All stakeholders in retirement funds - including your employer - will get to share in the R80 billion pension fund surplus cake, Parliament decided this week.
The issue of whether or not employers have a right to share in any surpluses in pension funds has been a major sticking point between organised labour and business for years.
This week, Parliament's Portfolio Committee on Finance accepted clauses in draft legislation which gives rights to all stakeholders.
The draft legislation - the Pension Funds Second Amendment Bill - deals with who is entitled to share in a retirement fund surplus, how it is to be shared, and also introduces minimum benefits for the first time.
Minimum benefits
The introduction of minimum benefits will stop people who leave funds from getting less than their fair share. An important principle accepted by the committee is that the same minimum benefits will be paid to members who leave funds, whether they resign from a company or are retrenched.
In future, if you are in a defined contribution fund and leave it, you will get your full individual account value - your contributions and your employer's with interest. If you leave a defined benefit fund, you get the market value equivalent of the present value of your accrued service pension.
If the defined benefit fund cannot afford the minimum benefits, there will be a 12-month window period to allow the employer - who would otherwise have to foot the extra costs - to renegotiate benefits with stakeholders.
The bill intends that the benefits of former members and pensioners will be topped up to minimum levels first, and only then will any remaining surplus be shared out among the other stakeholders.
If there is no surplus available, and the employer has not improperly used surplus in the past, there is nothing to share out and you will not get anything.
If there is not enough surplus to top up the benefits of former members and pensioners to minimum levels, they will receive a proportion of the minimum benefit amount.
The surplus sharing scheme
In practice, every fund which currently has a surplus will have to draw up a surplus sharing scheme, following the procedures which are set out in the draft legislation and in the regulations.
The board of trustees of a fund will be responsible for drawing up the scheme.
Cosatu is concerned that the interests of former members - who are not represented on boards - will not be adequately looked after, and will be making suggestions to the committee next week.
The right to object
To ensure that everybody's interests are protected, any objections to the way the surplus is to be shared out must be dealt with before any surplus money is spent.
If you are not happy with the surplus apportionment scheme, you will have two opportunities to complain: Once, prior to the scheme being finalised by the board, which is obliged to inform stakeholders of the details and give them an opportunity to object, and again after the scheme has been approved by the Registrar of Pension Funds.
If the board cannot satisfy all objections, a special tribunal will investigate the matter and make a final and binding decision on how an existing surplus should be split.
Companies paying in
If the amount allocated to an employer under the surplus apportionment scheme is less than the employer has already used improperly - for example, through improving benefits for senior executives to levels not enjoyed by other members - then the employer will have to pay in money.
Employers will also have to pay in if a contribution holiday is taken after the law kicks in but before the surplus is split. If your employer gets to share in the surplus, the company must also be obliged to fund any deficit.
Employers are not allowed to take any of the surplus allocated to them in cash except in two circumstances: Where doing so will prevent significant job losses, and when a fund is closed down.
Employers will not be able to deliberately close down a fund in order to get cash from a surplus. If an employer decides to close down your fund, the fund will automatically have to calculate and pay out minimum benefits to all involved, and any surplus in the fund will have to be divided up according to the necessary procedures.
How much you will get
The draft legislation proposes two types of minimum benefits:
* Minimum pension increases: Pensioners will get the rate supported by the pot of money set aside for pensioners, and taking into account the trustee's plans for future increases, up to a maximum of the full inflation rate from the date of your retirement.
* Minimum individual reserve: This is the amount you will receive - or should have received - from your fund when you leave for reasons other than resignation.
If you are in a defined benefit fund, you will receive your contributions and your employer's contributions with interest. In a defined benefit fund the minimum individual reserve will be calculated according to a prescribed standard calculation method.
Your share in the surplus - and the share allocated to your employer - will not be paid out in cash.
Members will get to share in the surplus by way of, for example, improved benefits or subsidised retirement fund contributions.
Employers will be able to use any part of the surplus allocated to them for a variety of things, including contribution holidays, improving benefits for a particular group of members or paying fund expenses. They can even pay for the post retirement medical subsidies of pensioners.
Only former members who did not receive the full benefit due to them under the draft legislation may be paid out the shortfall in cash. If they have transferred to a new fund, their transfer value will simply be topped up.