by the equivalent of the “fund return” (the investment return earned by the fund over the corresponding period less investment expenses). The Registrar will be able to determine the period within which the employer’s debt must be paid;
- Stakeholders will be entitled to interest on their shares of surplus from the surplus-apportionment date to the dates on which they are paid at a rate equivalent to “fund return”;
- Bargaining council funds that have registered in terms of the Pension Funds Act will be subject to this Act, and all other bargaining council funds will be subject to it from January 2008. Their members will be able to refer complaints against those funds to the Pension Funds Adjudicator and the funds will have to apportion their surpluses in the same way as other funds subject to the Act;
- Unmarried partners, including same-sex and opposite-sex partners who have lived together in a “marriage-like” partnership for at least five years, will be entitled to the same benefits as people formally married to fund members;
- Fund administrators will have to furnish information to the Registrar, on request by him, so that he can more properly supervise them. After an inspection into an administrator’s affairs, the Registrar will be able to issue directives to the administrator and impose penalties on it if fails to comply with the conditions for its approval as an administrator in terms of the Act. He will even be able to direct the administrator to stop administering the fund, in which case the fund’s board will have to appoint a new administrator;
- A transfer of assets and liabilities from one valuation-exempt fund to another will not have to be approved by the Registrar provided certain conditions are met;
- Members of retirement-annuity funds will be able to move to other retirement-annuity funds if they so wish;
- Pensioners and deferred pensioners will be entitled to certain minimum benefits. But if a fund’s liabilities for a pensioner are underwritten in terms of an insurance policy, the pensioner will be entitled only to the pension paid to the fund in terms of that policy. Similarly, if a pensioner in terms of the rules of a fund elected a “level pension” or a pension with pre-determined increases, he or she will be unable to demand the minimum pension increases to which he or she would otherwise have been entitled;
- Pension funds will not be required to grant pension increases that would make the fund financially unsound;
- The Registrar will be able to order that a “compliance visit” be made to a fund to oversee compliance with the rules of the fund and the Act. If he believes compliance is defective, he will be able to direct that the rules of the fund be amended. If a fund does not have a board constituted in terms of section 7A of the Act, he will be able to appoint an interim board to manage the fund until a properly constituted board has been appointed;
- The Registrar will be able to direct a trustee to vacate his or her office if, after a hearing, he believes the trustee is not a “fit and proper” person to hold that office;
- The Minister of Finance will be able to appoint an Acting Pension Fund Adjudicator to do the work of the Adjudicator if there is no Adjudicator in office. He will also be able to appoint Deputy Adjudicators so that the workload of the Adjudicator may be reduced;
- If a person aggrieved by a determination of the Adjudicator applies to the High Court for a determination to be set aside, the High Court will have to decide the matter on the basis of the information given to the Adjudicator and will not be able to take into account any new information;
- The Registrar’s guidance notes (his PF Circulars) will be given the force of law;
- The Registrar will be empowered to impose “administrative penalties” on a pension fund for any failure by it to comply with the Act;
- It will be clear that spouses’ and orphans’ pensions do not have to be distributed in terms of section 37C of the Act, although these are benefits “payable on the death” of a member.
The proposals do offer much-needed clarity, not all of it likely to be without contention, and advance the scope for sharpened interventions by the Registrar. And they certainly strengthen the Adjudicator in the conflagrations he’s experienced with High Court challenges from the life offices.