1. Pension Lawyers Association Panel discussion – 15 August 2006 Practical Actuarial Issues of Surplus and Minimum Benefits – Coral van Zyl

2. Discussion topics Process for surplus schemes Practical implications of surplus schemes Process for minimum benefits Practical implications of minimum benefits

3. Process for surplus schemes Establishment of distributable surplus - Valuation of retirement fund at surplus apportionment date (SAD) – including allowance for minimum benefits - Establish any required contingency reserves - Make allowance for the cost of exercise - Finalise any improper use amounts - Balance is distributable surplus

4. Process for surplus schemes Establish scheme for apportionment of surplus - Former member top-ups - Minimum pension increases - Scheme to apportion residual surplus apportioned between all stakeholders method deemed equitable is per historical contributions

5. Process for surplus schemes Practical implementation - Payment of top ups - Communication to all stakeholders

6. Practical implications - Surplus schemes Costs of the exercise Time consuming data gathering Incomplete data records –former member data –historical financial information –minutes of Trustee meetings –previous actuarial valuations

7. Practical implications - Surplus schemes Possible to have enough information for a former member to do top-up calculation, but former member cannot be traced. Apportionment of residual surplus –not always considered palatable to redistribute to former members –possibility for disputes

8. Practical implications - Surplus schemes Final distribution of surplus –more detailed former member information required –cost of tracing a member taken out of the individual member’s top up amount –costs of distribution may negate benefit of top- ups for smaller amounts

9. Post surplus? Funds behind on statutory valuations and reviews after the SAD Surplus monies existing in Funds where nil schemes were submitted – not all Funds will have amended Rules for future surplus Deficits could arisen in Funds where surpluses were distributed Section 14’s where surpluses have not been transferred need to be revisited

10. Minimum benefits: Active members: –BN 37 of 2003 - Trustees decide between : 40% of Earnings Yield Index linked gilts minus 0.2% (prior to March 2006 was ILG minus 0.95%) –Payment of minimum benefits to exiting members from 12 months after SAD Pensioners: –Trustees establish pension increase policy –Apply minimum pension increase every three years

11. Practical implications – Minimum benefits Trustees choose between a method effectively based on equities versus one based on bonds –Trustees may not understand the differences –Probable mismatch either way to actual fund return Market related – could result in inconsistencies from month to month Member queries more complicated to resolve

12. Comparison of ILG and EY

13. Practical implications – Minimum benefits Pension increase policy –enables decision-making by Trustees –complex to understand –minimum increase in a year of good investment returns are low

14. Thank You