3. Matters Arising
3.1 The Superannuation Schemes Act 1989 emphasises the role and responsibilities of trustees, combining the elements of:
- Trustees' freedom of action
- Trustees to be responsible for their actions
- Transparency of trustees' actions.
Trustees are, of course, required to act in the best interests of the schemes' members and beneficiaries at all times, in accordance with the trust deed and general law.
This includes the need to meet the deadlines for reporting both to this office and to both members and pensioners.
In last years report I referred to the fact that a prosecution had been commenced and I can now advise that the prosecution was discontinued after the Trustee of an employer sponsored superannuation complied with my Order to wind the Scheme up for reasons of inadequate management. The facts of the case were that I had received a complaint from a member that the Corporate Trustee had refused to provide the member with information that the member was entitled to receive under section 17 of the Act and had also failed to ensure that contributions had been remitted to the investment manager of the scheme by the employer after giving me a commitment that it would after a previous breach. It transpired that the sole director of the Corporate Trustee (which was also the Employer) was also a member of the Scheme. When I ordered the scheme be wound up the Trustee choose in the first instant to ignore my order and in its capacity as employer continued to withhold the unpaid contributions. It was only after commencing a prosecution under section 25 of the Act that the matter was resolved.
The case provides yet another example why consideration should be given to the requirement for all registered superannuation schemes to have at least one independent trustee.
3.2 For the last three years the main continuing issue affecting superannuation schemes has been the effect of poor investment returns, which has continued to have a detrimental effect on the security of members' benefits. This issue was raised in each of the last three annual reports. It remains important to ensure that the reporting of the financial position of schemes and the impact on the security of benefits, together with the proposed action to remedy any deficit, are clearly explained for the benefit of members and pensioners. In general terms the issue is being addressed with Trustees adopting the recommendations contained in the Actuarial reports. Usually Employers are increasing their contributions to extinguish any loss over a reasonably short period of time.
Current valuations covered by this report show an average investment return of negative 3.1%. Recent investment returns have shown more positive trends which demonstrates that the situation may be easing for individual schemes.
Overall the average scheme currently has accrued benefit liability in excess of the underlying assets. It will be sometime before the more positive returns will have a significant effect and hence any absence of attention to the adequacy of funding may lead to some scheme members receiving less than they were expecting. If the beneficiaries are already retired and the employer fails without funding being adequate, then this lack of security becomes reality.
3.3 It continues to be of concern that there are a few defined benefits schemes where employers are disinclined to make contributions "unnecessarily". There are currently no legislative requirements in respect of funding adequacy so that unless the trust deed governing the scheme has specific provisions, the level of funding is on the whole discretionary. This continues to have implications for the security of members' benefits.
3.4 In respect of disclosure, in most instances there is a willingness to give full and proper information. However, in a few instances members are not given the information they need or are not given it in a useful form.
Last year I commented on one area not currently covered by the Act namely where pensioners are made an offer to "cash out" their pension (i.e. to exchange pension for a cash sum). The information provided to pensioners has occasionally required the pensioners to determine whether the exchange assumptions were reasonable. This issue led my predecessor to lay a complaint with the New Zealand Society of Actuaries. This complaint was subsequently upheld. I have advised the particular Trustee of the result of this complaint so that they could consider whether remedial action was necessary.
3.5 The New Zealand Society of Actuaries valuation standard that provides guidance to actuaries undertaking valuations of defined benefit schemes was reviewed and applies to reports made on or after 31 March 2003. This has led to an improvement in the commentary on the sufficiency of assets on wind up and where relevant the level to which pensions could be purchased with the appropriate wind up proceeds. It remains important to ensure that the comments are meaningful whilst not alarming the members without reason.
Section 8.7 of the Actuarial Standard now requires the actuary to comment on the sufficiency of assets on wind up. It is clear that an estimate of the cost of providing benefits by purchasing annuities is required.
3.6 The development of International Accounting Standards continues at a pace. Some comment on IAS26 and IAS19 is included on the website.
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