PENSION LAWYERS ASSOCIATION SEMINAR TO BLACK LAWYERS ASSOCIATION

1. 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

2. INTRODUCTION TO PENSION LAW • Interested parties • Management of pension funds • Functioning of funds and service providers

3. INTERESTED PARTIES • Members (employees) • Dependants of members • Employers • State • Trade unions • Board of fund (trustees)

4. 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

5. 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

6. 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

7. 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)

8. 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”

9. 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

10. 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)

12. 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

13. 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

14. 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

15. 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

16. MANAGEMENT OF FUNDS • Principal Officer • Board

17. 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

18. 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)

19. 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

20. 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

21. 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

22. 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)

23. FUNCTIONING OF FUNDS AND SERVICE PROVIDERS • Investment manager • section 19 & regulation 28 • Insurer • Consultant (includes lawyer) • Broker

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