The Associated Institutions Pension Fund v Le Roux, Petrus Abraham Kriel and Others

In 1994-5, approximately 2,500 employees and pensioners of the University of South Africa, along with about 35,000 others from sixty-five government-funded institutions, elected to leave the central pension fund established under the Associated Institutions Pension Fund Act 41 of 1963 and join autonomous funds established by their own institutions. Transfer regulations promulgated in April 1994 entitled each departing member to be credited with an amount equal to the funding percentage multiplied by the actuarial obligation of the Fund. The Fund had been consistently under-funded since 1985. In April 1995, the actuary Mr de Wit determined the funding percentage as at 30 November 1994 at 60.8%, resulting in a transfer of approximately R459 million. Due to difficulties in ascertaining exact membership numbers, de Wit applied a data loading factor of 7.5% to account for unascertained members. In subsequent valuations (30 September 1994 and 31 March 1995), de Wit reduced the data loading factor to 2.5%, yielding higher funding percentages of 66% and 84.3% respectively. The applicants challenged de Wit's calculations, arguing that the 7.5% data loading factor resulted in a substantially smaller transfer than their entitlement.

• Whether the transfer regulations entitled the actuary to apply a data loading factor of 7.5% when confronted with unreliable membership data
• Whether the actuary's determination of the funding percentage had to be based on mathematically precise calculations without assumptions or estimates
• Whether the actuary was required to wait for accurate membership figures before making his determination
• Whether the actuary's determination complied with the requirements of administrative justice under the interim Constitution

The appeal was upheld with costs, including the costs of two counsel. The order of the Court below was set aside and replaced with an order dismissing the application with costs, including the costs of two counsel.

Where pension fund transfer regulations require an actuary to determine funding percentages and actuarial obligations, and the regulations insistently invoke the actuarial function through repeated references to actuarial expertise, the regulations contemplate, authorize, and require the employment of actuarial professional methodology. Such methodology necessarily entails making assumptions and allowances for contingencies and imponderables, including the application of data loading factors to account for uncertain or unreliable membership data. The actuarial determination of a pension fund's funding level is not an exact mathematical exercise but the actuary's best estimate based on available information and appropriate provisions for circumstances, and such determinations cannot be set aside where the assumptions employed were reasonable and appropriate at the time they were made, even if subsequent information reveals different facts.

Cameron JA observed that although the transfer regulations were promulgated before the interim Constitution came into effect on 27 April 1994, it was clear that in regard to their interpretation and application the applicants were entitled to administrative justice under the Fundamental Rights Chapter of the interim Constitution. The Court noted that the regulations must be interpreted through the prism of the interim Constitution, citing Investigating Directorate: Serious Economic Offences and Others v Hyundai Motor Distributors (Pty) Ltd. The Court also observed that a determination infringing any of the applicants' other fundamental rights could have been impugned as in conflict with the interim Constitution. Cameron JA quoted with approval the observation of Marais JA in Tek Corporation Provident Fund v Lorentz regarding the nature of actuarial assessments as exercises in prophecy requiring considerable training and skill, noting that while de Wit was not gazing into the future but attempting to establish the present, the methodology involved similar considerations of imponderables.

This case is significant in South African pension law as it establishes that actuarial determinations under pension fund regulations are not exercises in mathematical precision but professional assessments requiring expertise, assumptions, and allowances for contingencies. The case clarifies that transfer regulations contemplating actuarial functions authorize actuaries to employ professional methodologies including data loading factors to account for uncertain or unreliable data. The judgment also demonstrates the application of administrative law principles under the interim Constitution to pension fund determinations, requiring that such determinations be lawful, procedurally fair, and justifiable. The case has important implications for the interpretation of pension fund regulations and the scope of actuarial discretion in making funding determinations.