SAFSIA [ THE SOUTH AFRICAN FINANCIAL SERVICES
INTERMEDIARIES ASSOCIATION] Association incorporated under Section 21 )
Registration no 1999/013373/08)
19 March 2007
PENSION FUNDS AMENDMENT BILL, 2007
On behalf of SAFSIA (The South African Financial Services Intermediaries
Association) we thank you for the opportunity to submit our comments. SAFSIA
represents the interests of financial services intermediary bodies, including
retirement fund intermediaries and administrators. SAFSIA comments are as
follows:
1. We are concerned at the reason given for the amendments as set out in the
explanatory summary of the Bill in the opening paragraph that uncertain
provisions of the Act have been challenged by those seeking in many instances
to circumvent the spirit of the original legislation passed by Parliament
through creative legal interpretations." Whilst this may be the experience
of the Financial Services Board (FSB) with a minority of funds, in our
experience, it is certainly not the case for the majority of funds.
There is consensus within the retirement funds industry that the legislation is
complex, contains many errors and leaves much of it open to interpretation. The
industry has been at great pains to engage with the FSB over the lack of
clarity of many of the provisions and to this end an urgent and desperate
appeal was made to the FSB in 2002 by the Institute of Retirement Funds (IRF)
to have the legislation amended to correct. and clarify various provisions. The
specific problems were set out in a detailed submission by the IRF and other
industry players. The legislation was not amended and instead the FSB was left
to attempt to clarify various provisions and intentions of the legislation
through secondary regulation and best practice guidance notes (PF Circulars).
Whilst the purpose of the original legislation was to correct past imbalances
in the utilisation of surplus in retirement funds and was specifically written
to take account of historical undesirable practices (the objectives of which
were generally welcomed), the financial impact of the legislation on funds and
their sponsoring employers was significant in certain cases.
In view of the poorly drafted legislation most funds had no choice but to seek
various legal opinions in order to obtain clarity in respect of their
particular situation. Trustees were faced with the dilemma of complying with
the strict letter of the law, in terms of their various legal opinions, or
comply with intentions set out by the FSB which, in certain instances
contradict the legislation.
2. We are of the opinion that the reasons given for the amendments are critical
for Parliament's consideration of the need for retrospective legislation once
again. The original surplus legislation was intended to apply retrospectively
and retroactively for remedial purposes. As stated above, this concept was
generally accepted.
In law there is a general presumption against retrospectivity unless the
language of the statute is such that it is intended to have retrospective
effect. This is for considerations of fairness so that all persons can know
what the law is in order to comply with it.
What is of grave concern now is that the proposed legislation, specifically
clause 408, aims to change certain provisions of the legislation with
retroactive effect. Retroactive legislation which is aimed at correcting
previous legislative or administrative errors have been found by courts to be
legitimate. However the courts have found that that it is essential that the
legislature acts promptly to ensure only a short period of retroactivity. The
proposed legislation aims at making changes in 2007 in respect of legislation
passed on 7 December 2001. Almost six years cannot be said to be a short or
reasonable period.
The intention behind the retroactive changes has been likened to travelling down
a road at the indicated speed limit but then later, once the speed limits have
been set at lower limits, being held responsible for having previously
travelled at a speed in excess of the new lower limits!
We would urge Parliament to consider the potential unconstitutionality of the
proposed retrospective amendments at this late stage of surplus apportionment
exercises. It is interesting to note in a judgment by the Pension Funds
Adjudicator m O'Brien Winterton v Rennies Group Pension Fund PFANVEI3460/01/KN,
the Adjudicator (in passing) remarked that 'It might well be that Parliament,
even had it originally intended to make the legislation retrospective, in view
of the broader equities so eloquently outlined by Mr Brassy, was alert to the
probable unconstitutionality of passing such legislation and for that reason
refrained from an express provision to that effect. '
3. Before we look at the potential effect of the proposed retrospective
legislation on funds, it is appropriate to consider the judgment in the recent
Chairman of the Board of the Sanlam (Kantoorpersoneel) Pensioenfonds v
Registrar of Pension Funds (case 375577/05 - unreported judgment dated 22
September 2006). Despite generally accepted legal interpretations and guidance
by the
FSB of the operation of the surplus legislation (specifically in this case,
around the improper use provisions), the court came to a different conclusion
with regard to the effective date from which the improper use provisions should
be applied.
This case has caused huge concern amongst funds and for the FSB (the Registrar
has applied for leave to appeal). Of particular concern to fund trustees is
that they can be found to have applied the law incorrectly Despite surplus
apportionment schemes having been approved by the Registrar, employers being
required to pay in 'improperly used amounts' may now refuse to do so or may
reclaim amounts 'erroneously' paid into a fund in respect of past improper
uses.
The FSB requested in a general circular (PF 128) that all funds submit their
surplus apportionments schemes (including a request for "nil schemes"
to be submitted) by 31 December 2006. Obviously funds had no choice other than
to submit their schemes in accordance with the legislation as it stood as at 31
December 2006. These schemes should be considered by the Registrar in terms of
the same legislation under which they were requested!
It is comforting to note that the Deputy Executive Officer of the Financial
Services Board, Jurgen Boyd has confirmed that his office will be doing
everything in its power to finalise all surplus apportionment scheme
applications and "nil scheme" submissions prior to the implementation
of the proposed legislation. Schemes not approved by this date will have to be
redone by funds (at enormous expense and further delays) in accordance with
the new legislation and re-submitted to the FSB for approval.
6.It must be noted that in terms of the current legislation there is no
obligation for funds without surplus (as defined) to submit a "nil surplus
apportionment scheme". Many funds have nevertheless submitted such
"nil schemes" at the request of the FSB. Having no power to approve
such schemes, the Registrar has merely "noted" the submission of
these schemes. The proposed legislation intends to require that all "nil
schemes" now be submitted for "approval". As this applies
retrospectively, all those funds which have previously submitted nil schemes
for "noting" will now be required to re-submit these nil schemes for "approval".
These re-submitted schemes will have to comply with completely different
requirements in terms of the proposed legislation. It is no comfort that clause
408 excludes schemes already "approved" as nil schemes have not been
approved as they did not feature in law. There will be significant costs
associated with the re-submissions.
7. Further significant implications of the proposed retroactive legislation
include (but not being an exhaustive list):
7.1 funds previously with no surplus as defined will now have to investigate
improper uses and distribute the surplus
7.2 what constitutes improper uses and the date from which these must be taken
into account
7.3 the calculation of improperly used amounts has changed significantly
7.4 changing the definition of employer in relation to improper uses to a
different employer.
Considering that:
- the surplus legislation was promulgated on 7 December 2001,
- by 7 December 2004 all affected funds had passed their statutory surplus
apportionment date,
- extensions granted by the Registrar required that all funds had submitted
their surplus apportionment schemes by 7 June 2006, and
- in respect of those funds that had failed to submit their surplus schemes by
31 December 2006, the Registrar has appointed Specialist Tribunals to deal with
the matter
- the Registrar has an obligation to approve all surplus schemes in his
possession prior to the proposed legislation implementation date, in accordance
with the existing legislation (the FSB has an agreed service level commitment
of a 60 day turnaround on applications submitted),
it is then appropriate to note which funds will fall within the ambit of the
new legislation. In our view:
8.1 the Sanlam (Kantoorpersoneel) Penioenfonds is likely to be subjected to the
new law irrespective of the outcome of any appeal. Similar1y the 29 cases (15
surplus applications ito section 15B and 15 "nil schemes" are the
numbers advised by the FSB at the Pension Lawyers Association on 5 March 2007)
being held in abeyance of the outcome of the appeal as set out in PF 128 will
also fall within the ambit of the new law;
8.2. potentially all "nil schemes" as set out in 6 above. These
include 13769 schemes already "recorded as noted", 1 077 schemes
pending, 229 not completed, 8 withdrawn, 22 rejected (numbers as advised by the
FSB at 5 March 2007) and the unknown number not submitted in accordance with
the FSB's request;
8.3 all funds where their surplus apportionment schemes have been submitted but
have not been approved by the promulgation date of the new legislation (e.g.
cases within the 6 week turnaround time-frame mentioned above, where there is
an unresolved query or the case has been pended for some other reason etc). The
FSB have indicated as at 5 March 2007 that 152 section 15B schemes were pending
and 183 schemes not completed.
8.4 unknown number of funds which have lodged appeals against the Registrar's
rejection of their valuation at surplus apportionment date or their surplus
apportionment or nil schemes
The number of surplus apportionment schemes (in terms of section 15B) approved
by the Registrar as at 5 March 2007 was indicated to be 244. We would kindly
request that the Financial Services Board kindly explain what contingency plans
are in place to deal with work that the new legislation will require be
duplicated and of the costs associated with this. We would also appreciate the
careful consideration of the costs of duplication of work by funds as these
costs will have to be met by deducting such expenses off members' benefits. As
at 5 March 2007 the FSB indicated that the costs of section 15B surplus
apportionment schemes ranged between R 1,050 and R4,44 per member.
Yoursfaithfully
B C Rossouw
Managing Director SAFSIA