OWN CORRESPONDENT, Johannesburg | Monday
LOCAL pension funds are repatriating surpluses of R80bn to employers while they grant pensioners increases of only 1%, according to the authoritative British actuarial association magazine, The Actuary.
Beeld newspaper reports that Roger Wellsted, the South African consultant who wrote the article, claims that many South African pensioners had to make do with an increase of 1% last year due to the decline in the Johannesburg Stock Exchange the previous year.
Their pension funds would, however, have been capable of granting increases of at least the inflation rate, despite the decline on the bourse, had the investment reserve portion of the total actuarial reserves been transferred to the pensioners, Beeld said.
“What this boils down to is that struggling pensioners spend less money in the economy, while enormous surpluses in the pension funds are just lying there waiting to be transferred to the employer companies,” wrote Wellsted.
His article, appearing in what is probably the world’s most authoritative magazine for actuaries, is a major embarrassment to the South Africa actuarial profession. A South African actuary has to be a member of one of the two British actuarial associations in order to be able to practise here.
According to the Beeld report, the Chemical Workers Union recently established that almost 40% of the assets of trade union members in the Sentrachem Pension Fund were retained in the fund when the trade union members of the fund were transferred to a provident fund.
A case against the fund, to be paid for by a Swedish organisation, will be brought before the High Court. The court case will be a group action. In 1995 this fund was worth R650m, with a deficit of R57m worth of investment returns budgeted for. Three years later in 1998, however, the fund showed a surplus of over R400m after transferring most of its members.
Professor John Murphy of the University of the Witwatersrand found in an arbitration ruling that a investment reserve is declared as an actuarial surplus. According to Murphy, a pension fund surplus is defined as the difference between the market value of assets and the size of a fund’s liabilities.
This view is in flagrant contradiction to British actuarial practice, in terms of which a surplus is defined as the difference between actuarial value and the liability. This makes a huge difference in the value of the money transferred to employees and pensioners, said Beeld.