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[2016] ZASCA 130
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Registrar of Pension Funds v British American Tobacco Pension Fund and Others (664/2015) [2016] ZASCA 130; [2016] 4 All SA 812 (SCA) (28 September 2016)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
No: 664/2015
In
the matter between:
THE
REGISTRAR OF PENSION FUNDS
APPELLANT
and
BRITISH
AMERICAN TOBACCO PENSION FUND FIRST
RESPONDENT
C
T HOWIE
NO
SECOND RESPONDENT
J
D PEMA
NO
THIRD RESPONDENT
J
M DAMONS
NO
FOURTH RESPONDENT
Neutral
citation:
The
Registrar of Pension
Funds v British American Tobacco Pension Fund
(664/2015)
[2016] ZASCA
130
(28 September 2016)
Coram:
Cachalia,
Shongwe, Petse and Dambuza JJA and Dlodlo AJA
Heard:
13
September 2016
Delivered:
28
September 2016
Summary:
Pension
Funds Act 24 of 1956
: interpretation : whether
s 15H(1)
overrides
s
15D(2)
read with
ss 15A(2)
and
15A
(4).
ORDER
On
appeal from:
Gauteng
Division of the High Court, Pretoria (Potterill J sitting as court of
first instance), judgment reported sub nom as
British
American Tobacco Pension Fund v Howie NO & others
2016
(1) SA 398
(GP):
1
The appeal is upheld with costs;
2
The order of the court a quo is set aside and the following order is
substituted
therefor:
‘
The
application is dismissed with costs.’
JUDGMENT
Cachalia
JA (
Shongwe,
Petse and Dambuza JJA and Dlodlo AJA
concurring)
[1]
This appeal concerns the interpretation of various provisions of the
Pension Funds Act 24 of 1956 (the Act). The judgment appealed
against
emanates from Potterill J, sitting in the Gauteng Division of the
High Court of South Africa (Pretoria). She upheld an
application by
the first respondent (‘the Fund’) to review and set aside
a decision of the Financial Services Board’s
Appeal Board. The
Appeal Board had dismissed the Fund’s appeal against the
registrar’s decision to reject a statutory
actuarial valuation
of the Fund as at 30 September 2007 on the ground that it did not
correctly reflect the financial condition
of the Fund. The court a
quo accepted the Fund’s submissions and held that the Appeal
Board had erred in dismissing the appeal.
The registrar, who is the
appellant in the present proceedings, maintains that the court a quo
was wrong to have set aside the
Appeal Board’s decision, and
seeks to reinstate it.
[2]
In a nutshell this is how the dispute arose. Section 15B of the Act
provides for a pension fund to submit a scheme to the registrar
for
the proposed apportionment of an actuarial surplus in the fund
between various classes of stakeholders whom the Fund has selected
to
participate in the apportionment. On 1 February 2006 the Fund
submitted a scheme, referred to as the surplus apportionment scheme,
to the registrar for allocation of a surplus in the Fund to members,
former members, pensioners and deferred pensioners. The date
when the
scheme would take effect was 31 March 2002, which is referred in the
papers as the surplus apportionment date.
[3]
The registrar approved the scheme on 28 November 2006, but it had not
yet been implemented when the Fund’s actuarial valuation
as at
31 March 2005, submitted to the registrar on 6 September 2007,
revealed a deficit. A further valuation prepared for the Board,
in
September 2007, also revealed a deficit as at 31 October 2006.
The actuarial reports of those valuations explained that
the Fund was
in deficit if one disregarded the surplus allocation.
[4]
The Fund thus prepared a report as at 30 September 2007 showing no
deficit, and submitted it to the registrar. The report revealed
that
the Fund had used a portion of the allocation approved by the
registrar to reduce the deficit. The Fund contends before us,
as it
did in the court a quo, that it was entitled to reduce the deficit in
this way by resorting to s 15H(1), which permits any
credit-balance
in a member or employer surplus account to be reduced so as to reduce
a deficit following an actuarial evaluation.
However, the registrar
contends that s 15H(1) does not apply once the surplus apportionment
scheme is approved. He maintains that
s 15D(2), read with ss 15A(2)
and (4), required the Fund to use the surplus only in the manner
specified in the surplus apportionment
scheme after he had approved
it in terms of s 15B(9). And so, acting in terms of s 15(3)
read with s 16(9) of the Act he
was obliged to reject the 30
September 2007 report because, by using the deficit to reduce the
approved allocation in this manner,
the report did not reflect the
Fund’s correct financial condition. These conflicting
contentions lie at the heart of this
appeal.
[5]
It is evident from what I have said that the provisions of the Act
germane to the resolution of this dispute are ss 15A, 15B,
15D and
15H. Their relevant parts are set out later in this judgment. I think
it is appropriate to first set out the background
facts, which are
fairly detailed in the registrar’s heads of argument. In this
regard, special note must be taken of the
dates mentioned in the
chronology that follows because it is important to understand the
process by which the actuarial surplus
was apportioned and its impact
on the rights of beneficiaries, once the registrar approved the
surplus apportionment scheme.
[6]
The Fund is a closed defined benefit fund established with effect
from 1 February 1951. It was previously known as the
Rembrandt
Pensioenfonds, the Rembrandt Groep Pensioenfonds and the R & R
Pension Fund.
[7]
The date of the Fund’s first statutory actuarial valuation
following the commencement of the
Pension Funds Second Amendment Act
39 of 2001
, and hence its surplus apportionment date for purposes of
s 15B
, was 31 March 2002.
[8]
On 1 February 2006 the Fund submitted a scheme for the apportionment
of an actuarial surplus in the Fund as at 31 March 2002
to the
registrar for approval in terms of
s 15B(9)
(h)
and
(i)
.
In this regard the following facts are relevant:
(i)
A statement by the principal officer setting out the scheme is dated
23 December
2005.
(ii)
A letter from the Fund’s consultants and actuaries, Alexander
Forbes Financial
Services (‘Alexander Forbes’), under
cover of which that statement and the other scheme documents were
submitted, is
dated 26 January 2006.
(iii)
The scheme stated that the Fund had an actuarial surplus on 1 April
2002 of R236 635
000 to which R1 624 000 should be
added in terms of
s 15B(5)
(a)
and (6), giving a total surplus
available for apportionment of R238 259 000.
(iv)
The scheme entailed non-discretionary (first-tier) apportionments in
terms of
s 15B(5)
(b)
to pensioners of R1 475 000
and former members of R39 911 000; and discretionary
(second-tier) apportionments
in terms of
s 15B(5)
(c)
to
three classes of former members totalling R62 006 000, to
existing members of R3 354 000, to pensioners of
R12 925 000, to deferred pensioners of R463 000 and to
the participating employer of R118 124 000.
(v)
The scheme stated that the amounts apportioned to former members,
existing members,
pensioners and deferred pensioners would be
credited to the member surplus account.
(vi)
The general communication to stakeholders by the Fund’s board
of trustees dated 15
July 2005, which was submitted to the registrar
in terms of
s 15B(9)
(d)
, added that: the apportionments
to former members would be paid to them in cash; the apportionments
to active members would be
kept in the Fund for them to purchase
additional retirement benefits; the apportionments to pensioners
would be available either
as lump sum payments or to increase their
monthly pensions; and the apportionment to the employer would be
transferred to a reserve
account in the Fund for the employer’s
use on behalf of employees.
(vii)
The statements in general communication to stakeholders as to the
manner in which the apportionments
to former members, existing
members and pensioners would be used, were borne out by the examples
of letters dated 30 June 2005
sent to former members, existing
members and pensioners, which were also submitted to the registrar in
terms of
s 15B(9)
(d)
.
[9]
On 16 March 2006 Alexander Forbes submitted the report on its
actuarial valuation of the Fund as at 31 March 2002, ie the actuarial
valuation report to which the scheme related, to the registrar in
terms of
s 15B(9)
(a)
.
Conformably with the scheme it stated the actuarial surplus of the
Fund on that date, before any addition in terms of
s 15B(5)
(a)
and (6), was R236 635 000.
[10]
On 20 April 2006 the registrar queried some aspects of the actuarial
valuation and the scheme with Alexander Forbes. He asked
Alexander
Forbes to attend to these matters and to re-submit an application in
terms of
s 15B.
On 31 October 2006 Alexander Forbes submitted a
revised scheme for the apportionment of the actuarial surplus in the
Fund as at
31 March 2002. Of relevance here is the following:
(i)
The statement by the principal officer setting out the revised scheme
is dated
24 October 2006.
(ii)
The letter from Alexander Forbes under cover of which that statement
and the other
documents were submitted, is dated 31 October 2006.
(iii)
The parts of the original scheme described in sub-paragraphs (iii) to
(v) in paragraph
eight above, remained the same in the revised
scheme.
(iv)
The documents submitted did not include further copies of the general
communication to
stakeholders and examples of letters to stakeholders
described in paragraphs (vi) and (vii) in paragraph eight above,
presumably
because the registrar already had them.
(v)
The main change from the scheme submitted in February 2006 entailed
the submission
of a revised actuarial valuation report of the Fund as
at 31 March 2002, dated October 2006, which adjusted the actuarial
values
of the Fund’s liabilities and contingency reserves, but
not the value of the actuarial surplus.
[11]
On 28 November 2006 the registrar approved the revised scheme in
terms of
s 15B(9)
(h)
and furnished Alexander Forbes with
a certificate in terms of
s 15B(9)
(i)
. On 6 September 2007
Alexander Forbes submitted the report on its actuarial valuation of
the Fund as at 31 March 2005 to the registrar.
This was the Fund’s
statutory actuarial valuation date following the previous one on 31
March 2002. The following emerges
from the report:
(i)
It states that if the value of the assets relating to the 31 March
2002 surplus
apportionment exercise is left out of account (a total
of R279 534 000), the Fund now had an actuarial deficit of
R37 181 000.
(ii)
It says that after the actuarial valuation of the Fund as at 31 March
2002 had been
finalised, further information became available, which
increased the surplus available for apportionment on that date by
R5 167 000
from R236 635 000 to R241 802 000.
[12]
During September 2007 Alexander Forbes prepared a report on an
interim actuarial valuation of the fund as at 31 October 2006
for
consideration by the Fund’s board of trustees (but not the
registrar).
(i)
It states: ‘[t]he valuation was specifically performed to
determine whether
the Fund was in deficit immediately prior to the
Registrar’s approval of the Fund’s surplus apportionment
scheme in
November 2006 and, should that be the case, to determine
the level of the reduction in the Member and Employer Surplus
Accounts
in terms of
s 15H
of the
Pension Funds Act prior
to the
implementation of the surplus apportionment scheme.’
(ii)
And further that if the value of the assets relating to the 31 March
2002 surplus
apportionment exercise is left out of account (a total
of R300 005 000), the Fund had an actuarial deficit on 31
October
2006 of R53 659 000.
(iii)
It continues: ‘Following discussions with the Employer after
the valuation date,
the Employer agreed that the deficit as at 31
October 2006 should be reduced by an amount that equals the value of
the Employer
contributions since 1 April 2002 [the Employer not
having made any contributions since that date], . . . before the
remainder of
the deficit is funded from the Member and Employer
Surplus Accounts.
The
Employer contributions in respect of the period from the statutory
actuarial evaluation as at 31 March 2002 to the current valuation
date, amounting to R15 353m [million] as at 31 October 2006, is
to be funded from the Employer Surplus Account.
After
taking the above Employer contributions into account, an amount of
R38.306m [million] remains to be funded proportionately
from the
Member and Employer Surplus Accounts, thereby reducing the value of
the 2002 surplus interest that is payable to stakeholders.
. .’
[13]
On 19 June 2009 Alexander Forbes submitted the report on its
actuarial valuation of the Fund as at 30 September 2007, which,
though not the next statutory actuarial valuation date following 31
March 2005, was required by
s 14(1)
(a)
. This was because
30 September 2007 was the date immediately prior to a merger of the
Fund with the British American Tobacco South
Africa Pension Fund. Of
relevance here is the following:
(i)
The report stated (incorrectly) that because the previous ‘statutory’
actuarial valuation was performed as at 31 October 2006 – as
stated above, that was an interim valuation prepared for the
Fund’s
board of trustees, not the registrar – the period under review
is the 11 months from 1 November 2006 to 30 September
2007.
(ii)
The report is dated April 2009.
(iii)
The section of the report headed ‘Reserve Accounts’
explained the implementation
of the board of trustees’ decision
as to the funding of the R53 659 000 deficit revealed by
the interim actuarial
valuation as at 31 October 2006, and more
specifically for present purposes, the proportional funding of
R38 306 000
of the deficit from the member surplus account
(MSA), as follows:
‘
For
ease of reference the Member Surplus Account was notionally split
between . . . the in-service Members, Pensioners and former
Members.
The change in the various components of the Member Surplus Accounts
over the valuation period is provided below:
R
Initial surplus allocation to
in-service members
Proportional funding of the deficit
by in-service members
12 796 345
(1 694 016)
Revised surplus allocation as at 31
October 2006
Net investment return
Surplus allocation awarded to
in-service members
11 102 329
877 084
(11 979 413)
Value as at 30 September 2007
0
The
residual surplus allocations of the in-service members were loaded
onto their records and will be paid as part of any future
exit
benefits. All unpaid benefits are included under “Benefits
Payable” in the financial statements.
R
Initial surplus allocation to
former members
Proportional funding of the deficit
by former members
83 341 464
(11 032 975)
Revised surplus allocation as at 31
October 2006
Data corrections
Net investment return
Surplus allocation awarded to
former members
72 308 489
567 560
5 712 370
(78 588 419)
Value as at 30 September 2007
0
After
the approval of the surplus apportionment scheme, a number of former
members supplied improved information on which to base
a more
accurate calculation of their surplus allocations. The increased
benefits payable to these stakeholders as a result of the
data
corrections were funded from the Data Reserve.
The
minimum benefit and residual surplus allocations of the former
Members were awarded to the appropriate stakeholders and the
process
of paying the benefits is ongoing. All unpaid benefits are included
under ‘Benefits Payable’ in the financial
statements.
R
Initial surplus allocation to
Pensioners
Proportional funding of deficit by
Pensioners
44 815 686
(5 932 825)
Revised surplus allocation as at 31
October 2006
Net investment return
Surplus allocation awarded to
Pensioners
38 882 861
3 065 420
(41 948 281)
Value as at 30 September 2007
0
The
minimum benefit and residual surplus allocations of the Pensioners
were awarded to the appropriate stakeholders during the valuation
period. All unpaid benefits are included under “Benefits
Payable” in the financial statements.’
[14]
On 11 December 2009 Alexander Forbes submitted a letter by the Fund’s
valuator, Mr Knoetze, to the registrar. Amongst
other things, he
explained that the surplus apportionment scheme submitted to and
subsequently approved by the registrar on 26
November 2006
incorrectly contained duplicate records for 2 273 former members
‘[which] was rectified after approval
of the scheme was
obtained, but before the scheme was implemented’. This
‘rectification’ included a ‘significant
reduction’
in the residual surplus that was allocated to one class of former
members and ‘a corresponding sizeable
increase in the residual
surplus of the other stakeholders, in particular the active members,
pensioners and deferred pensioners’.
[15]
The registrar’s response to this new information, which was
communicated to Alexander Forbes on 18 January 2010, was
to pend
consideration of the reports on the actuarial valuations of the Fund
as at 31 March 2005 and 30 September 2007 and to request
the Fund ‘to
submit an addendum to the surplus apportionment scheme reflecting the
changes to the scheme in accordance with
what the valuator reported
in his letter dated 11 December 2009’.
[16]
On 15 April 2010 Alexander Forbes submitted the requested addendum to
the surplus apportionment scheme to the registrar. It
contained the
following information:
(i)
The Fund had an actuarial surplus on 1 April 2002 of R241 802 000
(up by R5 167 000), to which R1 624 000 was added
in terms of
s 15B(5)
(a)
and (6), giving a total surplus
available for apportionment of R243 426 000.
(ii)
The scheme entailed non-discretionary (first tier) apportionments in
terms of
s 15B(5)
(b)
to pensioners of R1 475 000
and former members of R34 844 000 (down from R39 911 000);
and discretionary
(second tier) apportionments in terms of
s 15B(5)
(c)
to three classes of former members totalling
R36 166 000 (down from R62 006 000), to existing
members of R10 665 000
(up from R3 354 000), to
pensioners of R34 830 000 (up from R12 926 000),
to deferred pensioners
of R1 181 000 (up from R463 000)
and to the participating employer of R124 284 000 (up from
R188 124 000).
(iii)
As to the use of those apportionments, it said:
‘
The
amounts apportioned will be applied as follows:
Class of
stakeholder
Manner in which the actuarial
surplus will be applied for their benefit
Former members
Cash payment
Active members
Enhancement to fund benefit
Pensioners
Cash payment or pension increase
Deferred pensioners
Enhancement to Fund benefit
Employer
Allocation to Employer Surplus
Account’
(iv)
Regarding the surplus apportioned to former members who could not be
traced, it said this
would constitute unclaimed benefits.
[17]
The registrar accepted the addendum on 1 September 2010. On 3
September 2010 he wrote to Alexander Forbes requesting a
reconciliation
of the Fund’s employer surplus account and the
MSA incorporating the addendum to the surplus apportionment scheme
approved
on 1 September 2010, and explaining any releases from
the balances in those accounts. With reference to para 8 of the
report
of the actuarial valuation of the Fund as at 30 September
2007 (ie the section headed ‘Reserve Accounts’ dealt
with
in para (iii) above), the registrar added that the Fund could not use
s 15H
to manage the deficit as at 31 October 2006 because
s 15D(2)
required the credit balance in the MSA, after apportionment of the
actuarial surplus, to be used as specified in the surplus
apportionment
scheme in accordance with
s 15B.
[18]
On 29 September 2010 Alexander Forbes replied explaining that
R18 660 000 of the money in the MSA had been used to
fund
the deficit as at 31 October 2006 and asserted that in doing so the
Fund had in fact used the credit balance in that account
in
accordance with
s15H.
[19]
On 30 November 2010 the registrar responded, saying that the Fund
could not invoke the provisions of
s 15H
, but instead had to give
effect to
s 15D(2)
by apportioning the actuarial surplus in
accordance with the scheme approved on 26 November 2006 and the
revised Form A dated
15 April 2010. On 22 March 2012 the Fund
submitted a legal opinion to the registrar supporting its invocation
of
s 15H.
After considering the opinion, the registrar wrote to
Alexander Forbes informing it that he had rejected its actuarial
valuation
of the Fund as at 30 September 2007 because the report did
not correctly reflect the financial condition of the Fund. What
followed
thereafter were the decisions of the Appeal Board and the
court a quo.
Relevant
Provisions of the Act
[20]
The relevant provisions of the Act, before its amendment by the
Financial Services Laws General Amendment Act 45 of 2013, are
the
following.
Section
15, in its relevant parts, provides:
‘
Accounts
(1)
Subject to the provisions of subsection (4), every registered fund
shall, within six
months as from the expiration of every financial
year, furnish to the registrar such statements in regard to its
revenue, expenditure
and financial position as may be prescribed,
duly audited and reported on by the auditor of the fund.
.
. .
(3)
If the registrar is of the opinion that any document furnished by a
registered fund
in terms of subsection (1) does not correctly reflect
the revenue and expenditure or the financial position (as the case
may be)
of the fund, he may reject the said document, and in that
event-
(a)
he shall notify the fund concerned of the reasons for such
rejection; and
(b)
the fund shall be
deemed not to have furnished the said document to the registrar . . .
.’
Section
15A, in its relevant parts, provides:
‘
Rights
to use of actuarial surplus
(1)
All actuarial surplus in the fund belongs to the fund.
(2)
Once actuarial surplus is apportioned to either the member surplus
account or the
employer surplus account in terms of sections 15B and
15C, or directly for the benefit of members and former members
subject to
the uses specified in section 15D(1), members,
former members and the employer acquire rights to such actuarial
surplus as
provided for in this section.
.
. .
(4)
Any credit balance in the member surplus account must be used for the
benefit of members
as provided for in section 15D.’
Section
15B, in its relevant parts, provides:
‘
Rights
to use of actuarial surplus
(1)
(a)
Subject to paragraph
(b)
, the board of every fund that
commenced prior to 7 March 2002 shall submit to the registrar a
scheme for the proposed apportionment
of any actuarial surplus (in
this section referred to as the scheme) plus the details regarding
any surplus utilised improperly
by the employer as defined in
subsection (6) as at the effective date of the statutory actuarial
valuation of the fund coincident
with, or next following, the
commencement date [ie 7 December 2001, being the date of commencement
of the
Pension Funds Second Amendment Act 39 of 2001
].
.
. .
(2)
A scheme-
.
. .
(b)
may involve-
(i)
the improvement of benefits to existing members;
(ii)
increases to benefits or transfer values in respect of former
members;
(iii)
the crediting of an amount to the member surplus account;
(iv)
the crediting of an amount to the employer surplus account; or
(v)
any two or more of the matters contemplated in subparagraphs (i) to
(iv).
. . .
(3) The board shall appoint a person
to represent the interests of former members in the development of
the scheme and such person
shall-
(a)
assist the board in-
(i)
identifying former members;
(ii)
communicating proposals to former members and to the funds to which
former members
transferred;
(iii)
conveying proposals from members, and the funds to which they
transferred, to the
board; and
(iv)
collating any objections to the scheme from former members and the
funds to which they
transferred;
. . .
(5)
The board shall apportion the actuarial surplus between the various
classes of stakeholders
whom the board has determined shall
participate in the apportionment in terms of subsection (4),
following which such portion as
is due to the employer shall be
credited to the employer surplus account:
Provided that-
(a)
the actuarial surplus to be apportioned shall be increased by the
amount of actuarial
surplus utilised improperly by the employer prior
to the surplus apportionment date as determined in terms of
subsection (6);
(b)
former members shall have the benefits previously paid to them, or
the amounts previously
transferred on their behalf, increased to the
minimum benefit determined in terms of
section 14B(2)
or
14B
(6) as at
the date when they left the fund, with such increase adjusted to the
surplus apportionment date with fund return of the
fund over the
corresponding period, and pensioners and deferred pensioners shall
have their pensions increased to the minimum pension
as determined in
terms of
section 14B(4)
, as a prior charge on the actuarial surplus
to be apportioned . . .
(c)
after deducting the cost of the increases to former members,
pensioners and deferred
pensioners in terms of paragraph
(b)
the balance of the actuarial surplus shall be equitably
split between existing members, former members and the employer
in
such proportions as the board shall determine after taking
account of the financial history of the fund . . .
. . .
(e)
the board shall determine how, in the case of existing members and
former members, the
allocated portion of actuarial surplus shall be
applied for their benefit, including the crediting of any portion to
the members’
surplus accounts or to the members’
individual accounts, as the case may be . . .
(f)
the surplus due to any stakeholder as a result of a surplus
apportionment scheme
approved by the registrar, shall be increased or
decreased with fund return from the date determined in line with
section 15B
(1) until the date the surplus is awarded, paid or
allocated.
. . .
(9)
An appointment in terms of this section shall be of no force or
effect unless-
. . .
(a)
the scheme, the statutory actuarial valuation as at the surplus
apportionment date of
the fund, as well as a copy of any other
actuarial or other statement taken into account for purposes of the
scheme and the report
by the person appointed in terms of subsection
(3), has been submitted to the registrar
. . .
(d)
the fund demonstrates that reasonable measures have been taken to
inform employers, members
and former members, together with any fund
to which former members transferred, of the scheme in a manner which
is clear and
understandable to the members and former members and
which gives details of the allocation of the actuarial surplus for
the benefit
of the various stakeholders, including the amounts of
any actuarial surplus which it is intended to credit to the member
surplus
account and to the employer surplus account,
respectively, and the costs of any benefit improvements for members
and former
members . . .
(e)
the employer, members, former members, and any fund to which former
members have
transferred have had 12 weeks after despatch of the
communication in which to complain, in writing, to the board;
(f)
the board has considered any objection contemplated in paragraph
(e)
before submitting the scheme to the registrar;
(g)
the principal officer of the fund has furnished the registrar with
details of all objections
lodged with the board and the actions
taken to address such objections;
(h)
the registrar is satisfied that the scheme is reasonable and
equitable and accords
full recognition to the rights and
reasonable benefit expectations of existing members and former
members in respect of service
prior to the surplus
apportionment date; and
(i)
the registrar has forwarded a certificate to the fund to the effect
that the scheme
is approved and the requirements of this subsection
have been fulfilled.
. . . .’
Section 15C
provides:
‘
Apportionment
of future surplus
(1)
The rules may determine any apportionment of actuarial surplus
arising in the fund
after the surplus apportionment date between the
member surplus account and the employer surplus account or directly
for the benefit
of members and former members subject to the uses
specified in
section 15D
(1).
(2)
If the rules are silent on the apportionment of actuarial surplus
arising after the
surplus apportionment date, any apportionment
between the member surplus account, the employer surplus account or
directly for
the benefit of members and former members, subject to
the uses specified in
section 15D
(1), shall be determined by the
board taking into account the interests of all the stakeholders in
the fund: Provided that, notwithstanding
anything to the contrary in
the rules, neither the employer nor the members may veto such
apportionment.
Section 15D
provides:
‘
Utilisation
of surplus for benefit of members
(1)
Notwithstanding anything to the contrary in the rules of a fund but
subject to subsection
(2), any credit balance in the member surplus
account may only be used by the board to-
(a)
improve benefits for members;
(b)
where
reasonable and equitable, improve benefits paid to, or the amounts
transferred in respect of, former members who exited the
fund
subsequent to the surplus appointment date;
(c)
reduce current contributions due from members; or
(d)
meet, in full or in part, expenses which would otherwise reduce the
proportion of the
members’ contributions that are invested for
retirement:
Provided that the
employer appointed members of the board shall not have a vote in any
deliberation over the use of any credit balance
in the member surplus
account unless the proposal before the board will increase the
contribution rate payable by the employer.
(2)
The credit balance contemplated in subsection (1) after the
apportionment of actuarial
surplus as at the surplus apportionment
date must be used as specified in the scheme submitted in terms of
section 15B
(1) if the scheme makes provision for the use of such
credit balance.’
Section 15H
provides:
‘
Use of
contents of any surplus accounts to fund deficits
(1)
If a fund has credit balances in the member surplus account or the
employer surplus
account and the fund is found to have a deficit
following an actuarial valuation, including a valuation carried out
for the purpose
of distributing assets on liquidation of the fund,
such credit balances shall be reduced in the same proportion by the
amount of
the deficit: Provided that no credit balance may be reduced
by more than the amount to which the account was in credit.
(2)
If the deficit exceeds the credit balances in the member surplus
account and the employer
surplus account, these credit balances shall
be applied in full to reduce the deficit and shall be reduced to
zero.’
Section 16
provides, in
tis relevant parts, as follows:
‘
Investigations
by a valuator
(1)
A registered fund shall, once at least in every three years, cause
its financial condition
to be investigated and reported upon by a
valuator, and shall deposit a copy of such a report with the
registrar, and shall send
a copy of such report or a summary thereof,
prepared by the valuator in a form prescribed and signed by the
valuator, to every
employer participating in the fund.
. . .
(9)
The provisions of
section 15
(3) in connection with a document
relating to the financial position or the revenue or expenditure of a
fund referred to therein,
shall apply with the necessary changes in
respect of a copy of a report deposited with the registrar in terms
of subsection (1)
of this section and which in the opinion of the
registrar –
(a)
other than in
respect of a report on the valuation of a fund as at its surplus
apportionment date, does not correctly reflect its
financial
condition referred to in the said subsection (1); or
(b)
in
respect of a report on the valuation of a fund as at its surplus
apportionment date, does not correctly reflect its financial
condition in subsection (1) or does not fairly take into
consideration the interests of one or more of the stakeholders that
may
be entitled to participate in a scheme in terms of
section 15B
(1) based on the result of such report.’
[21]
I turn to consider the competing contentions of the parties. It is
apparent from what I have said earlier that the Fund’s
pivotal
contention is that
s 15H(1)
entitled it to use a portion of the
credit balance in the MSA following the surplus apportionment
exercise to fund the deficit
that appeared in the Fund as at 31 March
2005 and 31 October 2006. The registrar’s riposte is that
s 15H(1)
cannot be invoked in circumstances such as these. This is
so, he contends, because once the surplus had been apportioned to
members,
former members, pensioners and deferred pensioners under the
surplus apportionment scheme with effect from 31 March 2002, they
acquired rights to use the surplus for their benefit by virtue of
s
15A(2)
and
15A
(4). And, read with
s 15D(2)
, which specifies that any
credit balance in the MSA as at that date must be used in the manner
for which the scheme has provided,
these sections precluded the
Fund’s use of the credit balance for another purpose ie, to
fund the deficit that had subsequently
arisen.
[22]
I shall return to the Fund’s reliance on
s 15H
, but it is
convenient first to consider the registrar’s submissions
regarding the operation of
ss 15A(2)
,
15A
(4) and
15
(D)2. It is
contented on his behalf that once the surplus allocations were
credited to the MSA, it had to be debited immediately
with the cash
paid or to be paid to the former members and pensioners, who elected
cash payments; the amounts required to increase
the pension payments
of the pensioners, who elected pension increases instead of cash
payments; and the amounts needed to enhance
the fund benefits of the
active members and deferred pensioners. This means that there would
be a nil balance in the MSA.
[23] In addition to
having to debit the MSA immediately, the Fund had to do the
following:
(i)
make the payments to the former members and the pensioners who
elected cash
payments instead of pension increases;
(ii)
where a cash payment could not be made immediately, reflect the
amount as a liability
to the former member or pensioner concerned (ie
open a creditor’s account for that person);
(iii)
where the amount of the cash payments to certain former members or
pensioners could not
immediately be quantified, reflect the balance
of the amount owing to former members and pensioners after the
subtraction of the
cash payments which could be quantified as a
liability to the group of former members and pensioners (ie open a
creditors’
account for that group); and
(iv)
where the whereabouts of former members to whom cash payments had to
be made were unknown,
put the amounts concerned into the contingency
reserve account required by reg 35(4) of the Regulations made under
the Act (GN
R98 in GG 162 of 26 January 1962, as amended)
(‘Regulation 35(4)’).
[24]
The consequence of debiting the MSA immediately after it was credited
with the surplus allocations is that there was no credit
balance
available to the Fund when it invoked s 15H(1) to reduce the deficit.
[25]
The Fund, however, contends that as a matter of fact there was a
credit balance in the MSA when it applied s 15H(1), as appears
from
the 30 September 2007 valuation report. And further, that if the
registrar is correct that pension funds must immediately
debit the
MSA, thus leaving a nil balance, they would never have credit
balances for the purposes of applying the provisions of
s15G, s 15H
and 15I. These provisions, so it is contended, would be rendered
superfluous as a consequence.
[26]
The Fund’s first contention, that there was in fact a credit
balance in the MSA when the deficit occurred on 31 October
2006 and
that this was sufficient reason to invoke S15H(1), does not hold
water. It falters on both the facts and on the law.
[27]
The facts are these. On 28 November 2006 the registrar approved the
revised scheme in terms of s 15B(9)
(h)
and issued a certificate to Alexander Forbes in terms of s 15B(9)
(i)
.
The scheme acquired the force of law on this date, but it took effect
retrospectively from 31 March 2002, which is the surplus
apportionment date. In 2010, the Fund purported to apply s15H(1) to
reduce the deficit as at 31 October 2006. But it could not
do so
because on 31 October 2006, which was a few weeks before the
registrar approved the scheme, there was no approved surplus
apportionment scheme, and therefore no credit balance available to
reduce the deficit as envisaged in s 15H(1).
[28]
But even if we accept the fact of the credit balance in the MSA, it
does not necessarily follow that it could lawfully have
been used to
reduce the deficit. For, this would mean ignoring or overriding the
rights of the beneficiaries to the actuarial surplus
that had accrued
as at the surplus apportionment date, which was 31 March 2002. Once
the right had accrued and the MSA was credited
with the surplus
amount, the beneficiaries immediately became entitled to it, and a
liability in the Fund thus arose simultaneously.
The MSA had to be
debited to reflect this liability, which follows as a matter of
law.
[1]
The fact that the scheme
had not been implemented, and that the MSA therefore had what in
reality was a notional credit balance
at a later date when the Fund
invoked s15H(1), has no bearing on the legal question whether the
Fund was permitted to do so; the
effect of using s15H(1) to reduce
the deficit in this manner would eviscerate the rights of
beneficiaries to the use of the surplus
allocation and defeat the
purpose for which the surplus was allocated.
[29]
It is important to distinguish, as the registrar does in his
answering affidavit, between a situation where a scheme apportions
a
surplus to members but does not specify how it is to be used from the
present case, where the use of the surplus is specified
in the scheme
and becomes immediately payable to a class of beneficiaries. In the
former case the credit balance in the MSA would
remain so credited
after the surplus apportionment date and therefore could be used to
reduce a deficit in terms of s 15H(1) because
no beneficiary would
have had any accrued right to the surplus. But in the case of the
latter, where the use of the surplus was
specified and therefore
immediately became payable to the classes of beneficiaries so
identified, the MSA had to be debited immediately
as at the surplus
apportionment date.
[30]
The Fund’s second contention, that this interpretation would
render the ss15G, 15H and 15I superfluous was persuasively
answered
by the Appeal Board. It reasoned that ss 15D(2) and 15H(1) apply to
different points in the life of a pension fund. The
former, it said,
is concerned with the implementation of a surplus apportionment
scheme as at the surplus apportionment date, which
entails crediting
the MSA with the actuarial surplus and specifies the uses to which
the credited surplus must be put. The latter,
s 15H(1), deals with a
deficit that arises after the scheme is implemented. The Appeal
board thus read ss 15(2) and 15H(1)
harmoniously by giving effect to
the language and purpose of each without rendering either redundant.
[31]
I should add, however, that as I have mentioned above, s 15H(1) would
also apply in circumstances where the scheme has apportioned
a
surplus to members but not specified how it is to be used, which does
not detract from the Appeal Board’s
reasoning.
[32] Furthermore, the
Appeal Board correctly recognised that s 15B(5)
(f)
of the Act
contemplates that there may be a hiatus or delay between the Fund’s
having decided to award the benefit and the
beneficiary’s being
able to receive it. The provision therefore says that the surplus due
to any stakeholder shall be increased
or decreased depending on how
the Fund’s investments have fared between the surplus
apportionment date and the award or payment,
as the case may. But it
is beyond dispute that every beneficiary’s accrued right to the
surplus as at the surplus apportionment
date remains extant.
[33] For the reasons
given the court a quo was incorrect to adopt the Fund’s
submissions and to set aside the Appeal Board’s
decision.
Consequently the following order is made.
1
The appeal is upheld with costs;
2
The order of the court a quo is set aside and the following order is
substituted
therefor:
‘
The
application is dismissed with costs.’
______________
A
Cachalia
Judge
of Appeal
APPEARANCES
For
Appellants:
A M Breitenbach SC
Instructed
by:
Rooth & Wessels
Attorneys, Pretoria
Phatshoane
Henney Attorneys, Bloemfontein
For
Respondent: M A Chohan SC
(and S Khumalo)
Instructed by:
Cliffe Dekker Hofmeyr Inc
c/o Jacobson & Levy Inc, Pretoria
Lovius
Block, Bloemfontein
[1]
Cf
Registrar
of Medical Schemes & another v Genesis Medical scheme
(238/2015)
[2016] ZASCA 75
(27 May 2016), paras 27, 47 and 60.