PENSION LAWYERS PENSION LAWYERS ASSOCIATION SEMINAR TO ASSOCIATION SEMINAR TO

BLACK LAWYERS ASSOCIATIONBLACK LAWYERS ASSOCIATION

Samantha DavidsonSHEPSTONE & WYLIE

35 Aliwal StreetDurban

4000Tel: 302 0376 Fax: 302 0822

October 2005

INTRODUCTION TO PENSION LAW

• Interested parties

• Management of pension funds

• Functioning of funds and service providers

INTERESTED PARTIES

• Members (employees)• Dependants of members• Employers• State• Trade unions• Board of fund (trustees)

INTERESTED PARTIES - members and dependants

• Definition of “pension fund organisation”– Provide 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 dependants

• Member is the party for whom the fund was established

• Member contributes to the fund and draws benefits

• Members become:– pensioners– deferred pensioners– former members

INTERESTED PARTIES –members and dependants

• Definition of “dependant”– Member legally liable to maintain– Factually dependent on member

for maintenance (in board’s opinion)

– Spouse of member (including:• Customary union• Union recognised as a marriage

under tenets of Asiatic religion

– Child

INTERESTED PARTIES –employers

• Employers– Defined as “employer

participating in the fund”– Facilitate retirement of older

staff – Attract and retain employees

(stronger fund, better benefits than competitor = attract good staff)

INTERESTED PARTIES –employers

• Worldwide 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 –employers

• Retirement Fund Reform discussion document 2004– Employer must provide

retirement vehicle or payroll facility• Negotiated in employment contract• May increase labour costs• May dis-incentivise move from

informal sector to formal

INTERESTED PARTIES – State

• State – Interested in all 3 tiers of

retirement funding:• Social welfare system

– social old age pension R780 p.m. (means test)

• Fund membership in formal employment (DB and DC funds)

• private, personal provisions (e.g. retirement annuities)

 

1994 2000 2004

Unemployment rate (broad)

31.5% 35.5% 41.2%

Gross saving as % of GDP

16.9% 15.8% 14.8%

HH saving as % of disposable income

2.8% 1.2% 1.1%

Informal Sector with agriculturewithout agriculture

3.331.82

2.171.83

Employment FormalTotal

6.80 7.97

7.43 11.88

8.76 11.98

Social grants as % of GDP

2.00%(2.9mln)

2.50%(7.9mln)

INTERESTED PARTIES –State

• Government encourages people to save for their old age– ease burden on State– therefore offer tax incentives

• Government has interest in ensuring private funds well- managed– legislation & regulatory authorities

INTERESTED PARTIES – trade unions

• Trade Unions endeavour to secure better rights and benefits for workers– demand fund membership– demand additional/different benefits– Demand increased worker

representation on board

• Industry or union-based funds• Opportunity to extend own political

and economic influence

INTERESTED PARTIES –board

• Board – 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 proceedings– Member or former member– Beneficiary or former beneficiary– Participating employer– Board or member of board– “any person who has an interest in a

complaint”

• May be against administrator

MANAGEMENT OF FUNDS

• Principal Officer

• Board

MANAGEMENT OF FUNDS – principal officer

• Appointed by the board• Manage day-to-day affairs of the

fund and convene board meetings– Reports to board– Submits rule changes to Registrar– Advises members of rule changes

• Signs documents for submission to Registrar

• Usually represents the fund in legal proceedings

MANAGEMENT OF FUNDS - board

• Like 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 - board

• Duties of trustees:– Act in terms of rules of fund and

legislation– Joint power requires decision-making

at properly constituted meetings– Fiduciary duty (good faith, proper care

and diligence)– Avoid conflicts of interest– Act impartially– Obtain expert advice– Allocate tasks but no abdication

MANAGEMENT OF FUNDS - board

• Ensure proper administration:– Maintain membership records– Collect and deposit contributions– Calculate and pay benefits– Submit claims for insured benefits– Prepare and submit documents to

Registrar– Maintain fund records for audit and

valuation– Ensure adequate fidelity insurance

against fraud or negligence

MANAGEMENT OF FUNDS - board

• Trustees must make the final decisions on:– Dealing with fund surplus or

deficit– Dependants of deceased

member– Appointment and appraisal of

investment manager

FUNCTIONING OF FUNDS AND SERVICE PROVIDERS

• Administrator – section 13B & regulation 32

• Actuary/valuator – sections 9A & 16 – (exemption: regulation 2)

• Auditor – section 9 & 15 – (exemption: regulation 1)

FUNCTIONING OF FUNDS AND SERVICE PROVIDERS

• Investment manager – section 19 & regulation 28

• Insurer• Consultant (includes lawyer)• Broker

THE END