The Joint Municipal Pension Fund (JMPF), a defined benefit pension fund for municipal workers of the old Transvaal province, will pay its remaining pensioners a one-off bumper increase two decades after it almost collapsed.
The fund that is almost 100 years old approved a 7.5% increase for its remaining 1,100 pensioners at its AGM at end-March. That inflationary increase means the fund will effectively pay pensioners a one-off special increase of 22.3%, which includes a 7.5% inflation adjustment and as compensation for the lack of increases during the fund's prior troubled years.
The 22.3% increase will be made at the end of April 2023, a remarkable outcome considering the near demise of the fund, which as a defined benefit scheme means pensioners are meant to receive a guaranteed amount. That differs from a defined-contribution fund, in which pension payments are determined by a member’s contributions and how the asset classes they are invested in perform over time.
“This is quite a strong example of how focused attention in the retirement fund space can ensure that you have a solidly constructed investment plan that pays off over time,” said Monika Kraushaar, the fund’s investment consultant from RisCura Solutions.
“A very strong collaboration between the fund’s trustees and their appointed service providers has ensured that a bespoke solution could be created for the fund, which has supported the significant turnaround in the funding level as well as consistently strong investment growth over time.”
The JMPF lost 44% of its capital in late 2002 after brokerage WJ Morgan & Associates made a series of disastrous investments in maize futures on behalf of the fund from December 2002 to January 2003. The result was that the JMPF reportedly lost almost R2bn, resulting in it having to reduce benefits of its pensioners and members.
The fund ended up in legal disputes with many parties. One party was the JSE, which it accused of failing to inform it about investigations in Willem Morgan snr and his son, Willem Morgan jnr, over the disastrous trades. The fiasco prompted the JMPF to appoint RisCura as its investment consultant in January 2004.
RisCura worked closely with the fund to implement a liability-driven investment (LDI) strategy to rebuild the fund. A novel concept at the time, the LDI strategy focused on constructing a model of how to get the fund’s asset base to recover sufficiently to not only meet its long-term liabilities but also ensure sufficient investment growth for the fund over time through carefully monitored investment risk exposure.
RisCura constructed a portfolio that provided exposure to a variety of local and international asset classes in line with Regulation 28 that would be sufficient to meet the fund’s long-term pension liabilities. This enabled the fund to exit curatorship and improve the soundness of its asset base, which by 2006 once again matched liabilities.
“Such an investment strategy is powerful whether the fund is a defined benefit or a defined contribution fund, and can be seen as a path to supporting the creation of a sustainable retirement strategy, which is a challenge for many in SA,” said Kraushaar.
Apart from the LDI approach, RisCura also introduced a more diverse investment strategy that included adding exposure to China. The fund has exposure to a range of local and international asset classes, including listed equities in developed and emerging markets as well as renewable energy, community property developments and venture capital.
Local asset managers include Fairtree, All Weather Capital, M&G Investments, Abax, Coronation, Ninety One, Futuregrowth, and Sesfikile. Offshore investments are managed by a variety of asset managers including Ninety One, Morgan Stanley, All Seasons, Catalyst and South Suez Capital and RisCura Invest’s Orient Opportunities fund, which provides exposure to China.
One challenge for the JMPF was that it was closed to new entrants in 2009 in line with its rules. As a result it has only about 208 active members still contributing with the remaining pool of roughly 1,100 retired pensioners making withdrawals to meet their pension needs.
That means growing the remaining capital base through investment became critical to meeting the fund’s future liabilities.
“Through hard work and engagement, which includes monthly investment meetings by the fund’s executive committee, well-thought through decisions can be made on behalf of the members,” said JMPF principal officer Brigitte Roos.
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