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PENSION LAWYERS ASSOCIATION SEMINAR TO BLACK LAWYERS ASSOCIATION. Samantha Davidson SHEPSTONE & WYLIE 35 Aliwal Street Durban 4000 Tel: 302 0376 Fax: 302 0822 October 2005. INTRODUCTION TO PENSION LAW. Interested parties Management of pension funds - PowerPoint PPT Presentation



    Samantha DavidsonSHEPSTONE & WYLIE35 Aliwal StreetDurban4000Tel: 302 0376 Fax: 302 0822

    October 2005

  • INTRODUCTION TO PENSION LAW Interested parties

    Management of pension funds

    Functioning of funds and service providers

  • INTERESTED PARTIESMembers (employees)Dependants of membersEmployersStateTrade unionsBoard of fund (trustees)

  • INTERESTED PARTIES - members and dependantsDefinition of pension fund organisationProvide annuities or lump sum payments to: members on exit from fund (withdrawal, retirement)Dependants of members or former members on the death of such member or former member

  • INTERESTED PARTIES - members and dependantsMember is the party for whom the fund was establishedMember contributes to the fund and draws benefitsMembers become:pensionersdeferred pensionersformer members

  • INTERESTED PARTIES members and dependantsDefinition of dependantMember legally liable to maintainFactually dependent on member for maintenance (in boards opinion)Spouse of member (including:Customary unionUnion recognised as a marriage under tenets of Asiatic religionChild

  • INTERESTED PARTIES employersEmployersDefined as employer participating in the fundFacilitate retirement of older staff Attract and retain employees (stronger fund, better benefits than competitor = attract good staff)

  • INTERESTED PARTIES employersWorldwide paradigm shift from defined benefit to defined contribution funds-Employer no longer guarantor of last resort-Risk shifted to employees-Representative board of trustees-No longer job for life

  • INTERESTED PARTIES employersRetirement Fund Reform discussion document 2004Employer must provide retirement vehicle or payroll facilityNegotiated in employment contractMay increase labour costsMay dis-incentivise move from informal sector to formal

  • INTERESTED PARTIES StateState Interested in all 3 tiers of retirement funding:Social welfare systemsocial old age pension R780 p.m. (means test) Fund membership in formal employment (DB and DC funds)private, personal provisions (e.g. retirement annuities)

  • 199420002004Unemployment rate (broad)31.5%35.5%41.2%Gross saving as % of GDP16.9%15.8%14.8%HH saving as % of disposable income2.8%1.2%1.1%Informal Sector with agriculturewithout agriculture

    3.331.822.171.83Employment FormalTotal6.80 7.977.43 11.888.76 11.98Social grants as % of GDP2.00%(2.9mln)2.50%(7.9mln)

  • INTERESTED PARTIES StateGovernment encourages people to save for their old ageease burden on Statetherefore offer tax incentives

    Government has interest in ensuring private funds well- managedlegislation & regulatory authorities

  • INTERESTED PARTIES trade unionsTrade Unions endeavour to secure better rights and benefits for workersdemand fund membershipdemand additional/different benefitsDemand increased worker representation on board Industry or union-based fundsOpportunity to extend own political and economic influence

  • INTERESTED PARTIES boardBoard colloquially referred to as the board of trustees

    Section 7A of the Pension Funds Act requires every fund to have a board consisting of at least 4 members, 50% of whom are elected by the members of the fund

  • INTERESTED PARTIES potential clients?Definition of complainant in Adjudicator proceedingsMember or former memberBeneficiary or former beneficiaryParticipating employerBoard or member of boardany person who has an interest in a complaint

    May be against administrator

  • MANAGEMENT OF FUNDSPrincipal Officer


  • MANAGEMENT OF FUNDS principal officerAppointed by the boardManage day-to-day affairs of the fund and convene board meetingsReports to boardSubmits rule changes to RegistrarAdvises members of rule changesSigns documents for submission to RegistrarUsually represents the fund in legal proceedings

  • MANAGEMENT OF FUNDS - boardLike board of directors of company board of trustees is the controlling mind of the fund (except trustees usually voluntary and unpaid)

    Main role to protect members (by ensuring fund follows prudent financial management and admin practices)

  • MANAGEMENT OF FUNDS - boardDuties of trustees:Act in terms of rules of fund and legislationJoint power requires decision-making at properly constituted meetingsFiduciary duty (good faith, proper care and diligence)Avoid conflicts of interestAct impartiallyObtain expert adviceAllocate tasks but no abdication

  • MANAGEMENT OF FUNDS - boardEnsure proper administration:Maintain membership recordsCollect and deposit contributionsCalculate and pay benefitsSubmit claims for insured benefitsPrepare and submit documents to RegistrarMaintain fund records for audit and valuationEnsure adequate fidelity insurance against fraud or negligence

  • MANAGEMENT OF FUNDS - boardTrustees must make the final decisions on:Dealing with fund surplus or deficitDependants of deceased memberAppointment and appraisal of investment manager

  • FUNCTIONING OF FUNDS AND SERVICE PROVIDERSAdministrator section 13B & regulation 32Actuary/valuator sections 9A & 16 (exemption: regulation 2)Auditor section 9 & 15 (exemption: regulation 1)

  • FUNCTIONING OF FUNDS AND SERVICE PROVIDERSInvestment manager section 19 & regulation 28InsurerConsultant (includes lawyer)Broker


    Competing interestsAnnuity is a series of payments paid at pre-determined intervals for a specified period of time (e.g.: pension paid monthly until death)

    Benefits in the event of:retirementwithdrawal due to dismissal, retrenchment, resignationdisabilitydeath (benefit to dependants)

    Only pension funds have pensioners not provident funds as the provident funds relationship with the member ends on retirement when the full benefit is paid out

    Deferred pensioners are rare these days because there is hardly a penalty for withdrawal before retirement. Deferred pensioners are ex-members who leave before retirement and leave their benefits in the fund until they reach retirement age.

    Once all benefits due have been paid, membership terminates and person ceases to be a member then may be referred to as a former member (only claim against fund may to share of surplus)

    Legally liable to maintain or: a person in respect of whom the member would have become legally liable for maintenance, had the member not died

    Child includes posthumous child, adopted child and illegitimate child Distinguish sponsor (party ultimately responsible for fund) from employer (being the party who gives the member a job) usually the same, unless employer is subsidiary company in a large groupDefined benefit funds designed to protect retirement benefits while defined contribution funds allow withdrawal benefits to be calculated easily facilitates job changes as our employment market moves away from the notion of 1 employer for lifeRetirement Fund Reform document published in December 2004 by National Treasury Task Team. Public comment obtained and discussed at NEDLAC with business, labour and community stakeholders to pave way for new Retirement Funds Act.Estimated that over 1.5 million people are [aid over R5 billion in state old age pensions every year and this figure is rising all the time massive burden on the State

    Estimated that only 6% of the South African population is self-sufficient in its old age

    South Africans save a much smaller % disposable income than other industrialised nations

    Statistics taken from Retirement Fund Reform paper December 2004

    Generally it is the goal of National Treasury to improve the savings rate in SA for 2 reasons:

    1. to increase spending in the longer terms and grow the economy steadily

    2. to reduce the reliance on the State for social grants (which have increased exponentially) Examples of legislation: Pension Funds Act Income Tax Act Tax on Retirement Funds Act Financial Institutions (Protection of Funds) Act Financial Advisory and Intermediary Services Act

    Examples of Regulatory Authorities:Registrar of Pension Funds Financial Services Board Commissioner for Inland RevenueEmployers are not legally required to offer membership of a retirement fund as a term and condition of employment, but this is a benefit that trade unions try to secure in all workplaces.

    Examples of additional benefits are: increased rates of contribution by the employer, improved disability, death and funeral benefits funded by the employer.

    An example of different benefits demanded is the shift from pension to provident funds so that the full amount of the benefit available can be taken on retirement (as opposed to a pension fund where only 1/3 can be taken as a lump sum benefit)

    Industry or union-based funds involve many employers

    Example of political and economic influence illustrated in demands regarding investment of fund monies (limit offshore investment and encourage socially desirable or BEE investment)Pension fund is not a trust, so the reference to trustees is not strictly speaking correct, although members of the board owe a fiduciary duty to the fund and all of its members.Duty of good faith act honestly and in best interests of present and future members of fund

    Duty to act with careHandle fund monies with greater care than when dealing with own propertyBe fully acquainted with legal aspects of roleEnsure relevant matters properly covered in meetingsKeep members informed of changes and benefits

    Obtain expert advice trustees not expected to be experts in all fields, but must seek legal, financial, medical, administrative and other expert advice where knowledge lacking. Trustees r