Pension Transfers

South Africa

2001 Submission
Roger Wellsted
Chief Actuary
Case Study
Who owns Surplus
Regulation 15
Media Coverage
Pension Fund Bill
Reserve Value
Letter to Actuaries




Cash, shares, property, etc needed to fund the "promise"or "Actuarial Liability"


Pension transfers in the1990s left billions of Rand surplus ......why?

(Financial Services Board estimated R80 Billion surpluses in Pension Industry in 1999)

... now there is a shortfall in pension funding!

By Roger Wellsted

A quotation from Jeremy Andrew, Chief Actuary of the Financial Services Board in 2000:

“Seldom were members given the benefit of any provision held within the fund to protect the fund against a fall in the stockmarket, or of any actuarial surplus.”

“There was a lack of understanding on the part of the members and their trade unions of how defined benefit funds were financed. In particular, the union negotiators may not have appreciated that a provision against the possibility of a fall in the stockmarket may have existed on top of the declared actuarial surplus.”

(Note – The Investment Reserve was not “on top of the declared surplus” – this reserve/provision forms part of the Actuarial Reserve value as defined by Regulation 15 of the Pension Funds Act.




Funds transferred were amounts equal to a cash value of the actuarial liability (i.e. the market value of funds were not transferred)

Funds left behind


Assets excluding Investment reserve











The transfer


Actuarial Liability is the theoretical value of the "promise" of a pension


The "promise" of a pension is transferred i.e. the Liability (it is also necessary to transfer assets to fund the "promise")










The "promise" of a pension


Quotation from Pension Funds Second Amendments Bill 2001 - Annexure A

"With the benefit of hindsight it was not fair to have given transferring or retrenched members no share of this provision against a fall in the stock market."

In many Defined Benefit Pension Funds, members were promised their full value in the Fund on transfer to a "Money Purchase Pension Scheme" .

Then, after the members agreed to transfer, the actuary changed the assumptions relating to the "Investment Reserve" and reduced the transfer value - anywhere between 10% and 40% reduction.

This explains how a large portion of the surpluses in Defined Benefit Pension Funds were derived - an estimated R80 Billion in 1999.

Government, in its Pension Funds Second Amendment Bill of 2001, claims it was

 "not fair" to members to have left behind this "investment reserve"

Chief Actuary says:

"While we may be able to reach agreement with all stakeholders on the way forward, redressing inequities of the past is fraught with difficulty and opposition."

In some Funds, once the transferring members left the Fund, the actuary reverted to the original and stronger valuation method for the remaining members, many of whom were trustees of the Funds.

In some Funds, the Trustees agreeing to this method of transferring funds were shareholders in the company and benefited financially from this decision. The questions must be posed:

  • In such cases, were the trustees acting legally in the best interests of their members?
  • Is there a possibility that there may be a conflict of interest?
  • Why did the media drop the story after Government publically acknowledge that it was not fair to members?

Roger Wellsted
































Link to: "The Actuary" - magazine of the British Actuarial Society

The Actuary UK

Employers' surpluses  or members' reserves

Browse: "Back Issues" - "November 2000" - Roger Wellsted


Back Issues - January 2001 Mike Codron

Employers' surpluses or members' reserves?


Link to Nedlac Negotiations on Pensions

Nedlac Negotiations


Hit Counter