Anglo American closes its defined benefit SA pension fund

Anglo American has advised pensioners that it will close the Anglo American Corporation Pension Fund (AACPF).

The AACPF is the defined benefit fund that employees of Anglo’s Johannesburg Corporate Office were members of. The fund has been closed to new members for almost two decades after the company introduced a defined contribution pension fund. The AACPF has no contributory members and is primarily a pensioner fund.

The closure will affect 2 030 pensioners and five employees who have retained their past service in the AACPF.

Against the background of the ageing profile of the AACPF, the Anglo Corporate Division of Anglo Operations (AOPL) has decided to close the fund, but the benefits to which pensioners were entitled will be protected, an Anglo American SA spokesperson told Moneyweb.

Future pensions will be paid by Momentum.

The spokesperson said Anglo’s Johannesburg Corporate office, as well as the nature of the work deemed to be core to its business has changed, and its staff numbers reduced significantly in recent years in response to changing economic factors and a new organisational structure.

AACPF pension benefits will continue to be payable to members of the fund for the next three to four decades.

“A possible closure of the fund now will see members benefiting from its currently strong financial position, in particular from the fund reserves,” the person added.

With defined benefit funds, employers effectively promise to pay employees a guaranteed pension for life, which is usually based on the employee’s earnings history, age and years of service. In a defined benefit environment, the employer carries the risk that markets don’t perform in line with expectations or that workers live longer than anticipated. The global increase in longevity has meant that many international employers have had to inject additional funds into these vehicles in order to meet future promises. As a result, there has been a largescale conversion to defined contribution funds, where members carry the investment as well as the longevity risk.

According to Olano Makhubela, divisional executive for retirement funds at the Financial Sector Conduct Authority (FSCA), there are currently 1 614 active retirement funds registered, of which 190 are defined benefit funds.

But Anglo’s 2017 Annual Report suggests that its local defined benefit pension plan is in surplus and that the value of its pension plan assets is currently sufficient to cover the benefits that will have to be paid. The excerpt below shows that the funding level of its local defined benefit plan is roughly 117%, after accounting for the surplus restriction.