National Tertiary Retirement Fund v Registrar of Pension Funds

• Jurisdiction: South Africa
• Judge: Harms DP, Streicher JA, Cloete JA, Jafta JA and Bosielo AJA
• Judgment Date: 31 March 2009
• Docket Number: 221/08
• Hearing Date: 09 March 2009
• Counsel: O Rogers SC (with AM Breitenbach) for the appellant. IV Maleka SC (with S Yacoob) for the respondent.
• Court: Supreme Court of Appeal

Streicher JA:

[1] The appellant is a pension fund which applied to the Registrar of Pension Funds, the respondent, for the approval and registration of an alteration to its rules. When such approval and registration was refused I the appellant appealed to the Board of Appeal established in terms of s 26(1) of the Financial Services Board Act 97 of 1990 (the FSB Act). The Board of Appeal dismissed the appeal. The appellant thereupon applied to the Pretoria High Court for an order reviewing and setting aside the decision of the Board of Appeal and replacing it with an order directing the respondent to register the alteration of the appellant's rules. J

Streicher JA

A The Pretoria High Court, per Rasefate AJ, dismissed the application. It is against this dismissal of its application that the appellant, with the leave of the court below, now appeals to this court.

[2] The appellant is registered as a pension fund in terms of s 4 of the Pension Funds Act 24 of 1956 (the Act). It was established with effect B from 1 December 1994. The employers participating in the appellant are all higher educational institutions previously known as Technikons. Members of the Associated Institutions Pension Fund (AIPF) and the Temporary Employees Pension Fund (TEPF) were given the option to join the appellant with effect from its inception on 1 December 1994. In C terms of specific regulations under the Associated Institutions Pension Fund Act 41 of 1963 only the funded portion of the actuarial reserve values of the members and pensioners of the AIPF and the TEPF, who elected to join the appellant, was transferred to the appellant. This resulted in these members having only 60,8 cents in the Rand value of D their actuarial reserve transferred. Although only the funded portion of the actuarial reserves was transferred the full value of the actuarial reserves was taken as the opening balance of the AIPF and TEPF members in the appellant. The deficit so created, referred to as the pure deficit, was eliminated by the appellant in 2002.

E [3] The pure deficit was not the only deficit which arose upon the transfer of the AIPF and TEPF members. In terms of rule 4.1 of the appellant's rules a member who retires from service on his or her normal retirement date must receive a pension vesting on the following day secured by his or her member's share at that date, less the amount of any lump sum benefit paid in terms of rule 4.5. A member's share consists, F among others, of an opening balance comprising the member's net actuarial liability in the previous fund, the member's and the employer's contributions in terms of the rules and investment earnings transferred from the Reserve Account, less certain debits to that account, such as attributable valuation losses and lump sum payments in terms of rule 4.5. However, rule 4.6 provides certain guarantees to the members who G transferred from the AIPF and the TEPF. The relevant portion of the rule reads as follows:

'4.6 (1)

A Member, who was a Member of the Associated Institutions Pension . . . Fund shall be guaranteed the following minimum benefits when he or she retires on his or her Normal Retirement H Date. . . :

(a)

A Pension of 1/50th of the Member's Average Final Salary per year of Pensionable Service; and

(b)

A gratuity of 7,25% of the Member's Average Final Salary per year of Pensionable Service; provided that such gratuity I shall never be greater than one-third of the Member's total benefit at retirement (or up to the whole thereof if allowed by income tax legislation).

(2)

A Member, who was a Member of the Temporary Employees Pension Fund, shall be guaranteed the following minimum benefits when he or she retires on his or her Normal Retirement J Date . . . :

Streicher JA

A pension of 2,75% of the Member's Average Final Salary A per year of Pensionable Service.'

[4] On 31 December 2003, the effective date of the appellant's last statutory actuarial valuation, 2979 members who had transferred to the appellant on 1 December 1994 from the AIPF and the TEPF qualified for the guaranteed benefits. There is a substantial difference between the B value of the guaranteed benefits and the relevant members' shares of the appellant (the guaranteed benefit deficit). The deficit was partly caused by the investment performance of the Fund having been lower than expected and salaries having been increased at rates higher than the increase in the rate of inflation. Whether the appellant will in future have sufficient assets to pay for these guarantees is dependent on investment C returns and salary increases.

[5] Yet a further deficit was created when the Act was amended by the introduction of s 14A in terms of the Pension Funds Second Amendment Act 39 of 2001 which came into effect on 7 December 2001. Whereas the guaranteed benefits in terms of rule 4.6(1) and (2) apply D upon retirement, s 14A makes provision for minimum benefits to a member who ceases to be a member prior to retirement. Subsection (1)(a) thereof provides:

'(1) Every registered fund shall provide the following minimum benefits: E

(a)

The benefit paid to a member who ceases to be a member of the fund prior to retirement in circumstances other than liquidation of the fund shall not be less than the minimum individual reserve. . . .'

The minimum individual reserve of the AIPF and TEPF members is, in terms of s 14B(2)(a), to be determined with reference to the guaranteed F benefit.

[6] At a meeting held in November 2002 between the appellant and the committee of the employers participating in the appellant, being technikon principals, it was decided that every technikon should take financial responsibility for the portion of the guaranteed benefit deficit in G respect of the members of the appellant who were its employees. All the technikon employers, except one, signed agreements with the appellant giving effect to the decision. They agreed to make good the shortfall between the guaranteed minimum retirement benefit and the normal retirement benefit of any of their employees who qualified for the guaranteed benefits as and when those employees retired. The exception H referred to was the Border Technikon which has only one employee who qualifies for the guaranteed benefits.

[7] The new benefits in terms of s 14A became payable by the appellant on early withdrawals as from 1 January 2005. As a result a deficit of I about R69 million arose in the appellant (the minimum benefit deficit). From discussions by the appellant with the participating employers it became clear that they were not in a financial...