Surplus: What’s happened to the pension surpluses?

30 September 2003, Posted in News

The surplus in pension funds has been hot news lately. In May this year regulations were passed spelling out how Funds must dish out the surplus. Are you wondering what has happened? Read these questions and answers to see if your question is covered. If you have further questions, send them to Numsa News.

Do all funds have surpluses?

No. Retirement funds that have defined benefits like pension funds are more likely to have surplus amounts than provident funds which are defined contribution funds. (Defined contribution funds only pay out what you and your employer have put into the Fund).

How far back must Funds go to decide who will get a share of the surplus?

The Pension Funds Second Amendment Act says that funds have to go back to January 1, 1980 to trace former members. But a member who passed away before December 7, 2001 (when the surplus legislation was passed) is not entitled to any surplus. Cosatu is contesting this regulation.

Who must find the past members?

It is the fund’s responsibility, with trade unions and employers, to try and find and then help former members with claims relating to any surplus that is due to them. This is a free service to members.

What about outside organisations offering to help members to apply for their surplus at a fee?

The Financial Services Board (FSB – it regulates pension/provident funds) does not support these tracing companies. The FSB is seeking legal advice on the matter.

If I am owed benefits from the surplus how will I be paid?

only those who were members and have now left the fund and who took their benefits in cash, will get their share of the surplus in cash.

those former members who transferred their benefits to other funds will have their surplus transferred to the new funds.

those members who are still in the funds (active members) will not get cash. The Fund will put their surplus into their current Fund to improve their benefits.

What about employers? Will they get anything?

The employers will not get any cash. Whatever is due to them they can only use to fund a contribution holiday.

My father was a member of the Pension Fund but he passed away two years ago. Will he get any share of the surplus?

Members of Funds who passed away before December 7, 2001 (when the surplus legislation was passed) will not be entitled to any surplus.

Will every member of the Fund be treated equally?

No. The regulations say that funds should:

Treat members in pension funds differently from members in the provident funds

Treat active members differently from former members

Treat active members differently from pensioners.

What process must each Fund follow before it can hand out its surplus?

Each fund must:

Determine the surplus amount in the fund

Appoint a representative for former members

Obtain former member records

Work out if employers misused the past surplus (eg. they used it to improve bosses benefits, took a contribution holiday after December 2001, or other actions without the approval of fund members or their union)

Enhance the benefits of former members and pensioners to minimum benefit levels – what the actuary of the fund considers to be the fair and equitable value of a member’s fund credit.

If there is any surplus left over after doing this, then the Fund must split any surplus that remains equally among stakeholders (i.e. former members, current members, employers) after considering the financial history of the fund

Communicate scheme and consider objections

Get the Registrar of Pension Funds to approve the scheme.

What happens if a member does not know about the surplus and doesn’t claim?

There is also a proposal from government to establish an unclaimed benefits fund which will house all the unclaimed benefits from the various funds. The national treasury department will run the Fund with a full board of trustees. Members who can’t be traced now can claim from this national fund at a later stage.

When can I expect something from the Funds in the metal industries?

The earliest you could get something is from September 2004 onwards, but remember:

only members who have left the Fund and have taken their benefits in cash can get cash.

all other members will receive their benefits as a Fund credit.

What about the Funds in the motor industry (i.e. Autoworkers Provident and Pension Funds)

The actuaries are busy putting a value to the Funds and establishing if there is a surplus. Once the valuations are complete, a clear picture will emerge as to how things stand.

And remember:

only members who have left the Fund and have taken their benefits in cash, can get cash.

all other members will receive their benefits as a Fund credit.

What about companies that have their own company schemes eg. auto manufacturers, house agreement companies and so on.

The different in-house schemes will handle the surplus distribution individually. Members who belong to these funds will need to contact their former employers and administrators of the funds to find out whether there is any surplus due to them.

And remember:

only members who have left the Fund and have taken their benefits in cash can get cash.

all other members will receive their benefits as a Fund credit.