Transnet Pension Fund Amendment Bill [B30 – 2006]: Department of Public Enterprises briefing
SELECT COMMITTEE ON LABOUR AND PUBLIC ENTERPRISES
17 October 2006
TRANSNET PENSION FUND AMENDMENT BILL [B30 – 2006]: DEPARTMENT OF PUBLIC
ENTERPRISES BRIEFING
Acting Chairperson: Ms
N Ntwanambi (ANC, Western Cape)
Documents Handed Out
Transnet
Pension Fund Amendment Bill: B30-2006
Transnet
presentation on the Bill – as at 13 October 2006
Presentation
by the Department of Public Enterprises on the Bill
SUMMARY
The Committee was briefed on the Transnet Pension Fund Amendment Bill. The
new Transnet Pension Fund and the Transnet Retirement Fund were explained as
well as the new Transport Pension Fund. The Department explained the various
reasons for the Bill, one of which was to protect members who were transferring
from one fund to another so as not to lose their benefits under the Income Tax
Act.
Members sought clarity on the difference between the retirement and pension
funds, as well as what would happen to the dependants of members of funds who
have passed away. It was noted that the processing of the Bill had not been
completed in the National Assembly and that it would have to return to the
Select Committee once this had been done.
The Acting Chair suggested that all parties to the Bill (including Transnet) be
present when the Committee is next briefed in order for the Committee to have a
better understanding of the Bill.
MINUTES
Briefing by Department of Public Enterprises (DPE) on Transnet Pension Fund
Amendment Bill
Ms Ursula Nobulali Fikelepi (Chief Director: Legal, DPE) explained that
Transnet had had two pension funds, one for black people and one for white
people. The funds were merged in 1990 under the Transnet Pension Fund Act to
create the Transnet Pension Fund, which is a defined benefit fund. A defined
benefit fund is one in which the employer guarantees the final pension that an
employee receives on retirement. In 2000, the Transnet Pension Fund Act was
amended to establish two new funds in addition to the Transnet Pension Fund.
Those funds were the Transnet Second Defined Benefit Fund which catered only
for pensioners previously employed by Transnet. This fund was closed to new
members. The second fund created was the Transnet Retirement Fund (TRF) which
is known as a defined contribution fund, which means that both employer and
employee will make contributions to the fund and the pension amount an employee
will get on retirement will depend on the contributions they have made and the
investments that the fund will have made. There is no guaranteed amount on
retirement unlike in the defined benefit fund. This fund (TRF) was opened to
new employees, which it still is presently. Transnet employees were encouraged
to transfer voluntarily from the Transnet Pension Fund to the TRF, the reason
being that global trends indicate that many employers are moving away from
defined benefit funds because they start becoming too costly for employers.
However, there were some employees who chose to remain in the Transnet Pension
Fund and are still members of that fund. Both the Transnet Second Defined
Benefit Fund and the Transnet Pension Fund were subsequently closed in 2000,
which meant that no new Transnet employees could join these funds. All new
employees had to join the TRF.
It was explained that part of the reason why the Act is being amended is that
there is a formula under the Income Tax Act to the effect that if a person is
employed in a company that has a Paragraph A Fund, and is a member of this
fund, their membership from 1 March 1998 will not be taken into account. As
soon as they leave that fund and join a fund not established by statute, they
will lose their benefit. This is essentially what happened when Transnet was
restructuring in that in its restructuring, it sold off non core assets (like
its shares in South African Airways (SAA)) which have been transferred to
Government. Also, Metrorail has been transferred to the South African Rail
Commuter Corporation (SARCC). It was explained that SAA does not have its own
pension fund and the SARCC had a provident fund, however, this fund is not
established by statute. What this would mean is that Metrorail employees who are members of the Transnet Fund who then move
from Metrorail to the SARCC, and who would join the SARCC provident fund, will
lose that benefit that falls under the Income Tax Act. This means that their
pension benefit will vest on the date that their membership terminates should
they move to a new fund. As a result of this, there has been some industrial
action from the Transnet Unions and in April 2006, Transnet, the Unions and the
Department reached an agreement to try to protect those pension benefits of
existing members. This agreement was that certain State-owned enterprises (SOE)
employees will continue to be members of the TRF and the Transnet Pension Fund
would be restructured into a multi-employer fund. What this seeks to do is to
preserve the pension benefits of existing members as they are: this being over
and above the legislative protection (Labour Relations Act). The agreement
would allow employees who are transferring from SAA and Metrorail to the SARCC
to continue their membership in the retirement fund and in the Pension Fund. It
was then also agreed that the Transnet Pension Fund would be a multi-employer
fund (a fund with many participating employers being part of one single pension
fund). The debate was whether the Pension Fund Act allowed for this agreement
to be affected. It was felt that it did not allow for this, thus the decision
to amend the Act. The draft amendment bill tabled in Parliament has been
approved by Transnet as well as Cabinet and was published in the Government
Gazette of 1 September 2004.
The basic principles of the amendment are that the Transnet Pension Fund is
still a closed, defined-benefit fund, thus new members may not join this fund
and the employer will guarantee the benefit the employee will receive on
retirement. It was explained that under a multi-employer fund, sub-funds are
created within the umbrella fund. Sub-funds are created for SAA employees as
well as Transnet and SARCC employees. The assets and liabilities that relate to
SAA, Transnet and SARCC employees are then ‘ring-fenced’. Essentially, each
fund has its own assets and liabilities and its own members and dependants. She
noted that the employers are not just limited to SAA, SARCC and Transnet; the
department is trying to open it up to allow entities sold by Transnet to SOEs
to participate.
With the retirement fund, the amendment in the Act allows it to remain a
defined contribution fund. Existing members are able to remain members even
after transfer to the SOE. It was noted that with regard to the Second Defined
Benefit Fund, very minor changes have been made. Even though the fund is a
multi-employer fund with different employers participating at different
sub-funds relating to each particular employer, it is still one legal entity
that had been renamed the Transport Pension Fund. The agreement with Metrorail
would determine which pensioners would be members of the SARCC sub-fund, or
which dependants will be members of the SARCC sub-fund. With respect to
liabilities and assets (ring-fencing), these will then be determined by
trustees as well as evaluated by actuaries. Essentially, the members establish
the sub-fund and then they specify that the appointment of trustees will be
dealt with in the rules of the sub-fund.
It was stressed again that there would be independent sub-funds which are
separated and delineated especially in terms of their membership, their assets
and liabilities and their rights and obligations. However, because the fund is
essentially one legal entity (Transport Pension Fund), all the sub-funds are
obliged to work together under the general rules which deal with the legal
entity that is the Transport Pension Fund and control the governing of the
entire fund itself. There are special rules for each sub-fund that control
contribution rates as well as services to members. Thus, there are two levels,
the Board of Trustees for the Transport Pension Fund and the sub-fund committee
for each sub-fund (see presentation). It was explained that if a situation
arises where a sub-fund does badly while the others do extremely well, there
would be no cross-subsidisation. Thus each employer is strictly responsible for
their sub-fund and how it administers its investment policies and its benefits
on retirement. It was noted that the Board of Trustees would be comprised of
representatives from Transnet, as well as employee representatives. Similarly,
for sub-fund committees, there would be representatives from both employer and
employees.
It was explained that the amendments also deal with the Transnet Retirement
Fund (TRF), this being a defined contribution fund which is open to new
Transnet employees. Part of the agreement was that this fund would also still
allow current members to remain members even if they move to SAA or the SARCC.
However, where a new person joins either the SARCC or SAA, they would not be
allowed to become members of the TRF but rather the Transport Pension
Fund.
Discussion
Ms Ntwanambi wanted clarity on the difference between the retirement
and pension funds.
Ms Fikelepi responded that the difference between the retirement and pension
funds was that the retirement fund is still open to members who join in the
future and that it is a defined contribution fund (what the members and
employer contribute = the benefit they receive on retirement). With the pension
fund on the other hand, the benefit is defined at the beginning i.e. on
retirement, the employer has to guarantee the benefit that an employee
receives. Only existing members can be a part of the pension fund, as it is
closed to new members.
Ms Ntwanambi asked what would happen to the dependants of members who died.
Ms Fikelepi responded that the Bill allowed dependants to claim from the
employer/Transnet Pension Fund if a member died.
Ms Ntwanambi noted that the Bill makes little reference to the Trade Unions.
She wanted to know what their views were. Also, with regard to consultation with
the National Assembly and its Portfolio Committee on Public Enterprises, she
was curious to know how Members had received the Bill.
Ms Fikelepi responded that Transnet had conducted a number of very intense
workshops where every provision of the Bill was interrogated. There has been
very thorough consultation with the Trade Unions. With regard to the Portfolio
Committee’s views on the Bill, they have had a difference of views with respect
to the retirement fund (TRF). The view is that new employees of SAA should be
able to join the TRF. She explained that consultation on this was continuing.
Ms Ntwanambi wanted clarity on the asset transfer to the Department of
Transport (DOT).
Ms Fikelepi responded that assets would be transferred to the SARCC. Shosholoza
Meyl will also be transferred to the SARCC and so to the DOT).
Ms Ntwanambi asked why the Department would present to the NCOP when the
process is not finished in the NA. It was noted that the Committee would have
liked to be briefed by all concerned parties i.e. the Department and Transnet
as well. It was noted that the amendments to the Bill would still have to come
back to the Committee from the Portfolio Committee in the NA.
Ms Reneva Fourie (Head: Parliamentary Services Unit, DPE) responded that the
Chairperson felt that the NCOP would be better informed if they were to know
the contents of the amendments that the Bill proposes. Also, because public
hearings are still continuing and because there has been no feedback in this
regard, the Department decided to split, thus presenting to both committees.
She explained that the Bill was a Section 75 and not a Section 76 Bill.
Mr J F Sibiya (ANC, Limpopo] asked what would happen to a person’s benefits if
someone leaves SAA to join the SARCC but later leaves SARCC to go back to SAA.
He also enquired who would be eligible for Board of Trustee membership and to
whom they would be responsible.
Ms Fikelepi responded that only Transnet has income tax protection. SAA does
have a fund though it was not established by statute. Whatever benefit a member
accrues when they leave can either be placed in a preservation fund or into
another fund. She explained that this is generally standard practice. On the
eligibility of members of the Board of Trustees, both employers and employees
can be appointed and must be represented.
Ms L Matloahela (ID, Northern Cape] enquired, in relation to the dependants,
whether the wife and children of a member who has died receive the same amount
as the member would have if the member were to retire. She commented that if
not, then their standard of living would most definitely decrease. She also
asked whether the Bill made provision for outstanding monies to be paid to
members.
Ms Fikelepi responded that there is a formula to calculate the benefit
dependants would receive on the death of a member. She was not sure if it was
the same as the member would receive on retirement. With regard to outstanding
monies, there is no such provision in the Bill itself. It was noted that there has
been much comment on this from the public hearings and that it is being
followed up by the pension funds.
Mr Denzil Matjila (Director: Legal Office, DPE) added that dependants receiving
a percentage of the member’s benefit upon their death happens with any pension
fund. The rule says that if a member dies, the dependants normally receive the
full benefit, but he explained that he could not speak for Transnet. Processes
have to be followed and this may be the cause of delays. It was noted that the
Department needs to still establish where the problem was
Ms J F Terblanche (DA, North-West) asked whether there was any middle ground
with regard to joining these funds as some members are being excluded.
Mr D D Gamede (ANC, KwaZulu-Natal) enquired what the turnaround time would be
with regard to the pension payments.
Ms Fikelepi responded to both questions stating that this was a compromise
solution with a very complex structure and for this reason the practicality of
it is unknown. Thus the Department cannot be exactly sure about turnaround time
or how it would affect payments.
Ms Ntwanambi noted that the Committee would meet again to process the Bill. She
suggested that all stakeholders be involved to brief the Committee when they
next meet.
The meeting was adjourned.