The following article was published by the Sunday Independent in Johannesburg on Sunday 21 January 2001 in the Business Section.

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All IBM pension fund trustees need to account to members

by David Gleason

If you had R64.62 in your hand in 1975, what do you think it would be worth in 2001? In Johannes van Heerden's view, the answer is at least R1000.

It is a response that illustrates dramatically the power of compound interest because if you apply an interest factor of 11.11 percent a year over the 26 year period, that's the product. Is 11 percent a year a fair number? Given this country's galloping inflation in the early years of this period and the high levels of real interest rates that have prevailed over much of it, 11 percent in my view is probably conservative.

So does Van Heerden get his R1000? No, he doesn't. And this is the rub of the story.

In 1975, after working for IBM in this country for ten years or so, Van Heerden went off to other pastures. The sums that had been paid into his pension by IBM (the fund was noncontributory at the time) were vested. Van Heerden was told that, on the basis of information then available, his pension when he reached 65 would be R64.62 a month.

Two years ago, Van Heerden again asked what his pension would be when he reached 65. Funnily enough, he was told that it would be R64.62 a month. Van Heerden reacted sharply. He lodged a complaint with the pension fund adjudicator.

But his appeal was rejected on the ground that "it was not uncommon for funds not to provide for enhancements on deferred pension benefits at that time".

Pensions are an emotive issue: people can quickly become enraged or profoundly disturbed if they believe their pensions are being poorly managed or tampered with.

And IBM doesn't appear, on the face of it, to have a proud record when it comes to pension fund management. I had cause to write last year about the death of an IBM pensioner in unnecessarily miserable and degrading conditions (Inside Track, October 26) and which the fund could easily have alleviated.

In van Heerden's case, it seem he has reached the end of the road. The rules of the IBM fund exclude any improvements to deferred pensions, and the present Pension Fund Act doesn't legislate against discrimination.

From what I can glean, the elected trustees of the IBM fund (as distinct from those appointed by the company) have bee trying to get the rules changed. But they've been blocked repeatedly by nominated trustees.

I'm not sure that I buy into this. All the trustees need to remember is that they carry a heavy fiduciary responsibility to the fund and its members, not to the company. If one group of trustees feels it cannot discharge these duties satisfactorily, it needs to bring the matter urgently to the attention of the Registrar and should report that to the members.

While I'm on this subject, the library reveals that The Times of London reported (also October last year) that members of the IBM's pension scheme in the UK complained to the Pensions Ombudsman "accusing IBM of using a £700 million surplus from one well-funded plan to pay contributions to a second, less well funded, scheme".

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