Dear Sir
Representations: Pension Funds Amendment
Bill 2007
We hereby submit representations and comments on behalf of the
To the extent that the IRF submitted comprehensive comments in November
2006 on the previous draft Pension Funds Amendment Bill, and such comments were
incorporated into the amendments, these have not been repeated. Notwithstanding
these previous comments, certain aspects of the Amendment Bill remain as
previously published. Therefore, some comments are repeated for inclusion into
the next amendment or draft legislation. Reference is made to the IRF’s
previous comments where necessary.
To the extent that it
has been possible, we have commented on the Amendments per section in numerical
order. However, we apologise for any oversight regarding reiterated comments or
mistakes.
The comments and
representations contained in this document have been collated by the IRF on
behalf of its members and submitted to Parliament for ease of reference, all
such comments do not necessarily reflect the views of the IRF.
1. Definitions
Actuarial surplus
Some IRF wording suggestions have been incorporated
but the main point that improper use was not intended to be added to asset values
before determining surplus is overlooked as part of the insertion of
retrospective conditions.
Contingency reserve account
The comments (in 2.9 of the previous IRF response
remain relevant.)
Dependant
The IRF suggestion (in 2.13) that reference to adopted/illegitimate
child be deleted has been overlooked.
Rules
The word "obligations" should be
"duties" for consistency.
2. The
Act
2.1 Application of Act Rules
The
IRF suggestion (in 3.1) to limit information requirements for certain
bargaining council funds has been overlooked.
2.2 Restrictions on Administration of funds
Some
of the IRF suggestions for S13B(4) and S13B(8) have
been accepted while those for S13B(5)(c) and S13B(7) have not. The point is
reiterated that the powers of the Registrar should be justifiable.
2.3 Amalgamations and transfers
The
IRF suggestion (in 6) that reference to particular time periods be transferred
to regulation has not been incorporated.
2.7 Section 15B(6)
The
IRF questions (in 9.5) about "cost", "employer" and
"selected" remain relevant. We indicated that we would submit a
definition of "selected". Did we do so?
2.8 15B(9) and (10)
The IRF
comments regarding these sections have been overlooked.
2.9 15B(12)
The
IRF comment that this section does not make sense is still relevant. Perhaps
all that is needed is the deletion of "which" in the second line.
2.10 Section 18 Fund not in sound financial condition
The
IRF suggestion (in 12) that this should be deleted has been overlooked although
some wording changes have been accepted.
2.13 Section 30P
The
IRF and the LOA comments on the appeal/review process have been overlooked.
2.15 Section 33A: Directives
The
strong objection by the IRF (in 18) to the provision has been overlooked, but
the fall-back wording suggestions have been incorporated.
2.16 Section 37C
The IRF suggestion (in 20) has not been accepted.
The
issue of retrospectivity is an issue of principle. Our constitution is
explicitly founded on the principle of the rule of law which requires that our
law be both prospective and certain so that people can order their affairs in
the knowledge of the consequences of their actions. Our courts have said
that the principle is not overriding, however, and there may be compelling
cases in which it is justified. Funds have spent thousands of rands trying to
give effect to what the legislature requires, in many respects - in its statute
of 2001. Many of these amendments substantially alter the rules of the
game and it cannot reasonably be said that they are required for
'clarity'. The 'fund return' issue is not even addressed in the
original wording so it cannot be said that there is any lack of clarity on the
matter which requires to be addressed in a statutory amendment. The same
is true for the amendments that give the registrar new powers in relation to
the valuation of funds.
Section 14
As regards section 14, some of the IRF's comments have been included and
some not. (these should be reiterated). The main
issues that should be addressed are the following:
Section 14(2) which allows for a transfer between two valuation exempt
funds without formal section 14(1) approval, now
requires agreement by 75% of affected members. In practice, it will be
difficult to even get a response, positive or negative, from 75% of members, so
it is unlikely that section 14(2) will be of much use in practice. We
suggest that it should be sufficient if members were duly informed and allowed
the opportunity to object - it would not be practical to require written agreement
of 75% of members.
A proviso has now been inserted in section 14(2) in terms of which,
inter alia, the assets transferred must be augmented with fund return.
Provision should be made for the smoothing of fund return, where
applicable.
Section 37 C
The IRF's previous comments have not been accepted. The comments should
be reiterated. The rules of many defined contribution funds provide that
the death benefit is a pension (payable to dependants and/or nominees) which
may, on application, be commuted in full or in part. The intention has always
been that section 37C is applicable to such death benefit. However if the
proposed amendment to section 37C(1) becomes
legislation, those benefits will not be subject to section 37C, which is highly
undesirable.
Divorce allocations
Definition: non-member spouse: Surely this must be limited to cases where an
order in terms of section 7(8) of the Divorce Act was made, i.e. cases where
the fund was ordered to pay an amount
to the spouse.
Section 37D(1)(d) should also be rephrased to limit
the order referred to in the first sentence to a section 7(8) divorce order.
If this is not done, then the new provisions will also apply even if the
court
ordered the member (and not the fund) to make payment of the part of the
pension interest allocated to the non-member spouse.
As regards the option of a transfer of the non-member spouse's assigned amount
to another fund, the Income Tax Act will probably require amendment to allow
the transfer to be tax free.
Rules
One minor
item is the effect of paragraph (c) of the definition of "rules". If
provisions incorporated by reference in the past are now part of the rules, do
extracts from external documents containing them and amendments to them have to
be submitted to the registrar?
"Provided
that where the value of the benefit provided by a fund is equal to or derived
from a long-term policy or other investment instrument, such policy or any
documentation regarding such other instrument does not form part of the rules
of that fund."
1. One example is where a fund has
safeguarded the surplus by converting it to cash. The fund has therefore earned
interest on the surplus from the surplus apportionment date. The FSB insists
that the fund pays fund return (which exceeds interest because of the good
performance of the JSE) on the surplus, which the fund is simply not in a
position to do. (The fund could however possibly rely on par (b) of the
definition of fund return that the assets relating to the surplus are separately
identifiable and the return on these assets should be applicable.)
2. An anomoly of the proposed sec 40B is
that a fund that was advised long ago by its legal advisers that the improper
use provisions do not apply before 7/12/01 and has submitted and had there
scheme approved on this basis, is not affected by 40B. But a
fund that received the same advice but because they are so cautious (as good
trustees should probably be) and e.g. obtained a declaratory order to confirm
this, will be affected.
3. By the way, in the latest version of 15B(6)(b) improper use must be investigated from 1980 or the
fund's commencement date or such earlier date agreed by the employer (the
underlined part is new). This is confusing. Will all funds (whose schemes have
not yet been approved) with commencement dates before 1980 now be compelled to
investigate since commencement or does the fund have a
discretion?
4. The widening of the
definition of “spouse” to incorporate customary marriages, civil unions and
marriages in terms of any Asiatic religion is to be welcomed.
5. The introductory wording
to paragraph (d) is arguably wide enough to
include maintenance orders, which from the context of the paragraph as a whole
was presumably not the intention.
6. The provision in
paragraph (d) regarding the date of deemed accrual for purposes of section 7(8)(a) clears up the doubts created by the draft Bill.
However, it is not clear whether or not this deeming provision applies to
divorces concluded before the resultant Amendment Act comes into effect.
Although it must be presumed that this is not the case as this would amount to
a retrospective provision (it is not included in the draft section 40B),
certainty is needed. Firstly, if this is left open, retirement funds will almost
certainly be flooded with demands for immediate payment in respect of section
7(8) orders going back to 1989, and litigation if they fail to comply.
Secondly, if a court somehow finds that the amendment indeed applies to
existing orders, this could have serious financial implications for funds, for
example the immediate and unplanned liquidation of assets to enable them to
make such payments. This could also have an unexpected impact on member
spouses, as non-member spouses may then demand that fund growth in terms of
sub-paragraph (v) must also accrue retrospectively.
7. Sub-paragraph (i)
establishes with absolute certainty that the relevant fund must be named in the
order. This will hopefully resolve the disputes between funds and the legal
profession where orders use catch-all phrases like “any pension interest”.
8. Sub-paragraph (iii) will
presumably lead to an amendment of the Income Tax Act to provide for taxation
in the hands of the non-member spouse and, presumably, tax exemption in the
case of transfers. Such an amendment should presumably distinguish the tax
situation in respect of orders made before and after the date on which the PF
Amendment Bill is enacted.
9. Sub-paragraph (iv) is welcomed as it does away with any concerns regarding the
rights of the non-member spouse in relation to the fund.
10. Sub-paragraph (v):
· Generally in the case
of DC funds with member investment choice, this return should surely be at the
rate earned in the member spouse’s portfolio for the relevant period – it seems
however that paragraph (b) of the definition of “fund return” might cover this.
· Where a fund’s rules
provide for disinvestment in the case of members leaving service, it could be
argued that provision should be made for disinvestment of the non-member
spouse’s allocated portion upon receipt of a valid order. The provisions of
sub-paragraph (b) effectively seem to preclude this.
· In the case of DB
funds, would it not be more appropriate to provide for the accrual of interest
rather than fund return?