MEMORANDUM ON THE OBJECTS OF THE
TRANSNET PENSION FUND AMENDMENT BILL, 2006
BACKGROUND
.1.
In 1990 the Transnet
Pension Fund was established in terms of the Transnet Pension Fund Act, 1990
(“the Act”), and assumed liability for the liabilities of the disestablished
New Railways and Harbours Superannuation Fund and the Railways and Harbours
Pension Fund for Non-White Employees.
All employees of Transnet were obliged to belong to the Transnet Pension
Fund, a defined benefit pension fund.
.2.
In 2000 the Act was
amended to establish the Transnet Second Defined Benefit Fund to which the then
liabilities of the Transnet Pension Fund in regard to its pensioners were
transferred. It was also amended to
empower Transnet to establish new funds for its employees and Transnet
exercised that power by establishing the Transnet Retirement Fund, a defined
contribution pension fund. Most
employees of Transnet voluntarily transferred from the Transnet Pension Fund to
the Transnet Retirement Fund (effective 1 November 2000) and the Transnet
Pension Fund has been closed to new members since then. It now has only some 12,000 members,
including pensioners who retired after the establishment of the Transnet Second
Defined Benefit Fund.
.3.
The Transnet funds are
all pension funds as contemplated in paragraph (a) of the definition of
“pension fund” in the Income Tax Act, 1962 because they were established in
terms of specific statutes other than the Pension Funds Act. This means that, when a member leaves
employment, he or she is entitled to have his or her lump sum benefits taxed on
the basis that that portion of the benefit attributable to membership prior to
1 March 1998 will not be subject to tax.
The special tax status of the benefits of members with pre-March 1998
service cannot be protected in a fund other than another “paragraph (a)” fund.
.4.
Transnet is in the
process of disposing of its non-core assets.
This entails the transfer of the shares in some of its companies
(including SAA) to the State or to private sector entities, and the transfer of
some of its businesses either to national government business enterprises (such
as the transfer of the Metrorail business to the South African Rail Commuter
Corporation) or to private sector entities (such as the transfer of the internal
audit business of Transnet to Ernst & Young).
.5.
Unions representing
employees affected by these disposals have urged Transnet and the Department of
Public Enterprises to take measures to minimise insofar as may be possible any
adverse impact that the disposals may have in relation to the retirement
savings of those employees. To this end
Transnet and the DPE have agreed, subject to the condition that such measures
do not fundamentally impact upon the efficacy of its restructuring exercise to
allow transferring employees and pensioners the option of retaining membership
in the Transnet funds. The Transnet
Pension Fund Act requires amendments to support these provisions and is
accordingly required to be tabled at Parliament.
.6.
Numerous amendments are
required to the provisions of the Act relating to the Transnet Pension Fund
because there are many existing statutory provisions relating to it. Fewer amendments will be required in
relation to the Transnet Retirement Fund because the rules of that fund provide
for the fund’s governance and the benefits payable by and contributions payable
to the fund.
OBJECTS
The objects sought to be achieved through the
enactment of the Bill are –
.1.
to amend the Act with
retrospective effect to 11 November 2005. This date is proposed for consistency
purposes as it is the date used to amend the Transnet Retirement Fund rules and
it will be the date from which the Transnet Pension Fund rules will be
amended.;
.2.
to transform the Transnet
Pension Fund into a “multi-employer” (umbrella) pension fund for employees of
Transnet and for employees of only those State or national government business
enterprises (“SOE Employers”) to which the shares of the companies in which
those employees were employed, or to which businesses in which those employees
were employed by Transnet, were transferred and accordingly to rename the fund
“the Transport Pension Fund” [ sections
1(20) and 5(5)];
.3.
to explicitly permit the
continued membership of the Transport Pension Fund or the Transnet Retirement Fund
of persons who were members of the fund immediately prior to the sale of the
respective shares or businesses, to SOE Employers and who are still employees
or retired employees of the aforementioned SOE Employers, and to exclude from
continued membership the employees of companies or employees employed in
businesses transferred entirely to private sector entities [section 14];
.4.
to provide that only new
employees of Transnet may join the Transnet Retirement Fund and to exclude from
membership of that fund new employees of the SOE Employer that participates in
the fund [section 14(2)];
.5.
to provide that the
Transport Pension Fund will be governed in terms of General Rules applicable to
the fund as a whole [section 5(1) and
(2)(a)] and in terms of Special Rules which will make specific provision
for the contributions payable by and on behalf of employees of specific
employers or groups of employers and the benefits payable to those employees
and their dependants and other beneficiaries and for other matters specific to
Sub-Funds to be established in respect of the employees employed by the
employers or groups of employers, such as the investment of the assets
attributable to Sub-Funds [sections
5(2)(b) and 5(7)(b)];
.6.
to provide that the
General Rules may be amended with the consent of all Principal Employers, or,
failing such consent, by the Minister of Public Enterprises (“the Minister”),
and that Special Rules may be amended with the consent of applicable Principal
Employers [section 5(2)];
.7.
to provide that only
those General Rule and Special Rule amendments which may have a financial
impact upon the Transport Pension Fund will require the consent of the Minister
[section 5(3)];
.8.
to ring-fence, subject to
actuarial valuation, and to assign to each employer or group of employers with
employees and retired employees who are members of the Transport Pension Fund,
liabilities in relation to the funding of the benefits payable by the fund to
those employees, retired employees, their dependants and other beneficiaries
and guarantees in favour of those persons so that Transnet does not have to
bear the burden of funding and guaranteeing benefits in favour of persons no
longer related to it [section 5(5), (6),
(12) and (13) and section 6(1A)];
.9.
to provide for the establishment
of Sub-Fund Committees to govern Sub-Funds and to exercise powers in relation
to the rights and obligations of the Sub-Funds in terms of their Special Rules
that would otherwise have been exercised by the Transport Pension Fund’s board
of trustees [section 5(7), (8), (10),
(11)];
.10.
to permit the Transport
Pension Fund to purchase annuities in the names of its pensioners and thereby
to allow it to transfer its liabilities in respect of those pensioners to
insurers [section 5(14)];
.11.
to allow housing finance
providers, including employers, to recover out of benefits payable to such
employees by the Transport Pension Fund or the Transnet Retirement Fund on
termination of employment amounts due by the employers to those providers [section 10 read with section 14A(7)];
.12.
to remove a subsection
providing that the funds will lose their special tax status if they become
registered in terms of the Pension Funds Act [section 13(2) read with section 14A(7)];
.13.
to provide that all rule
amendments of the Transnet Second Defined Benefit Fund require the approval of
Transnet [section 14B(6)];
.14.
to provide that only
those rule amendments which may have a financial effect on the Transnet Second
Defined Benefit Fund require the approval of the Minister [section 14B(6)];
.15.
to provide for the
payment of pensions by the Transnet Second Defined Benefit Fund to
persons to whom pensions have been paid by Transnet who are not members of any
fund established in terms of this Act [section 14B(8)];
.16.
to empower the Minister
to make regulations not inconsistent with the Act which, in his opinion, are
necessary or expedient to achieve the objects of the Act [section 15A]; and
.17.
to insert new definitions
and to correct errors and omissions;
Bodies consulted
The Department of Public Enterprises has
consulted the board of directors of Transnet and Transnet in turn has consulted
and received input from the boards of trustees of the Transnet Pension Fund,
the Transnet Second Defined Benefit Fund and the Transnet Retirement, legal
advisors, the actuaries of the Transnet funds and various union
representatives.
Financial implications for State
The financial
implications for the State of the proposed amended statute will be apportioned
amongst the entities in which the State holds an interest, such as Transnet and
the South African Airways and other companies which may participate in the
funds in which the State is a shareholder although it may not be the sole
shareholder. In addition, the South
African Rail Commuter Corporation as an agent of the State (to which the
Metrorail and Shosholoza Meyl businesses are to be transferred) will experience
similar financial implications as those described above.
At inception of the
amendments, no liabilities in excess of those now borne by Transnet are expected
to be borne by Transnet and the new participating employers together. These exposure levels could vary from the
current levels over the ensuing period and shall depend on the individual
employer appetite for benefits payable, risk profile of the Sub-Fund and
investment strategy.
Parliamentary procedure
.1.
The State Law Advisers
and the Department of Public Enterprises are of the opinion that this Bill must
be dealt with in accordance with the procedure established by section 75 of the
Constitution of the Republic of South Africa (“the Constitution”) since it
contains no provision to which the procedure set out in section 74[1]
or 76[2]
of the Constitution applies.
The State Law Advisers are of the opinion that
it is not necessary to refer this Bill to the National House of Traditional
Leaders in terms of section 1(1)(a) of the Traditional Leadership and
Government Framework Act, 2003, (Act. No.41 of 2003), since it does not contain
provisions pertaining to customary law or customs of traditional communities.