The controversial Pension Funds Second Amendment Bill was passed by parliament's Portfolio Committee on Finance yesterday, bringing to an end years of wrangling between organised labour and business about who is entitled to a share of surpluses - worth R80 billion - in retirement funds around the country.
The battle over ownership of surpluses has been raging since 1998 when an earlier draft Bill was kicked out of parliament. Even Nedlac - the joint government, labour and business negotiating body - was unable to reach consensus on the Bill after more than a year of debate.
The Bill passed by the committee yesterday entrenches minimum benefits for the first time, and sets out the procedures for dividing any surplus assets in a fund.
Surpluses have arisen in defined benefit funds for several reasons:
* Members have moved to other funds and the value of their portion of the fund transferred to their new fund was less than what should have been;
* Low pension increases and returns to members; and
* A conservative approach to funding, which saw employers pay more than necessary into the fund to take care of possible poor market returns.
Surpluses may also occur in defined contribution funds, but these are mainly due to a portion of the surplus in the original defined benefit fund being transferred when members transferred to the defined contribution fund.
What the Bill means for you
The bottom line is that everybody - active fund members, pensioners, former members and employers - will share any existing surplus.
If there is no surplus in the fund at present, there will be no payout.
But if it is found that there was a surplus and your company (or former company) used the surplus improperly, that money will have to be paid back and will be shared out according to the draft Bill.
An amendment made to the Bill yesterday strengthened the protection of members by obliging the Registrar for Pension Funds to ensure that companies repaid these debts.
The Bill gives rights to former members going back 20 years to January 1980.
If there is a surplus in a fund, first the benefits of former members, as well as pensioners, will be topped up to minimum levels, then any residual surplus will be shared out among all groups. Money allocated to members or pensioners will be used to enhance your benefits.
The surplus sharing scheme
Each fund will have to prepare a surplus sharing scheme and if you are a a member, former member, pensioner, or employer, you have the right to be informed about the details of the sharing scheme.
You may object if you feel the sharing scheme is not fair to you and no surplus money may be spent until all objections have been dealt with.
Within four years of the Bill being made law, all funds that have surpluses will have to come up with a surplus sharing scheme.
The draft Bill also obliges funds to seek out all former members but this may be difficult because records are not always kept for that long.
If you belonged to a fund and left that fund over the past 20 years, you can make sure you don't miss out by writing to the fund giving it as much relevant information about yourself, especially your contact details, as possible. Also send a copy of the letter to the Financial Services Board. Its fax number is (011) 347 8787.
An important amendment accepted by the committee this week, states that a special person will be appointed by your former fund's board of trustees to represent the interests of former members.
The rights of existing members and employers are taken care of by the board of trustees, consisting of member- and employer-elected trustees.
Members and pensioners don't have to do anything, because once the draft Bill becomes law, if your fund is in surplus, it will have to follow specified procedures.
In future, all funds will be obliged to pay minimum benefits to their members. This includes minimum pension increases as well as minimum benefits for people who leave funds prior to retirement.