Privy Council allows staff payout

By BRIAN FALLOW

The Bank of New Zealand has lost its most recent legal bid to conserve the benefit it gets from the surplus in its staff superannuation scheme.

The Privy Council has ruled that a 2001 amendment to the rules of the BNZ Officers Provident Association (OPA) allowing a retrospective payout to scheme members, including those who had left the bank's employ, is lawful. This upholds a Court of Appeal decision last year.

But the OPA's forensic victory may prove pyrrhic for its members.

While the lawyers argued, the value of the surplus has declined from $129 million in 2001 to $83 million, partly because of investment losses.

The original plan would have seen $43 million go to people who were members in 1995, of which those who have since left would get $16 million.

But the OPA board will now have to redo its sums before deciding how much, if anything, can be disbursed.

"I can't guarantee there will be any payout," said OPA manager Tom Clark. "All they have done is say that in principle such rule changes are lawful."

Like a pair of sumo wrestlers the bank and the OPA board have been locked in a litigious struggle for at least eight years.

Their lordships in London were unimpressed: "This appeal is the latest (and it is to be hoped the last) round in a protracted sequence of litigation which has so far led to three sets of proceedings and two appeals to the Court of Appeal."

Apart from the steady flow of legal fees, now in the millions, the only thing which has remained constant through the saga has been the bank's contribution holiday.

The scheme was restructured in 1990 from a defined benefit (pension) scheme to a defined contribution scheme. At that stage the fund had a surplus - assets greater than its actuarially estimated liabilities - of $278 million. Some of that was due to the bounty of investment markets in the 1980s, some to over-contribution by the bank; no one has been able to reliably split it between the two.

Since then the bank has not had to outlay $1 of its own money in subsidy to its staff's superannuation savings; it has all come from the surplus.

Until 1995 the practice was to take the fund's investment income, after tax and expenses, and attribute all of it to the members, including earnings on the surplus.

The BNZ successfully challenged that in the courts, arguing that it did not square with the basic concept of a cash accumulation scheme, whose members could expect a return on their contributions and the employer's subsidy but no more.

By then the surplus had dwindled to $107 million, but when the earnings on the surplus began flowing back into the surplus it began rising again, until by 2000 it had reached $129 million.

So the OPA board of management increased the subsidy to members' contributions.

Instead of $1 for $1 up to 7 per cent of salary, it has been raised to $1.50 for $1 up to 10 per cent of salary.

That, plus the damage done by a bear market, has seen the surplus shrink to $83 million by the end of October last year.

The 2001 rule change now cleared by the Privy Council would have increased benefits to those who had been members at any time since 1995, including those who had left the bank.

The bank went back to court, arguing that a change which benefited people who were no longer members of the scheme or pensioners was inconsistent with the stated objects of the scheme. How could a former member be a member?

But the Privy Council said: "The whole point of a superannuation fund is to provide for ex-employees."