BUSINESS UNITY SOUTH AFRICA

PENSIONS ACT AMENDMENT BILL

SUBMISSIONS BY BUSINESS UNITY SOUTH AFRICA (BUSA) MAY 2007

BACKGROUND

BUSA is a confederation of chambers of commerce and industry, professional associations, corporate associations and unisectoral organisations. It represents South African business (See Annexure B - list of members) on macro-economic and high-level issues .-that affect it at tile national and international levels.

BUSA's function is to ensure that business plays a constructive role in the country's economic growth, development and transformation and to create an environment in which businesses of all sizes and in all sectors can thrive, expand and be competitive.

As the principal representative of business in South Africa, BUSA represents the views of its members in a number of national structures and bodies, both statutory and non-statutory. BUSA also represents businesses' interests in the National Economic Development and Labour Council (NEDLAC).

Internationally, BUSA is a member of the International Organisation of Employers (IOE), the Pan-African Employers' Confederation (PEC) and the Southern African Development Community (SADC) Employers' Group. BUSA is also the official representative of business at the International Labour Organisation (ILO), African Union (AU) Social Affairs Commission and World Trade Organisation (WTO).

INTRODUCTION

BUSA welcomes the opportunity to provide comment on the Pensions Act Amendment Bill. BUSA believes regulation of the Pension Funds Industry is good, for as long as it meets the requirements of the Rule of Law. We are concerned about the Constitutionality of certain provisions in the proposed Pension Funds Bill and wish to point out some of the sections which might open the Bill to Constitutional challenge.

COMMENTS

A) THE PROBLEM WITH RETROSPECTIVITY

AD the proposed 40B and 15B.

Retrospectivity

40B. The definitions in section 1 (1) of "actuarial surplus", "augment"," contingency reserve account", "contribution holiday", "defined benefit category of a fund", "employer surplus account", "fund return", "member surplus account", "minimum individual reserve", "surplus apportionment

date" and sections 14A, 14B, 15B, 15C, 15E, 15F and 15K are deemed to have come into operation on 7 December 2001, for funds whose surplus schemes have not been approved by the registrar: Provided that in the case of funds whose schemes have been submitted but not yet approved on the effective date of this amendment, the registrar must inform such funds of the instances where their schemes do not comply with this amendment and grant such funds a reasonable period of time to review and resubmit their schemes.".

15B (1) (a) Subject to paragraph (b), the board of [a] every fund that commenced prior to 7 March 2002 shall submit to the registrar a scheme for the proposed apportionment of any actuarial surplus plus the details regarding any surplus utili sed improperly by the employer as defined in subsection (6) (in this section referred to as the scheme) as at the effective date of the statutory actuarial valuation of the fund coincident with, or next following, the commencement date.

AD 15B (6) (b) The board shall investigate any improper utilisation of surplus by the employer prior to the surplus apportionment date which shall consist of any of the following amounts incurred in the period from 1 January 1980 or since the date of the fund's commencement or such earlier date agreed to by the employer to the surplus apportionment date...

The implication of the above is that:

In terms of 40B-the [amended] surplus provisions is deemed to have come into operation on 7 December 2001. This means the legislation is retroactive.

a fund in terms of 15B(1) has to submit a scheme for the proposed apportionment of any actuarial surplus plus the details regarding any surplus utilised improperly

Surplus utilised improperly has to be investigated from 1 January 1980 or earlier. Such improper utilisation of surplus has to be included in the scheme for the proposed apportionment of any actuarial surplus. [this is a change from the legal position up to now, as confirmed in the San lam Pension Funds High Court decision].

The Act currently states that it is an offence not to submit a scheme. The current S37 (b) reads that any person who fails to make a return or transmit or deposit a scheme, report, account, statement or other document when required to do so in terms of this Act...shall be guilty of an offence, and liable on conviction...

If S37 of the Act were to remain like this, not submitting a scheme which includes surplus utilised improperly from 1 January 1980, would amount to not submitting a scheme in terms of S 15B( 1).

This would mean that one would be guilty of an offence based on retrospective legislation.

S35 of the Constitution states that

(3) Every accused person has a right to a fair trial, which includes the right(1) not to be convicted for an act or omission that was not an offence under either national or international law at the time it was committed or omitted;

The requirement of including the details of any surplus utilised improperly proposed in S 15B (1), read with S37 would thus be unconstitutional.

The Bill proposes to delete the current S37 and to substitute it with administrative penalties to be imposed by the Registrar on inter alia a pension fund for any failure to comply with the Act. Such a penalty will only be imposed after allowing the pension fund a reasonable opportunity to make representations

This seems to be an attempt to circumvent S35(3) (I) of the Constitution. The Criminal procedure Act 51 of 1977 states however, that 'offence' means an act or omission punishable by law. The conclusion is that an administrative penalty remains an offence. (A rose by any other name...).

Changing the description of conduct from an offence to "failure to comply" is an attempt at circumvention of the Constitution and cannot change the nature of the conduct. The facts having to be proven in the present case and the facts having to be proven in the case of the proposed S37 would be exactly the same.

The legislature cannot remove Constitutional protection from a pension fund at the stroke of a pen by calling a fine an administrative penalty and not a fine for an offence.

B) LAW ON RULE OF LAW

According to S1 of the Constitution

1 Republic of South Africa

The Republic of South Africa is one, sovereign, democratic state founded on the following values:

(c) Supremacy of the constitution and the rule of law.

According to S2 the Constitution is supreme:

2 Supremacy of Constitution

This Constitution is the supreme law of the Republic; law or conduct inconsistent with it is invalid, and the obligations imposed by it must be fulfilled.

It follows that the rule of law is a foundational value. The Constitution being the supreme law and law inconsistent with it being invalid, we need to consider what is meant when our courts speak of rule of law.

One of the internal qualities of all public law is that it should be certain, that is ascertainable-in advance so as to predictable and not retrospective in its operation.

In PHARMACEUTICAL MANUFACTURERS ASSOCIATION OF SA AND ANOTHER: IN RE EX PARTE PRESIDENT OF THE REPUBLIC OF SOUTH AFRICA AND OTHERS 2000 (2) SA 674 (CC) Chaskalson P approvingly quoted

De Smith, Woolf and Jowell: "...rule of law embraces some internal qualities of all public law: that it should be certain, that is ascertainable in advance so as to be predictable and not retrospective in its operation; and that it be applied equally, without unjustifiable differentiation. "(Para [39])

Prior to the coming into force of the interim Constitution, the common law was 'the main crucible' for the development of these principles of constitutional law. The interim Constitution which came into force in April 1994 was a legal watershed. It shifted constitutionalism, and with it all aspects of public law, from the realm of common law to the prescripts of a written constitution which is the supreme law. That is not to say that the principles of common law have ceased to be material to the development of public law. These well-established principles

will continue to inform the content of administrative law and other aspects of public law, and will contribute to their future development. Even if the common law constitutional principles continue to have application in matters not expressly dealt with by the Constitution (and that need not be decided in this case), the Constitution is the supreme law and the common law, insofar as it has any application, must be developed consistently with it and subject to constitutional control. (Para [45])

Retrospective legislation might well contravene the rule of law where it unreasonably or unfairly impaired the ability of those bound by the law to regulate their conduct in accordance therewith.

In ROBERTSON v CITY OF CAPE TOWN; TRUMAN-BAKER v CITY OF CAPE TOWN 2004 (5) SA 412 (C) the court-held that respective legislation might well contravene the rule of law where it unreasonably or unfairly impaired the ability of those bound by the law to regulate their conduct in accordance therewith. That could not be said of ss 93(9) and (10) of the Structures Act. Their combined effect was to validate a valuation and rates dispensation and the budget of the City based thereon. Whilst the new dispensation might cause varying degrees of hardship for property owners affected by it, there was little, if any, evidence to suggest that the applicants, or anyone else in their position, had ordered their conduct in accordance with an interpretation of ss 93(9) and (10) that they were of prospective effect only, or that they had relied on that interpretation to their detriment. Accordingly, ss 93(9) and (10) were not, by reason solely of their retrospective effect, unconstitutional. (Paragraphs [135] [136] at 453C - 454A.)

3. Criminal law

In the case of criminal law there is a presumption against retrospectivity.

Unless otherwise provided, a statute is not to be interpreted to extinguish existing rights and obligations. This is basic to the notions of fairness and justice that are integral to the rule of law, a foundational principle of the Constitution.

In the matter of VELDMAN v DIRECTOR OF PUBLIC PROSECUTIONS, WITWATERSRAND LOCAL DIVISION 2006 (2) SACR 319 (CC) legislation was passed, after the accused had pleaded, but before he was sentenced, increasing the court's jurisdiction to 15 years. S 51 of the Criminal Law Amendment Act 105 of 1997, which prescribed minimum sentences for certain offences, inter alia, murder, also came into force after he had pleaded.

One of the questions was whether the regional court's retrospective application of either statute violated the applicant's right to a fair trial protected by s 35(3) (n) of the Constitution.

The majority held that the notion of the right to a fair trial extended beyond the specific rights listed in s 35(3) of the Constitution, and the general right to a fair trial was applicable in casu. (Paragraphs [21] - [22] and [25] at 330j - 331d and 332d. )

The court also held that there was a presumption against retrospectivity. Unless otherwise provided, a statute was not to be interpreted to extinguish existing rights and obligations. This was basic to the notions of fairness and justice that were integral to the rule of law, a foundational principle of the Constitution. ...if new legislation affected a person in a manner detrimental to his or her substantive rights, the application of that law would not escape scrutiny simply on the grounds that it was procedural in nature. (Paragraphs [26], [28] and [34] at 332e, 333d and 334g.)

Elementary considerations of fairness

In the case of criminal law elementary considerations of fairness dictate that individuals should have an opportunity to know what the law is and to conform their conduct accordingly.

In the matter of NATIONAL DIRECTOR OF PUBLIC PROSECUTIONS v CAROLUS AND OTHERS 1999 (2) SACR 607 the Supreme Court of Appeal held that an important rule forming part of our legal culture is that no statute is to be construed as having retrospective effect (in the sense of taking away or impairing a vested right acquired under existing laws), unless the Legislature clearly intended the statute to have that effect. The basic rationale of this presumption is that the Legislature must be taken not to have intended anything unjust: Elementary considerations of fairness dictate that individuals should have an opportunity to know what the law is and to conform their conduct accordingly.

Farlam JA held in para [60] that "in my view the cumulative effect of the unfairness the legal culture leaning against retrospectivity where there is unfairness, the fact that Parliament refrained from repeating the 'whether before or after the commencement of this Act' phrase used in ss 12(3) and 19(1) and the fact that conduct before the commencement of the Act is specifically referred to in the definitions of 'pattern of criminal gang activity' and 'pattern of racketeering activity' leads me to the conclusion that on a proper interpretation of the Act chap 6 was not intended to be retrospective.

B SEPARATION OF POWERS

The principle of separation of powers is embodied in our Constitution.

The power to make legislation

AD S15B (2)

158 (2) A scheme - (a) shall comply with such conditions as [the registrar] may be

prescribed [by regulation]; and (b) may involve-

(i) the improvement of benefits to existing members;

(ii) increases to benefits or transfer values in respect of former members;

(iii) the crediting of an amount to the member surplus account;

(iv) the crediting of an amount to the employer surplus account; or

(v) any two or more of the matters contemplated in subparagraphs (i) to

(iv).

S44(1 )(a) states that the national legislative authority as vested in Parliament confers on the National Assembly the power-(ii) to pass legislation with regard to any matter, including a matter within a functional area listed in Schedule 4, but excluding, subject to subsection (2), a matter within a functional area listed in Schedule 5; and (iii) to assign any of its legislative powers, except the power to amend the Constitution, to any legislative body in another sphere of government;

The principle is that the National Assembly has the power to pass-legislation or to assign some of its legislative powers to other legislative bodies. It does not have the power to assign its legislative powers to the executive. When applying this principle to section 15B (2), it is recommended that Parliament sets criteria to determine the conditions set by regulation. Otherwise there is a danger that the executive will be usurping the functions of the National Assembly.

Independence of the Courts and the right to access to courts -AD S30P of the Bill

The Constitution states that:

165 Judicial authority

(1) The judicial authority of the Republic is vested in the courts.

(2) The courts are independent and subject only to the Constitution and the law, which they must apply impartially and without fear, favour or prejudice.

It is the independence and the impartiality of the courts which protect one in a Country where there is rule of law. The independence of the courts will be affected by the proposed S30P. It states that no new evidence will be allowed once a party applies to the High Court for relief.

Substitution of section 30P of Act 24 of 1956

22. The following section is substituted for section 30P of the principal Act:

(1) Any party who feels aggrieved by a determination of the Adjudicator may, within six weeks after the date of the determination, apply to the division of the [Supreme] High Court which has jurisdiction, for relief, and shall at the same time give written notice of his or her intention so to apply to the other parties to the complaint.

(2) The division of the [Supreme] High Court contemplated in subsection (1) [shall have the power to] may consider the merits of the complaint [in question] made to the Adjudicator under section 30A(3) and on which the Adjudicator's determination was based, [to take evidence] and [to] may make any order it deems fit. No new evidence may be allowed."

The proposed S30P conflicts with the principle of access to courts in S34 of the Bill of rights. The section reads that:

34 Access to courts

Everyone has the right to have any dispute that can be resolved by the application of law decided in a fair public hearing before a court or, where appropriate, another independent and impartial tribunal or forum.

The Pension Funds adjudicator is appointed by the Minister in terms of S30C.

This affects his independence. He also does his own investigations in terms of S30J. It would affect his impartiality. No party is entitled to legal representation at proceedings before the adjudicator in terms of S30K. The conclusion is that the adjudicator can not be classified as "another independent and impartial tribunal or forum".

Because there had been no fair public hearing up to the determination of the adjudicator, the Act should not be amended to curtail the parties' right of access to the courts. We strongly object to the proposal in the above S30P that no new evidence should be allowed.

C THE DISTINCTION BETWEEN THE PUBLIC AND THE PRIVATE- AD AMENDMENT OF S15K

Amendment of section 15K of Act 24 of 1956

14. Section 15K of the principal Act is amended by the substitution for subsection (1) of the following subsection:

"(1) (a) When the board fails to submit a scheme for the apportionment of an actuarial surplus in terms of section 15Bwithin the prescribed period, [or if the registrar is not satisfied that the scheme submitted by the board in terms of section 15B is reasonable and equitable or if the registrar considers that unresolved complaints require investigation which may lead to a review of such scheme or if the board requests it, the registrar shall require the board to refer

(iii) The statutory actuarial valuation as at the surplus apportionment date of the fund for the purpose of determining the actuarial surplus in the fund is unacceptable to the registrar;

One should remember that one is dealing with private members' money which is controlled by a board, at least 50% of whom the members of the fund shall have the right to elect. When a special ad hoc tribunal is appointed to perform the functions of the board, one might end up with a situation where the property clause in the Constitution is affected. S25 (4) (b) of the Constitution states that for the purposes of this section, property is not limited to land. S25(1) states that no one may be deprived of property except in terms of law of general application and no law may permit arbitrary deprivation of property.

In First National Bank (the FNB case) the Constitutional Court held that the taking away of property is not required for a deprivation of property to occur. Whether there has been a deprivation depends on the extent of the interference with or limitation of use, enjoyment or exploitation. [First National Bank of SA Ltd t/a Wesbank v Commissioner, South African Revenue Service and Another; First National Bank of SA Ltd t/a Wesbank v Minister of Finance 2002 (4) SA 768 (CC); 2002 (7) BCLR 702 (CC) at Para 57.]

Circumstances might arise where there might be a case to be made that appointing a tribunal to perform certain functions of the board and not giving the members the opportunity to elect a new board, amounts to an arbitrary deprivation of property. Whether there has been sufficient interference with the use or exploitation of the members' property will in each case depend on how the tribunal exercised its powers.

Such a tribunal's functions should at the very least be narrowly tailored to confirm to strict criteria in order to prevent it from falling foul of the property

D THE NEED TO DEFINE THE TERMS EQUITY AND EQUITABLE

The following instances are examples of where the words equity or equitable are used in the Bill:

Substitution of section 15B of Act 24 of 1956 (11) The following section is substituted for section 15B of the principal Act: "Apportionment of existing surplus 15B (3) The board shall appoint a person to represent the interests of former members in the development of the scheme and such person shall- (b) be required to report, in writing to the board, on- (ii) where it was necessary for the board to apply its discretion with regard to the inclusion of former members and the apportionment of actuarial surplus to such former members, whether or not the exercise of such discretion was reasonable taking into account the demands of equity within the bounds of practicality and the circumstances of the particular fund...

(5) The board shall apportion the actuarial surplus between the various classes of stakeholders whom the board has determined shall participate in the apportionment in terms of subsection (4), following which such portion as is due to the employer shall be credited to the employer surplus account: Provided that-...(c) after deducting the cost of the increases to former members, [and] pensioners and deferred pensioners in terms of paragraph (b) the balance of the actuarial surplus shall be equitably split between existing members, former members and the employer in such proportions as the board shall determine after taking account of the financial history of the fund: Provided further that the registrar may prescribe certain methods which, if used, shall be deemed to be equitable;...

(10) If the board fails to submit a scheme in terms of subsection (1) or if the registrar is not satisfied that the' [distribution] 'scheme" is" reasonable and equitable, or if the registrar considers that unresolved complaints require investigation which may lead to a review of such scheme or if the statutory actuarial valuation as at the surplus apportionment date of the fund for the purpose of determining the actuarial surplus in the fund is unacceptable to the registrar, or at the request of the board or at the request of the person appointed in terms of subsection (3), the registrar shall require the board to refer the [apportionment of the surplus]and communicated to such employer, the registrar may permit such board to apply this section to the actuarial surplus in respect of the members employed by a particular participating employer as if the corresponding membership, assets and liabilities constituted a separate fund."
Constitutional expressions like the achievement of equality did not even exist when certain of these surpluses occurred. The meaning of a word like equitable is fluid. It is of crucial importance that expressions like equity I equitable and reasonable be defined by criteria set by Parliament.

E Conclusion

We are living in a country where the rule of law is paramount. It is better to address wrongdoings in terms of legislation current at the time of wrongdoing. Furthermore, the improper use of surplus was not unlawful or seen as wrong doing at the time. It happened in terms of rules registered by the FSB. This would maintain public confidence in the Pension funds Industry. Loss of confidence in the pension funds industry would affect the value of all pension funds, as well as the pension of the ordinary people.