About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Supreme Court of Appeal
SAFLII
>>
Databases
>>
South Africa: Supreme Court of Appeal
>>
2001
>>
[2001] ZASCA 70
|
|
Associated Institutions Pension Fund v Le Roux and Others (196/2000) [2001] ZASCA 70; [2002] 1 All SA 261 (A); 2001 (4) SA 262 (SCA) (30 May 2001)
IN THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
REPORTABLE
CASE NO: 196/2000
In the matter between:
THE ASSOCIATED INSTITUTIONS
PENSION FUND
Appellant
and
LE ROUX, PETRUS
ABRAHAM KRIEL
First Respondent
BROOKS, PIERRE ELDRID JOSEPH
Second
Respondent
AND 2510 OTHER RESPONDENTS
BEFORE:
Vivier, Harms, Zulman, Cameron and Mthiyane
JJA
HEARD:
17 May 2001
DELIVERED:
30 May
2001
The transfer regulations
promulgated on 22 April 1994 under the Associated Institutions Pension Fund Act
41 of 1963 contemplated the
employment of actuarial assumptions in the
calculation of pension fund members’ transfer values and the
actuary’s determination
can therefore not be set aside
JUDGMENT
CAMERON JA:
At stake in this appeal is the magnitude of the pension benefits accorded some 2
500 employees and pensioners of the University of
South Africa when in 1994-5,
along with about 35 000 others from sixty five government-funded institutions,
they elected to leave
the central pension fund (“the Fund”) created
under the Associated Institutions Pension Fund
Act
[1]
and its regulations (“the
general regulations”),
[2]
and
joined autonomous funds established by their own institutions. In terms of
regulations promulgated in April 1994 (“the
transfer
regulations”)
[3]
each departing
member and pensioner was entitled to be credited with an amount “equal to
the funding percentage multiplied
by the actuarial obligation of the Fund in
respect of that member as determined by the
actuary
[4]
on the date on which his
membership of the fund is
terminated
”.
[5]
The reason for requiring that a funding percentage be determined was that the
Fund, since 1985, had been consistently under-funded,
with the result that
departing members could not be paid 100% of their pension entitlement. Because
the valuation of the Fund fluctuated
from time to time, it was in addition
necessary to specify that the determination in question be made on a fixed
date.
In the court below Southwood J set aside the actuary’s determination of
the Fund’s funding percentage and its resulting
actuarial obligation to
the applicants (respondents on appeal), and granted attendant relief. With his
leave the Fund (first respondent
in the court below) and the Minister of Finance
(second respondent) appeal against that order.
The crux of the dispute is the funding percentage the actuary appointed under
the transfer regulations, Mr de Wit, determined for
the Fund, since from that
figure he calculated the amount transferred on behalf of the applicants to the
new University of South
Africa pension fund. In April 1995 de Wit determined
the funding percentage as at 30 November 1994 (the date agreed for the
applicants’
departure from the Fund) at 60,8%, resulting in a transfer to
their new scheme of some R459 million. Subsequent documentation showed
that, in
view of admitted difficulties in ascertaining the exact number of Fund members
as at 30 November 1994, de Wit in calculating
its aggregate actuarial obligation
applied a “data loading factor” of 7,5% to its membership. This
entailed increased
provision for possible unascertained members, and decreased
the Fund’s actuarially calculated value. This resulted in an appreciable
reduction of the sum transferred to the benefit of the applicants. The reason
for the inaccurate membership data was that the associated
institutions were not
obliged to render accurate membership returns to the Fund, and obtaining such
data had proved intractably difficult
for the Fund.
In his subsequent valuation of the Fund as at 30 September 1994 (issued in
January 1996), de Wit however reduced this data loading
factor in respect of
unascertained members by two-thirds to 2,5%. That valuation yielded a funding
percentage of 66% — nearly
one-tenth higher than the valuation applied at
the applicants’ transfer date. A later valuation as at 31 March 1995
(released
in July 1996), when the great bulk of the Fund’s members had
departed, yielded (on a similar data loading factor of 2,5%) an
even higher
funding percentage of 84,3% (albeit on a “going-concern” basis of
valuation, as opposed to a discontinuance
basis, which was used for the transfer
value calculations).
On the basis of these figures the applicants mounted a stringent attack on de
Wit’s calculations, which, they asserted, had
resulted in the transfer of
a substantially smaller amount than their entitlement. Southwood J upheld their
contentions. Regarding
de Wit’s approach to the inaccurate membership
figures as at 30 November 1994 and his consequent application of a 7,5% data
loading factor, Southwood J concluded that determining the Fund’s
calculated aggregate actuarial obligation required a mathematical
computation,
based on reliable data. De Wit’s approach — that he was faced with
avowedly unreliable membership data,
but that the regulations authorised the use
of estimates and assumptions in regard to such imponderables — was
therefore incorrect:
he should have waited until accurate membership figures
eventually became available (making in the interim a provisional payment
to the
new fund). His determinations therefore had to be set
aside.
Southwood J also found that de Wit had failed to include in his valuation
certain special governmental capital contributions to the
Fund. But Mr Wallis,
who appeared for the applicants at the appeal, on an analysis of the
Fund’s depositions in my view correctly
disavowed reliance on this. He
also abandoned the contention, advanced in the applicants’ heads of
argument on appeal, that
the actuary had not been entitled to base his
calculation on the figures derived from the 1991 valuation of the Fund (updated
according
to de Wit’s evidence with the latest available information), and
confined his argument instead to de Wit’s application
of the 7,5% data
loading factor to the unreliable membership data. This Mr Wallis argued
conflicted with his powers under the transfer
regulations.
Although the transfer regulations were promulgated before the interim
Constitution
[6]
came into effect on 27
April 1994, it is clear that in regard to their interpretation and application
the applicants were entitled
to administrative justice under the Fundamental
Rights Chapter of that Constitution. The regulations must therefore be
interpreted
through the prism of the interim
Constitution,
[7]
and de Wit’s
determination of the funding percentage had to be lawful and procedurally fair
as well as justifiable in relation
to the reasons he gave for
it.
[8]
It is also clear (though the
applicants’ attack, and the basis on which they succeeded in the court
below, was that de Wit
had acted on an improper understanding of his powers
under the transfer regulations) that a determination infringing any of the
applicants’
other fundamental rights could also have been impugned as in
conflict with the interim Constitution.
Against this background the critical question is the proper interpretation of
the transfer regulations, and the nub of the appeal
is whether so interpreted
the regulations entitled de Wit, given the unsatisfactory membership figures, to
apply the data loading
factor of 7,5% so as to reach the funding percentage of
60,8% applied to the applicants. The pivotal concepts are “funding
percentage” and “actuarial obligation”. The regulations
define “funding percentage” as “the
market value of the net
assets of the Fund on a fixed date expressed as a percentage of the calculated
aggregate actuarial obligation
of the Fund on that date, as determined by the
actuary”. “Actuarial obligation” is defined, “with
regard
to a particular member, pensioner or dormant member of the Fund”,
as “the actuarial obligation of the Fund with regard
to that member,
pensioner or dormant member on a fixed date, calculated by the
actuary”.
The transfer regulations themselves in my view contain significant textual
pointers to their proper interpretation. The most striking
feature of the
definitions
[9]
is their insistent
allusion to the actuarial function. The definition of “actuarial
obligation” is, apart from the reference
to a fixed date, a meaningless
repetition unless the words “calculated by the actuary” are
acknowledged to be significant.
The definition of “actuary”
(“means the actuary appointed to evaluate the Fund actuarially as
contemplated in
regulation 24A of the Regulations”) likewise contains
surplusage (“actuary ... actuarially”) unless the adverb
is held to
contribute to their sense.
[10]
The
definition of “funding percentage”, similarly, in which a
cross-allusion to “actuary” and “actuarial
obligation”
is already embedded, raises the pitch by adding “as determined by the
actuary”. The executive provision,
Reg 2(4)(a) (quoted in the opening
paragraph of this judgment), which is similarly replete with already defined
terms (“funding
percentage”; “actuarial obligation”;
“actuary”), itself for good measure adds “as determined
by the
actuary”. If the cross-allusions in that provision are disaggregated, as
Mr Solomon for the Fund and the Minister correctly
pointed out, the words
“actuary”, “actuarial” and “actuarially”
obtrude repeatedly and insistently.
Given this linguistic accumulation, the phrase “as determined by the
actuary” can hardly have been intended, as Mr Wallis
suggested, only to
identify the actuary in whom the regulations vest the power to perform the
calculations they enjoin. That the
instrument attains with economy and clarity
by a separate definition of “actuary”. The repetition in my view
points
not only to functionary, but to function, and it must have been intended
to imbue the latter with attributes of professionalism and
skill peculiar to the
field of expertise they name.
There can in short be no doubt that invocation of the actuarial function was
fundamental to a proper understanding and application
of the regulations, and
that they contemplated, authorised and required the employment of actuarial
expertise and skill in the calculation
of the transfer values applicable to the
applicants. I agree with Southwood J that this entailed calculations “in
accordance
with the principles of actuarial theory and practice”. What is
significant, however, is that the only evidence before the
court of the
methodology applicable to the actuarial function was that of de Wit himself,
supported by the depositions of Professor
Asher, incumbent of the chair of
actuarial sciences at the University of the Witwatersrand (who was closely
involved in the work
leading up to the “emancipation” of the
associated institutions’ pension funds), and Mr Milburn-Pyle, an actuary
employed in a managing capacity by the firm in which de Wit at material times
was an executive director (which in the court below
as third respondent opposed
the relief the applicants sought).
In his answering affidavit de Wit testified, and the applicants in reply
admitted, that the allusion to the “market value”
of the
Fund’s assets necessarily entailed that the valuation for 30 November
1994 be performed on a “discontinuance”
rather than
“going-concern” basis, that is, to determine not the long-term
financial soundness of the Fund, but the actual
benefits imminently payable over
the short term.
What an actuarial valuation of a pension fund’s funding level entails de
Wit described thus:
“The determination of a pension fund’s funding level is not an exact
exercise. It can only be described as the actuary’s
best estimate of the
funding level at the time. It is also correct to conclude that two actuaries
will seldom determine the same
funding level for a particular fund at a
particular date. There are simply too many imponderables and discretionary
matters involved
in such an assessment. The actuary must do the best he can
with the information available to him at the time and apply whatever
provisions
are necessary in the circumstances.”
And:
“There is no such thing as one ‘correct’ funding level. The
applicants’ contentions in this regard are simplistic
and demonstrate a
lack of understanding of the function which the transfer regulations require the
actuary to perform. The applicants
appear to labour under the misapprehension
that the funding level of a retirement fund is capable of a simple mathematical
calculation
based upon known facts. It is not such a
calculation.”
The applicants in reply took issue with de Wit but, significantly, they treated
these passages as his factual justification for his
approach to the
determination. Their deponent asserted that “the ex post facto
determination of the funding percentage on
a discontinuance basis is, by
definition, an exact exercise” — but tendered no evidence
(definitional or otherwise) to
support this averment. They also claimed that
“no determination of a funding percentage, and especially not one made in
terms
of the transfer regulations, can be legally acceptable if its
factual
basis, in the form of the data concerned, is clearly
deficient”. That restates their fundamental complaint, but it does not
meet the bite of de Wit’s evidence, which entailed more than a factual
averment. It contained an exposition of the professional
methodology the
transfer regulations contemplated for the performance of the statutory duty they
created, and to that the applicants
had no answer, since they put forward no
expert evidence of their own and their principal deponent, a practising
attorney, rightly
professed no expertise in the field.
With great respect to the care and thought that inform the reasons of Southwood
J, I am unable to agree with the meaning and weight
he assigned to
“calculate” in the definitions, and Mr Wallis for the applicants did
not attempt to support that meaning.
In any event, de Wit’s critical
evidence in this regard runs counter to Southwood J’s finding that the
statutory duty
entrusted to the actuary could be performed with mathematical
precision, bereft of assumptions, allowances or margins in regard to
uncertain
facts and figures.
During argument Mr Wallis shifted the focus of the applicants’ attack from
a complaint that de Wit botched his brief by using
inaccurate figures to arrive,
wrongly, at the 7,5% loading, to the proposition that, on de Wit’s own
evidence, the discontinuance
basis did not permit any data loading to be applied
at all. This argument cannot in my view be sustained. On a true construction
the transfer regulations required the invocation and application of actuarial
expertise and that, on the uncontested evidence before
the court as to the
professional methodology involved, necessarily entailed that assumptions would
be made to allow for contingencies
and imponderables. That is the nature of the
actuary’s job, and it was a job the regulations required de Wit to
perform.
In a different context, but one not inapposite to the present, Marais
JA pointed out in
Tek Corporation Provident Fund and Others v
Lorentz
[11]
“In assessing the financial health of a pension fund an actuary is gazing
into the proverbial crystal ball to see what the
future will hold. The use of
the metaphor is not intended to demean the exercise; it is highly sophisticated
and requires considerable
training and skill, yet it remains, when all is said
and done, an exercise in prophecy. Some of the data available may be relatively
immutable and provide a secure foundation for predictions. Much of it is not.
There are a host of factors about which assumptions
have to be made because they
lie in the future. Examples are rates of return upon different categories of
investment, the rate of
inflation, governmental fiscal policy, increases in
salary, mortality rates for active and retired members, the rate of employee
turnover, the incidence of disability and the extent to which early retirement
options may be exercised. The list is not exhaustive
but it suffices to show the
very considerable role that assumption plays in the assessment of the financial
soundness of a pension
fund and explains why even the most meticulously assessed
valuation may be confounded by subsequent experience.”
De Wit was not, of course, gazing into the future, but attempting to establish
the present. He did so on the basis of avowedly inaccurate
membership data, but
having regard to this fact, as he had to, he made an adjustment to allow for
possible contingencies. These
were not so much unforeseen as unknown. At the
time he made his determination they were nevertheless ineluctable realities and
in
my view he rightly took them into account in performing his statutory
duty.
Mr Wallis contended that the Fund’s aggregate actuarial obligations could
not be calculated by assuming obligations that did
not in fact exist, and that
the regulations did not permit de Wit, for prudential reasons, to make
contingency allowances for what
Mr Wallis called “potentially non-existent
obligations”. This may be seen to reveal the weakness at the core of the
applicants’ argument, since it was precisely the potentiality in the
situation that de Wit was obliged to take into account,
and in the circumstances
he faced he could do so only by making provision for all contingencies that
might reasonably affect his
calculation.
His duty in this regard included assessing the Fund’s total membership on
the information available to him at the time. He
owed this duty as much to
those who chose to stay in the Fund as to those who chose to go; and the fact
that the result proved in
the longer run to the advantage of those who stayed
and to the disadvantage of those who left cannot invalidate his assumptions at
the time they were made. The applicants attacked de Wit for adopting an
unjustifiably “conservative” approach to the
determination of their
entitlement. De Wit denied that his approach was conservative in this sense,
but admitted that in determining
the applicants’ funding percentage,
because of the inadequate membership data, he adopted a “cautious and
professionally
prudent approach” to the Fund’s liabilities.
Later-acquired wisdom showed that a higher percentage, calculated with
perhaps
less prudence and less caution, would have matched the facts as subsequently
revealed. This does not mean that he erred.
By the methodology appropriate to
what the regulations required of him, de Wit acted properly and lawfully at the
time he made his
determination. There is no suggestion that the assumptions he
employed were inappropriate or unreasonable. The applicants’
case as
developed by Mr Wallis was that the regulations permitted him to make no
assumptions at all; and for the reasons I have
given this contention does not
withstand scrutiny.
The transfer regulations do not specify when the actuarial determination must be
made. Though there was much debate about when the
actuary was permitted or
required to act, the starting point must self-evidently be that he was required
to perform his statutory
duty within a reasonable time. De Wit’s
affidavit convincingly itemised the circumstances that impelled him to act in
April
1995 rather than waiting for another eighteen months — or longer
— before more accurate membership figures might have
become available.
(It was not in fact clear when those figures became available, if they ever
did.) Those circumstances cannot,
as Southwood J pointed out, dictate the
proper construction of the transfer
regulations.
[12]
But if their true
construction did not require de Wit to wait for “accurate” figures,
as I have held, then the difficulties
that waiting would have produced bore most
materially on de Wit’s decision to act when he did.
To summarise: The transfer regulations contemplated the employment of actuarial
methods in the determination of the benefits to be
credited to the applicants on
their departure from the Fund. Those calculations obliged the actuary to make
assumptions in respect
of contingencies. These included the fact that at the
time he performed the calculations he was confronted with uncertain and
unreliable
membership data. The actuary acted reasonably in making the
determination when he did, and the data loading factor of 7,5% that
he applied
to the applicants cannot be faulted. His determination therefore fulfilled the
requirements of the statutory provision
under which he was acting, and it cannot
be set aside.
The appeal is accordingly upheld with costs, including the costs of two counsel.
The order of the Court below is set aside. In its
place there is substituted:
‘The application is dismissed with costs, including the costs of two
counsel.’
E CAMERON
JUDGE OF
APPEAL
VIVIER JA )
HARMS JA )
ZULMAN JA )
CONCUR
MTHIYANE JA )
[1]
Act 41 of 1963
[2]
GN R1653, GG 5285 of 10
September 1976
[3]
GN R821, GG 15665 of 22 April
1994
[4]
Appointed under Regulation 24A
of the general regulations, inserted by GN R191, GG 11133 of 12 February 1988,
to provide for regular
valuation of the Fund by an “actuary”.
[5]
Reg 2(4)(b), of the transfer
regulations, read with reg 2(1)(c) and reg 3(1)(b)
[6]
Constitution of the Republic of
South Africa, Act 200 of 1993
[7]
See
Investigating
Directorate: Serious Economic Offences and Others v Hyundai Motor Distributors
(Pty) Ltd and Others: In re Hyundai Motor
Distributors (Pty) Ltd and Others v
Smit NO and Others
[2000] ZACC 12
;
2001 (1) SA 545
(CC) par 21
[8]
Section 24 (a), (b) and (d) of
the interim Constitution, which before the
Promotion of Administrative Justice
Act 2 of 2000
came into operation on 9 March 2001 remained applicable also under
the final Constitution.
[9]
Reg 1(2)
[10]
The Shorter Oxford English
Dictionary gives the relevant meaning of “actuary” as “one
whose profession it is to
solve monetary problems depending on Interest and
Probability, in connection with life, fire, or other accidents, etc.”
[11]
1999 (4) SA 884
(SCA) par
16
[12]
Amalgamated Packaging
Industries Ltd v Hutt and Another
1975 (4) SA 943
(A) 951C-D