Anglo closes its defined benefit SA pension fund

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

An Anglo American SA spokesperson told Moneyweb future pensions will be paid by Momentum. Benefits will continue to be payable for the next three to four decades.

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 staff numbers reduced significantly in recent years in response to changing economic factors and a new organisational structure.

“A 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. 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 many employers have had to inject funds into these vehicles in order to meet promises. As a result, there has been a large-scale 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, there are currently 1 614 active retirement funds registered, of which 190 are defined benefit funds.

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

This suggests the decision is not a function of financial pressure on the fund, but related to concerns about sustainability.