Mastertreads Pension Scheme : Surplus Legislation

01 September 2005

Dear Sir or Madam


The Pension Funds Second Amendment Act, 2001 ("the Act") changed the laws governing pension funds. The Act stipulates that any surpluses built up by pension funds must be distributed to the stakeholders of those funds. For this purpose, stakeholders are (a) former members who were members of the fund as at 1 January 1980 and who left for any reason after that date; (b) active members of the fund; (c) pensioners; and (d) the employer.

The effective date of this exercise relating to the Mastertreads Pension Scheme, as prescribed by the law, is 1 March 2004. Therefore, the full investigation period is 1 January 1980 to 1 March 2004 and all calculated entitlements and balances are as at 1 March 2004.

Surplus Apportionment Exercise

In terms of the legislation, the fund was required to appoint a person to look after the interests of former members in the surplus apportionment process. Karen Rowe, a former member of the Fund, was appointed and has been actively involved in the whole process.

The consultants and actuaries to the Mastertreads Pension Scheme, Jacques Malan Consultants & Actuaries, have compiled a detailed report relating to this process which will be submitted to the Financial Services Board. The trustees were guided in their decisions by the fund’s valuator, Jacques Malan, who is an independent party from both the employer and the members.

We have made the report prepared by Jacques Malan Consultants and Actuaries available for your perusal. The main points contained in this report can be summarized as follows:

  1. The Actuary determined the actuarial surplus as being R45 547 000 at 1 March 2004. This takes account of the future minimum benefits that the fund will provide current members at their withdrawal from the fund, as prescribed by the legislation.

  2. Although the employer has used the surplus as a contribution holiday following 7 December 2001, the excess contributions that the employer contributed during the investigation period were used to offset this amount, which otherwise would have been seen as “improper uses of surplus” by section 15B(6) of the Act. Therefore, the employer is not required to pay any amount to the fund.

  3. The Actuary investigated the pension increases which were awarded to pensioners over the period of investigation. It was found that all pension increases awarded over the retirement period of each pensioner as at 1 March 2004 was equal or higher than the Consumer Price Index increases over the relevant period.

  4. The Fund is exposed to a number of risks that could have a negative impact on the financial position of the Fund. The Act allows the Fund to set aside reserves in excess of the “best estimate” values calculated by the Valuator to increase the financial security of the Fund and to deal with these risks. This is especially relevant at this stage since the distribution of surplus may leave the Fund in a risky position if adequate reserves are not kept.

    Following lengthy discussions by the Trustees, it was decided to set aside the following reserves:

    • Solvency reserve : R9 000 000. The amount has been determined by the actuaries and agreed by the trustees of the Fund as being necessary to protect the Fund against the vagaries of the market for a lengthy period during which it still is obliged to pay benefits at a guaranteed level.

    • Data reserve : R2 312 000. This is the amount determined by the actuaries as being necessary to protect the Fund against errors in assessment of any of the amounts used in the calculations necessary for the surplus apportionment exercise. Furthermore, it makes allowance for the top-up payment to some former members for whom we currently do not have complete information.

    • Risk reserve : R155 000. This is the amount determined by the actuaries as being necessary to protect the Fund against the actual member status at death versus the assumed member status at death, since the Fund reinsures, in part, the death benefits.

    • Surplus exercise expense reserve : R3 500 000. This is the amount determined by the trustees together with the administrator and the actuaries as being necessary to protect the Fund against the costs of the surplus apportionment exercise. This takes account of the data gathering and manipulation, the actuarial calculations and investigations, the administrative costs of paying former members and the costs of advertising and member communication. Should this not be enough, the surplus available for distribution will be reduced accordingly.

  5. Following the above allocations to the various contingency reserves, the surplus available for distribution came to R30 580 000.

    Although the report gives a detailed reference of the investigations and calculations done in respect of former member entitlements, we repeat some of the details herewith for ease of reference.


Investigation and Calculation of Former Members Entitlements

The consultants investigate the position of former members who had left the fund since 1 January 1980. The information was mainly gathered from the company records, since the company has administered the Fund “in-house” since 1985. Data from the two previous administrators (Old Mutual and Alexander Forbes) were also used. This information was then audited and compiled by the former member representative, staff members from the company and the actuary.

Advertisements in national newspapers resulted in a small number of former members coming forward.

The employer fortunately held fairly extensive records of the employment of former members and the fund embarked on a thorough investigation over a period of many months in order to recreate profiles for former members who had left the fund since 1 January 1980. In some instances, however, complete records could not be created, despite exhaustive attempts to obtain the necessary data. It is estimated that in respect of 458 people, the fund does not have complete records from which calculations can be made.

Former members that died before 1 March 2004 have been excluded from the surplus distribution.

All former members will be entitled to benefits, not only those for whom we have accurate addresses, and where the Fund cannot trace members it will hold the amounts for those members until legislation provides for the disposal of such money.

Where former members transferred from this fund to another fund, they were paid higher transfer benefits and therefore their top-up calculations will normally be less than for former members who resigned.

The calculation of former member entitlements is based on 9689 member records, for whom complete and adequate data are on record. These were calculated as the difference between the minimum benefits prescribed by the regulations and the actual amounts paid to the members. This difference was calculated on the date of exit and accumulated with actual investment return from the date of exit to 1 March 2004.

The total of these member entitlements substantially exceeded the surplus available for distribution. Hence, the whole of the surplus will be paid to former members. Such surplus payments due to former members were calculated on a reduced pro-rata basis as prescribed in the Act. The Fund is therefore indemnified by the Act from paying the fully calculated entitlements.

The reduced entitlements, on which the actual payments will be based, add up to R30 580 000.

Initial distribution of surplus

The distributable surplus of R30 580 000 will be allocated in full to former members.

The above scheme has the approval of all the trustees and the former member representative.

Method of payment

  1. Payment of any allocation to a deceased member’s estate will be made only if the member was still alive on the surplus apportionment date, that is, 1 March 2004.

  2. Provisions have been made for covering administrative expenses associated with the payments to former members.

  3. Entitlements of any amount will be paid, even if this entitlement is lower than the administrative cost of making the payment.

  4. Requirements and procedures for former members to claim their entitlement will be communicated once the scheme is approved.


Current and former members have a period of 12 weeks from the date of dispatch of this letter in which to object to any aspect of the above scheme. Any such objections should be addressed to the Fund or to the former member representative whose contact details appear below. The former member representative will assist members in formulating their objections.

After the period of 12 weeks, and when all objections have been dealt with, the scheme will be presented to the Registrar of Pension Funds for approval, thereafter the Fund will proceed to pay the benefits due to former members and transfer values for active members to those members’ fund entitlements.

As the scheme is still subject to objections and then approval by the Financial Services Board, it is not yet possible to tell individual members what their entitlements are; these amounts will be available only once the Registrar has approved the scheme.


Additional information

If you need further clarification of anything in this notice, please contact the former member representative, Karen Rowe, at the address below.

For further information, the following documents are available on the Longmile website ( www.longmile.co.za):


Contact details:

Karen Rowe

PO Box 417
Tel: 021-762 2585
Fax: 021-762 2635

E-mail: karen@longmile.co.za



Mastertreads Pension Scheme
(Reg. No. 12/8/3070)