Pension surplus: get your own back
WHEN Paul* changed jobs in 2001, he was happy enough with the payout he received from his former employer's pension fund and invested it in a living annuity.
But rumours about a surplus in the company's pension fund kept surfacing and he decided to investigate.
Since the 1980s, most local pension funds moved over from being defined benefit (where the pension benefit due to the member is defined by the fund's rules and is often expressed as a percentage of salary for every year of service) to defined contribution (where the pension benefit is based on your contributions and the investment returns).
However, many of the funds did not transfer their surpluses to the new funds, and many people who withdrew their pension investments in the past 20 years did not get their share of the money.
A pension fund surplus is the assets in a fund that are left after its liabilities (what members are entitled to) and the reserves (protection against unforeseen circumstances) have been taken into account.
After years of queries and submitting numerous surplus claim forms, Paul was informed that there was no surplus and that a "nil apportionment return" had been submitted to the Financial Services Board (FSB) by the fund's trustees.
"I was not prepared to accept this advice and I wrote to the FSB, expressing my concern and requesting them to subject the nil return to critical scrutiny," he told Fin24.com.
His enquiries dragged on for another couple of years. Then, out of the blue, he was informed that a surplus did in fact exist and that qualifying members would receive a payout. He received his part of the surplus earlier this year.
Paradoxically, Paul was very annoyed that the surplus payout was more than the amount paid to him when he retired from the fund. (This could be due to the compounding of the value of the benefit over the years.) The money has had a major effect on his life.
"Given my experience and despite a happy ending to my claim, I believe that there are probably plenty of cases where companies are not treating ex-members fairly.
"If members want their share of the surplus in their funds, this is best achieved by being bloody-minded and persistent."
South Africa adopted legislation in 2001 to force pension funds to repay former members of retirement funds their fair share of surpluses.
Most pension funds were not guilty of any wrongdoing because they paid benefits according to the fund rules. New legislation introduced new minimum benefits to be paid on exiting a retirement fund.
Funds had to implement these minimum benefits retrospectively and, if a surplus existed, this was then used to provide a top-up to the “old” benefit paid earlier.
However, some companies like Alexander Forbes and Sanlam have had to
repay hundreds of millions of rands to members after allegedly assisting
companies to "strip" surpluses from their pension funds.
After long delays, almost R19bn has now been paid out and about 95% of pension funds have finalised their pension surplus apportionment process, with billions more still due to members.
The estimate of a total outstanding amount of R80bn, used by some, has always been known to be an overstatement, says Tommie Doubell, chairperson of the retirement matters committee of the Actuarial Society of South Africa.
He explains that the initial estimate of R80n was calculated before allowing for the new minimum benefits and allowing for reserves to protect funds and members. In addition, the investment returns were also very bad in 1997, 1998 and 2001 (the years between the estimate and the surplus apportionment dates), valuators realised that they needed to proper allowance for improvements in mortality amongst pensioners, and inflation rates and bond yields reduced.
Are you entitled to pension surplus money?
If you were in a defined benefit pension fund, and particularly if you withdrew from the fund prior to retirement receiving only your contributions, there may be a chance that you are owed money.
Defined contribution funds may also have surpluses, although this is less likely than for defined benefit funds, said Doubell.
Since 2001, strict laws have been set in place to deal with the distribution of retirement fund surpluses.
The allocation of a pension fund surplus is determined by the board of trustees of the pension fund and the whole process must be fully documented and communicated, said Doubell.
"The rules that came into effect in 2001 prescribe equitable transfer values and fair treatment of pensioners. It is, however, less likely that huge surpluses will build up as they have in the past. Also, there are very few members left in defined benefit funds, meaning that any future surpluses will be very small."
How to get your money
Doubell recommends that you contact your former employer to determine which fund you were a member of. "Having previous records such as benefit statements is hugely helpful."
Your former employer will then be able to determine if the fund is still in existence and whether there is a surplus in the fund that needs to be distributed.
Doubell explains that once a scheme enters the process of a surplus distribution, then a “former member representative” is appointed. He says former members should contact this person, who is responsible to look after the interests of all former members and help them with submitting a claim.
Paul recommends writing a registered letter to the principal officer of the fund, enquiring whether there is a surplus in the fund and if so, what the status of the apportionment scheme is and when payment will be made.
Also ask that if no surplus exists, whether a nil return had been submitted to the FSB and what the response of the FSB was to the return - whether it was approved, rejected or if it is pending.
If you are not happy with the response from the principal officer, write a registered letter to the FSB, expressing your concern.
"This has the effect of placing the FSB on notice that fund members are disgruntled."
Fund members are given the opportunity to object as part of the process, before the submission is made to the FSB.
Paul's other tips:
- Make every effort to obtain a personal contact and email address of someone at the fund.
- Submit regular queries to the fund and if this does not help, write to the FSB.
- When writing to stakeholders, use registered mail.
- When sending emails, use the receipt function.
- When submitting claim forms, make sure that this is done with scrupulous accuracy.
- Insist on all advices being made in writing - never accept verbal input.
- Make contact with former colleagues and encourage them to hassle the fund.
- Try and obtain a copy of the valuation report on which the surplus is based.
How to protect yourself
Make sure that the management of your pension fund is above board by taking an active interest. Members vote for their trustee representatives and should receive regular feedback from them, said Doubell.
You can raise objections during your fund's surplus distribution process and, if not satisfied, can then object to surplus apportionment schemes by contacting the FSB.