A preliminary ruling by the Pension Funds Adjudicator may give companies the right to distribute the surpluses in their pension funds without regard to the fund's former members.
The row over who owns the surpluses in many of South Africa's pension funds is about to re-open in the wake of a preliminary finding by John Murphy, the Pension Funds Adjudicator, and a challenge to the Registrar of Pension Funds by the Institute of Retirement Funds.
In effect, Murphy's preliminary ruling means that all applications made to the Financial Services Board (FSB) before the introduction of the surplus distribution legislation on December 7 last year, will now have to be considered in terms of earlier legislation, which gave former members of retirement funds no rights.
This means that many companies that were about to plunder the surpluses held in their sponsored retirement funds may still be able to do so. And former members of these funds may not have the right - as accorded to them in the new surplus legislation - to claim a share of the surplus.
The FSB put a hold on all applications submitted to it for what are called Section 14 transfers. Granting the Section 14 transfers would have allowed surpluses to be distributed more than a year before the new surplus legislation was enacted. But at that time, the FSB stated that it would deal with the applications in terms of the new legislation.
However, on June 14 this year, the FSB sent out a circular which stated that, in terms of legal opinion it has received, the Registrar of Pension Funds (who operates within the FSB) will have to re-open all the applications the board received before December 7 last year, but which had been held over until the surplus legislation was enacted.
The FSB sought legal advice after the Institute of Retirement Funds challenged the FSB's ruling that all outstanding distribution applications made before the new surplus legislation was enacted would be decided in terms of that legislation.
The registrar has given all funds that had their distribution applications turned down in terms of the new legislation the opportunity to re-apply. However, the registrar has not stated exactly how the re-applications will be considered.
The FSB could not tell Personal Finance yesterday how many funds and how much money could be at stake in the light of Murphy's ruling and the reversal of its position.
Jeremy Andrew, the chief actuary at the FSB, who was mainly responsible for drawing up and negotiating the much-disputed surplus legislation, told Personal Finance that he was unable to comment until he had read Murphy's ruling and discussed the issue with his colleagues.
Murphy says of his ruling that he did not "come to this conclusion with any measure of comfort".
"If this (preliminary ruling) is indeed the correct legal position, it means possibly that a significant number of funds might have been able to circumvent the surplus legislation and the obligation to consider the interests of former members..."
Murphy says the new legislation should have contained a provision that all pending applications were subject to it.
During the debate before the legislation was approved by Parliament, there was a major difference of opinion between trade unions and employer organisations over the position of former members of pension funds, who had not received any benefits from surpluses when they transferred out of retirement schemes.
This was particularly the case when unions established their own schemes and members transferred out of employer-sponsored schemes without receiving a portion of the accumulated surpluses.
Murphy says that because of the "undoubted importance of this matter", he is reluctant to make a final ruling without giving all interested parties, including the FSB, an opportunity to make representations.
He says this is especially necessary because he has not had the benefit of proper legal arguments, either in a hearing or in papers.
Murphy's preliminary ruling follows a complaint by O'Brien Winterton against the Rennies Group Pension Fund, of which Winterton was a member.
In 1990, when Winterton resigned from the fund, he only received his own contributions and not those of his employer. Winterton wants a share of the surplus, in terms of the new pension legislation.
The Rennies pension fund is being restructured because the Bidcorp group has taken over Rennies. The Rennies and Bidcorp pension funds are to be merged. The intention is to place all assets of the Rennies funds, including an R85 million surplus, in Bidcorp's pension funds.
In terms of Murphy's ruling, Winterton is not entitled to a share of the surplus because the application for the transfer of the surplus to the existing members and to the Bidcorp funds was made three months before the legislation was enacted and should be dealt with under the old legislation.