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EVOLUTIONARY SURVIVAL TIPS FOR PENSION LAWYERS LEGAL ISSUES ARISING FROM DOCTORAL RESEARCH ON SOUTH AFRICAN PENSION FUND CONVERSIONS: 1980 2006 Dion George DOCTORAL RESEARCH TITLE DEVELOPING A MODEL FOR DEALING WITH FUNDAMENTAL CHANGE


  1. EVOLUTIONARY SURVIVAL TIPS FOR PENSION LAWYERS LEGAL ISSUES ARISING FROM DOCTORAL RESEARCH ON SOUTH AFRICAN PENSION FUND CONVERSIONS: 1980 – 2006 Dion George

  2. DOCTORAL RESEARCH TITLE DEVELOPING A MODEL FOR DEALING WITH FUNDAMENTAL CHANGE EMERGING FROM AN ANALYSIS OF SOUTH AFRICAN PENSION FUND CONVERSIONS: 1980 - 2006

  3. PHENOMENON OF PENSION FUND CONVERSIONS � In 1970’s, most pension funds in SA were defined benefit funds (members received a guaranteed benefit at retirement based on years’ service) � Employer funded any shortfall, thus carrying investment risk � 1980’s and 1990’s saw dramatic transfer of members from defined benefit to defined contribution funds (members received a benefit at retirement based on contributions made to the fund plus investment growth) � Against the backdrop of fundamental change in South Africa

  4. RESEARCH QUESTION � Why did this particular outcome arise? � Did environmental circumstances influence the outcome? � Question of organisational behaviour during fundamental environmental change

  5. LITERATURE REVIEW � Theory of Evolution � Retirement Funding in South Africa � Welfare Economics � Financial Theory � Theory of the Firm � Ethics � Decision making � Strategy � Leadership in turbulent times � Organisational change

  6. ANSWERS FROM THE LITERATURE � Pension funds evolved to survive in their environment � Defined benefit pension funds were designed to provide for retirement and death benefits, not withdrawal benefits – change was inevitable � The regulatory framework for evolution was inadequate � Firms offloaded contingent liabilities, members acquired investment risk � Firms have evolved and should consider several stakeholders not just shareholders � Benefit from the evolution was not equal – power positions were relevant � Boards of Trustees made the conversion decisions � Pension fund evolution is a non-cooperative game – stakeholders maximising benefit � Leaders did not recognise or discounted or ignored potentially negative outcomes � Co-evolution of firm and pension fund occurred

  7. RESEARCH FRAMEWORK � ������������������� � � � !����"���#$ � � ����������� � � %&����������������'�� ���������� � � ���������( � � ��������� %)�������*�����+�������� � � �'���+������������'������( ��������� � � � � %����������������,������� ������ � � �*��'����( ������ ������� � � %)���������������"�'������ � � ���������( � � �������� %�#�������������( � � ���������� � � ������� �������� � � �������� � � � � �������������������

  8. QUALITATIVE RESEARCH METHOD � Data collected between March and November 2005 � Interviews to obtain macro view of phenomenon � Cases to investigate specific instances � 55 interviews – snowball sampling � Government: 5 � Regulator: 10 • includes FSB, adjudicator and ombudsman � Business/employers: 6 � Trade unions: 7 � Members and Trustees: 8 � Service providers: 19 � 33 interviews for case studies

  9. CASE STUDIES ���� ������ �������� �������������� � ������)������� ������� ������812���������/012� � ������)������� ������� 7����812���������/012� 5 &�������� ;�������5��� ����:0012� 9 ������)������� ������� 7����812�����������012� � &�������� ������� ������61112� & ������������� ������� 5����������������� � ����*�������� 34- ���������������������/012� . ������)������� ������� -������������

  10. Consequence Stakeholder Environmental Forces for Pace of Uncertainty Redress Power Ethics factors change increase change Government Political Trade unions Too fast Complexity Leakage Surplus Unions Members worse off Regulator Economic Employers Not Not Service legislation Govern- and need thought evaluated provider ment Adjudicator Legislation Consultants Pension protection dominance through No fund Ombudsman legislative Surplus reform framework Trade Political Strike activity Speed- Complexity Social Trustee Unions Unfair Unions benefit education transfer Poor benefits ed up No strategy FSB erosion benefits Legislation Social change Very quick Fund assets Members/ Political Trade unions Very Complexity Surplus Surplus FSB Surplus/ quick legislation Trustees Economic Employers No collective Education Unions invest- thought requirements ment Legislation Member Service benefits Risk provider reserve 50/50 trustees Leakage Business/ Political Union Pressing Complexity Surplus Pension Govern- Transfer pressure need fund ment values Employer Economic Unclaimed reform Cost and risk benefits Surplus Legislation 50/50 trustees Consultants Service Political Trade unions Out of Complexity Inter- Pension Unions Some providers control generational fund deliberate Economic Employer/ Steep Govern- cross reform unethical learning ment Social members subsidisation activity curve Markets Consultants Valuations

  11. 1 st 2 nd Case Union Method Driver Transfer Method Driver Transfer Fund Fund Signs of 3 rd wave wave value now in still value surplus exists wave A Yes Yes Union Union Member Yes Rule ER Actuarial Yes Merge No member contrib. amend d with liability + transfer plus int. fund B sweeten B Yes Yes Union Union Actuarial Yes Rule ER Actuarial Yes Merge No member liability + d with liability amend transfer sweeten fund A C No No n/a n/a n/a Yes Rule ER Actuarial Yes Yes No liability + amend sweeten D Yes Yes Union Union Actuarial Yes Transfer EE/ER Actuarial Yes Yes Yes member to new liability + liability transfer fund sweeten E No No n/a n/a n/a Yes Transfer ER Actuarial Yes Yes No to other liability + fund sweeten F Yes No n/a n/a n/a No n/a n/a n/a Yes Yes No G Yes No n/a n/a n/a Yes Transfer ER Actuarial Yes Yes No to new liability + fund sweeten H Yes No n/a n/a n/a No n/a n/a n/a No Yes No

  12. ENVIRONMENTAL CHANGE ���������*������ � � ���������#��*������������������#��� � ������������������+���������'���'���*����� ���������*������ � � ������������� � �������������*���*���������*��� �������*������ � � .)<����� � ���������������� � ;��'���+�������*��� 7���������� � � ���������������'�� �������&��������

  13. FORCES FOR CHANGE ����������������"����������������+�� � �������������"������������� � 5��������������"�������*���������+����"��� � ����"����������������������������������� � ��������*����,������������������������*���*���������*���� � ��������'�����+��'�.)<������������������������������'��� � 9���������*������������������������ � ���������*����������������*���������� � ������������������������������������������" � ���"����������' � <�����������������*������������������������������������ �

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