Transnet Second Defined Benefit Fund: Briefing on challenges

Meeting report

Opening Statement
The Chairperson stated that she wanted the Committee Researcher to give the Committee a background on the Transnet Second Defined Benefit Fund (TSDBF). Parliament had been dealing with this matter for almost ten years. The Committee owed it to the pensioners of Transnet to resolve the matter. Dr M van Dyk (DA) would then present on the nature of the problems experienced with the TSDBF. Dr van Dyk and Mr G Koornhof had been selected to produce a brief report on the TSDBF on behalf of the Committee. Transnet would then present followed by the Representatives of Transnet Pensioners.

The Chairperson informed the Committee that the National Treasury (NT) had been recognised as one of the parties that had to be involved in the discussions. However, they had asked that they be allowed to observe discussions for now instead of participating in them. She granted the NT permission to observe for now. The matter had a bearing on the NT, so they would have to participate in the discussions at some point.

Briefing by the Committee Researcher
Mr Eric Boskati, Committee Researcher, gave Members a brief background of the TSDBF and the concerns raised by the pensioners. He stated that prior to 1990 Transnet had the Railways and Harbours Pension Fund for black employees and the Railways and Harbours Superannuation Fund for white employees. These two funds were merged to form the Transnet Pension Fund (TPF). Prior to the merger, the pension funds were controlled by the state and had an actuarial deficit of R17.1 billion. The Transnet Pension Fund was a defined fund, which meant that Transnet guaranteed that a person wouldl receive his/her pension benefit upfront on retirement.

After the merger, Transnet’s board, the fund’s Board of Trustees, and the fund actuaries decided to settle the deficit. Transnet would pay R10.3 billion to the fund on 1 April 1990 and increase its contribution to the fund from 10% to 12.5%, and then to 15.5% in the 1993/94 financial year. The rest of the deficit would be paid to the fund in the form of lump sum payments from Transnet’s payments over the next ten years. These commitments never happened.

In 2000 the Transnet Pension Fund Act was amended to split the fund in to three parts, which were the Transnet Retirement Fund for members that did not want to be part of the defined fund, the Transnet Pension Fund for workers that retired after 1 April 2000, and the TSDBF for those that retired prior to 1 November 2000. The amendment to the Act made provision for a statutory increase in pension per annum of 2%. Concerned pensioners viewed this increase as a result of poor management of the fund. If the deficit had been settled, the increase would have been able to adjust to the inflation rate.

The Rules set out in the Schedule of the Act regarding the 2% statutory increase could be amended by the TPFBT with the approval of Transnet, provided the amendment was also approved by the relevant Minister with the concurrence of the Minister of Finance. This way a Parliamentary amendment of the Act would be avoided.

In 2001, Transnet proposed that the trustee’s cancel the TSDBFs T011 bonds in return for a trust holding of 75 million MTN shares. By 2006 the MTN investment had realised R5 billion in cash for the TSDBF. Sadly, pensioner entitlements were never affected by the transaction. Transnet also had a 26% shareholding in the V&A Waterfront. The TSDBF had a 43.6% shareholding. Transnet sold the Waterfront for R7.04 billion on 18 September 2006 as part of the entity’s restructuring process. The likelihood was that the pensioners’ entitlements were once again not affected by the Transaction, as the Act stipulated only a 2% increase annually.

The pensioners have used every avenue available to raise their concerns with the hope that the matter would be resolved and the 2% statutory increase would be amended. In 2005, Transnet acknowledged that a definitive solution was needed. They said that the matter was receiving urgent attention from the Transnet management. It seemed that no real solution was found, as the matter remained unresolved.

Transnet seemed to admit that the 2% annual increase was not inflation adjusted and did not help the plight of the TSDBF beneficiaries. The pensioners felt aggrieved by this arrangement. It was the trustees’ poor, past investments that resulted in the fund’s deficit.

Briefing by Dr M van Dyk (DA)
Dr van Dyk also summarised the situation concerning the TSDBF. He stated that members of the TSDBF only received a 2% increase in their annual pension. This was determined by the Transnet Pension Fund of 1990. According to the Act, the Board of Trustees of the TSDBF could amend this 2% to an inflation related annual increase. This could be done by amending Rule 24 of the Pension Fund Act.

He stated that the basic problem was that for the past two decades, Transnet’s pensioners only received a 2% annual increase in their pensions. Over this time, pensioners had become so impoverished that approximately 40% of the pensioners receive less than the State’s social pension. It was estimated that about 2500 members passed away every year while solutions were endlessly postponed. The members’ medical benefits were also constantly eroded and at present these members’ were covered by inadequate medical schemes.

In 1990, Transnet had an actuarial deficit of R17 180 600 000. In 1993, in order to bring the deficit under control, the Board of Trustees of the Fund decided to introduce certain savings, which put a bigger burden on the pensioners’ benefits. The reality was that Transnet struggled to show profits. In 1993 and 1994, Transnet’s financial statements showed that the company had started to sustain large losses as a result of poor economic conditions. In 1997, the government took over Transnet’s liabilities regarding the Transnet Pension Fund. The Department of Finance then launched an inquiry in to the Fund but nothing happened.

In 2000, the Transnet Pension Fund was amended to split the fund in to three parts – the Transnet Retirement Fund, the Transnet Pension Fund and the TSDBF. Therefore, the TSDBF was created by an Act of Parliament. Rule 24, as an appendix to the Transnet Pension Fund Amendment Act, made provision for a statutory annual increase of 2% in the TSDBF pensions.

Over the years, Transnet and the government had made many promises to increase the pension. These promises remained unfulfilled. The only thing that pensioners could do over the years was to write letters to Transnet. But, the records showed that members seldom received replies, and that their pleas fell on deaf ears. It was also found that pensioners that retired after 1 April 1990 as well as members of the TSDBF received a medical aid subsidy of only R213 per month.

The TPF inherited a deficit of R17.1 billion in 1990. The fund showed a surplus of R2.7 billion only in June 2009. Members and Transnet did not contribute to the Fund. The TSDBF, therefore, did not receive regular cash contributions. Transnet’s poor financial position and funding of the Fund resulted in the funding level dropping from 103% in 2000 to 72.1% in 2003. In 2009, the funding level was at 107%. So, although the funding level was above 100%, the problem was that it was not the funding level that determined considerations regarding annual pension increases; it was determined by the Rules of the TSDBF as set out in the Schedule to the Transnet Pension Fund Amendment Act. The Rules have never been amended. A fuller funding level alone would not solve the problem. It had to be accompanied by a change to the TSDBFs Rules so as to grant inflation-related annual pension increases. Rule 9(1) of the Transnet Pension Fund Act allowed the Board of Trustees to prescribe the manner in which the awards of benefits should be considered by the Fund. The Trustees had to recommend that the Rules be changed in order to grant pensioners an inflation-related annual pension increase.

The Committee recommended that the Board of Trustees, who managed the affairs of the TSDBF according to legislation, should propose an amendment of the Fund’s rules as set out in the Schedule to the Transnet Pension Fund Amendment Act in order to institute inflation-related pension increases of 100% of the Consumer Price Index (CPI). If the Board did not amend the TSDBFs rules, a Parliamentary amendment of the Act would be the alternative.

Discussion
Mr A Mokoena (ANC) stated that it was inhumane for members of the TSDBF to receive only a 2% increase in their annual pension. The previous Chief Executive Officer of Transnet sold the V&A Waterfront for R250 million. This was a joke and it seemed like a “give away”, as this was where Transnet could have made some money and reduced their deficit. This issue had to be flagged. He asked what the norm was across all parastatals in respect of annual increases in pension that were linked to the Consumer Price Index (CPI). The Committee needed this information so that their recommendations would not seem outrageous. He asked if the Transnet Pensioners that received between R200-R300 a month from Transnet also accessed the Social Pension.

The Chairperson stated that the Committee noted the Member's questions. The NT and the Department of Public Enterprises (DPE) would have to look at the question concerning the comparison of Transnet pension increases with other parastatals increases.

She added that Parliament undid a law in 2009 that prohibited pensioners from seeking the Social Pension. It was apparent that many people in the country were not aware of this.

Mr M Oriani-Ambrosini (IFP) praised the Chairperson for taking the initiative to resolve this matter. He thought that Parliament was really showing its intention of being a proactive Parliament. He hoped that by the end of the meeting the Committee would be able to give Transnet's pensioners some form of tangible relief and not just a promise that the matter would be resolved.

Mr K Dikobo (AZAPO) stated that it seemed as if the Transnet Pension Fund Board of Trustees (TPFBT) were failing the pensioners. He understood that most boards comprised of worker representatives and employer representatives. He asked if the board had any worker representatives. He added that a 2% annual increase in pension was not right.

Mr Vuyo Kahla, Group Executive: Office of the Group Chief Executive, Transnet, replied that the Board consisted of company representatives as well as pensioner representatives. The TSDBF was a closed fund and therefore did not have any active Transnet employees. Therefore, there were pensioner representatives rather than worker representatives.

The Chairperson stated that she did not want to dwell on this matter. However, she wanted to mark it as a matter of interest. The Committee could discuss the matter of the composition of the Board at another meeting.

Mr Dikobo understood the Chairperson's point, but insisted that he still wanted to know how many pensioner representatives there were on the board.

Mr Kahla replied that there were six board members. Two were pensioner representatives and four were company representatives.

The Chairperson noted the response and said that it could be a matter of interest that should be discussed at another meeting.

Briefing by Transnet
Mr Kahla opened the presentation. He stated that Transnet could not ignore that the matter of the TSDBF was a vexing and complicated issue. The Committee was aware that the TSDBF had an historical legacy that dated back to the R17.2 billion deficit that they inherited from the pre-democratic dispensation. There were a number of issues that were raised by the Committee, and Members emphasised the importance of the presence of DPE and the NT at these discussions. There was a legal issue that related to the government's original guarantee regarding the pension fund, the extent of the guarantee and whether it would continue to be applicable. 

There were a number of people that were not represented at the meeting such as the previously disadvantaged widows. They were also known as the “black widows”.  Black Transnet employees that retired between the period 16 December 1974 and 1 April 1986 were not entitled to any pension. This matter also had to be taken in to consideration when resolving the TSDBF issue. There were a host of other complexities that Transnet inherited. However, Transnet had taken many steps to find mechanisms to best manage the circumstances that they found themselves in. Transnet was well aware that pensioners did not want the 2% annual increase. They wished that they could afford to pay the pensioners more. Unfortunately pensioners had to understand that Transnet could not commit to do more than the TSDBF could afford. He hoped that the presentation would address all the issues that the Committee had raised.

Ms Helen Walsh, Head of Group Taxation, Transnet, stated that the actuarial surplus of R2 billion at inception of the TSDBF in 2000 was not sustainable as it depended on a high proportion of equity and property assets. Therefore, it was vulnerable to market changes and falling interest rates. The former Transnet Pension Fund (TPF) contained a number of historical inequalities along racial and gender lines which carried through to the TSDBF. Transnet worked closely with the Department of Enterprises (DPE) to try and obtain government support for additional funding of the TSDBF in 2005, but these discussions were terminated. Consequently, Transnet and the TSDBF have worked hard together to improve the financial position of the TSDBF, to rebalance the TSDBFs asset portfolio to make it more sustainable, and to improve the returns to beneficiaries of the TSDBF.

During the early 1990’s, Transnet issued approximately R10 billion of T011 bonds at no cost to the TPF. Transnet injected funds in to the TPF at the height of the interest rate cycle. In hindsight, this was not a sound decision. The injection addressed the security needs of the “better off” pensioners, but did not deal with the previously disadvantaged members of the TPF. In 2000, the TSDBF held R4.8 billion of the T011 bonds. A review of the funding found that the bonds were unsustainable and had a negative impact on the guarantor’s (Transnet’s) cash flow. In 2001, the bonds were cancelled by the trustees of the TSDBF. In return the TSDBF received from Transnet the beneficial interest in the capital of R75 million MTN shares held in a trust, at no cost to the TSDBF. The pensioner entitlements were never affected by this transaction; their entitlements were determined by the rules of the TSDBF and not by the funding position of the TSDBF. The MTN investment performed very well and was sold in 2006 realising R5 billion in cash for the TSDBF.

In terms of the V&A Waterfront, the TSDBFs investment in the Waterfront highlighted a structural weakness of the asset base of the TSDBF. Transnet coordinated the disposal process, together with trustees of the funds, to reduce the fund’s high risk exposure. The Waterfront was sold at the height of the property market. The TSDBF received R3 billion in cash.

In 2007 Transnet procured that the TPF Act was amended to provide for the transfer of Previously Disadvantaged Widows or “black widows” in to the TSDBF in order to legalise their benefit. As a result, over 3000 black widows were transferred to the TSDBF. Transnet paid R77 million to the TSDBF, providing the black widows with pensioner rights for the first time.

Transnet had made certain ex gratia payments to beneficiaries of the TSDBF. When determining the allocation of the ex gratia bonuses, the previously disadvantaged pensioners were the prime focus. Pensioners with low pensions were also made a priority. In 2007 and 2008 all pensioners received a minimum bonus of 1% of their annual benefit. In 2010, pensioners earning less than R815 a month received amounts up to R6800 as a bonus.

In order not to negatively impact the financial soundness of the TSDBF, nor reduce the income of the pensioners from both the TSDBF and the state, Transnet and the TSDBF proposed the rule that provided for ad hoc bonuses to be paid by the TSDBF. The TSDBF and Transnet bonuses have resulted in pensioners of the TSDBF receiving benefit improvements of at least 70% of inflation since 2007. The weighted average increase in pensions over 2008, 2009 and 2010 has been 13.4%.

Any amendment to the Transnet Pension Fund Amendment Act that would be proposed by Transnet for the approval by the Minister of Public Enterprises with the concurrence of the Minister of Finance, should not prejudice the financial soundness or stability of the TSDBF. In the absence of a funding commitment from the state, Transnet and Trustees of the TSDBF have managed the TSDBF within the constraints of the level of funding. This was done through appropriate asset management, rule amendments, and direct payments by Transnet. Any proposed amendment had to be consistent with the Board’s fiduciary duty to act in the best interest of the TSDBF and its members to the exclusion of all other interests. The TSDBF could only properly amend Rule 24 of the Schedule of the Transnet Pension Fund Amendment Act if it was necessary to do so to achieve the objects of the fund, if it was in the best interest of the fund and the pensioners, and if approved by Transnet and the Minister of Public Enterprises with the concurrence of the Minister of Finance.

Transnet was aware that the Committee was asking for an inflation-related annual pension increase. While a 50% inflation targeted increase was affordable, in the next ten years, the pensioners would actually receive less cash than under the current 2% statutory plus ad hoc bonus dispensation. Under the current policy, the average change in pension cash flow would be estimated at approximately 3.5% which, based on an inflation target of 6% maximum, translates to an improvement of at least 58% of inflation. Pensioners receiving the state grant would receive even less cash.

Transnet was committed to the TSDBF and its pensioners. The progress made by the management team had been significant, and it improved the position of the pensioners significantly too. If the status quo was retained, it would protect the benefits of the pensioners receiving the state grant, retaining the ad hoc bonus rule. The Committee’s suggestion of the inflation-linked pension increases would be subject to affordability. Any proposed amendment would be subject to the approval of the Board of Trustees of the TSDBF and Transnet’s board. It would also require the approval of the Minister of Public Enterprises, together with the concurrence of the Minister of Finance.

Briefing by the Representatives for Transnet's Pensioners
Mr John Benwell, Head: Representatives of Transnet’s Pensioners, stated that he had been requested by various pensioners clubs to present the matter to the Committee.

Transnet’s pensioners retired on pensions that they considered acceptable based on their working salaries. The expectation was that the Fund would maintain their pensions in line with inflation. At the time, despite the fact that the Transnet Pension Fund Act stipulated a 2% annual pension increase, increases were granted in excess of the 2% to bring pensions closer to inflation. Since then many changes took place that resulted in the expected pensions of the pensioners dwindling to a fraction of what they expected to receive. Many pensioners were now living on a hand to mouth basis and relying on others to ensure their survival.

In 2000, the TSDBF was formed. The fund did not have income from working members as in the past, but functioned completely on income from assets that were invested. In 2002, it was decided by Transnet that the fund would be restricted to giving 2% annual pension increases in the future. This was the cause of the problems. With the increase being below inflation, pensioners had become systematically impoverished as they received pensions that were much lower than they had expected. These pensioners were unable to support themselves. It was said that some pensioners had one meal a day or sometimes less. Members of the TSDBF complained to the Board of the Fund that they could note live on such meagre pensions. Almost 40% of Transnet’s pensioners received less than the state social pension of R1080 a month. The trustees of the TSDBF were aware of this problem; however the financial position of the Fund did not allow them to make any annual adjustments in line with inflation. Mr Benwell informed the Committee that there were only two pensioner representatives on the six-person Transnet Pension Fund Board of Trustees. The other four members were Transnet appointed members. Therefore, there was little chance of doing anything that was contrary to the interests of Transnet.

The plight of pensioners was further exacerbated by Transnet’s decision to reduce funding of the members’ medical benefits. This has resulted in many pensioners having to fund their own benefits from a pension income that has already been drastically reduced. Transnet pensioners received R213 subsidy per month, which was an amount decided on ten years ago with no increase since.

Pensioners have tried to get Transnet to do something about their financial situations, but they were not successful. Their last hope was that the Committee would do something to assist them and to restore their pensions to a position where they would be able to survive with a measure of dignity and not have to rely on outside parties. All the pensioners wanted was for pensions to be adjusted in line with inflation as was promised to them by the then Minister of Transport. Similar promises were made by the previous Minister of Finance, Mr Trevor Manual.

Discussion
The Chairperson stated the Committee knew that promises made by previous Ministers still held. Whoever was in office currently had a responsibility to honour these promises. There were certain promises made to Transnet by the state and there was no doubt that the state was still liable for those promises. She noted that Transnet had made some proposals at the end of their presentation; however, they had failed to give the Committee timelines for these proposals.

Mr van Dyk asked the Representatives of the Transnet Pensioners if it was true that only two of the six board members on the TPFBT were worker representatives and if they were only elected in 2008. He noted that the Representatives had tried to bring this matter to the government's attention for a number of years, and that their pleas were very poorly attended to by Transnet. He asked if there was proper communication between Transnet and the pensioners over the years or if it had been a problem. Transnet said that the weighted average increase in pensions over the past few years was 13.4%. He stated that this was probably the biggest lie that had ever been told in Parliament. It seemed that Transnet was comparing “apples with pears”. The facts were that there was only a 2% increase in pensions per annum and that there were once-off bonuses that were not even guaranteed. Transnet could not add once-off bonuses to the 2% annual pension increase. Transnet had to compare “apples with apples”. Last year, the Committee asked Transnet about this. The Acting CEO of Transnet, Mr Chris Wells, apologised to Parliament for creating the wrong impression. This was on record, yet Transnet just told the Committee the same story. This was unacceptable.

Ms Walsh answered that up until 2008 the law did not allow for pensioner elections. Pensioner elections were introduced due to a request from the pensioners. There were two pensioner representatives out of the six members on the board. She could not respond to the question of whether there was proper communication between the pensioners and Transnet.

Mr Benwell added that the pensioners had many meetings with Transnet's management. At a point, the TSDBF had annual meetings with the pensioners. At all those annual meetings the minimum pension increase of 2% was addressed. They were told that it was all the fund could afford. This has been an ongoing thing for quite a long time.
 
Ms Walsh addressed the statement on the weighted average. In terms of the bonuses, they resulted in improvements of 70% of inflation since 2007. The weighted average increase in pensions of 13.4% was limited to the past three years. She wanted one of the actuaries to elaborate on the question.

Mr Anton Nel, Senior Actuary: Alexander Forbes, added that the 13.4% consisted of the 2% per annum increase, plus the ex gratia payments made by Transnet and the “effects” of the bonuses over the past three years.

Mr Kahla addressed the accusation that Transnet had lied about the weighted average increase of 13.4%. He stated that Transnet would never have taken any action to deliberately mislead Parliament. The accusation that Transnet was lying was very unfortunate and damaging. The actuaries would also have to look in to these accusations.

The Chairperson apologised to Transnet that she had not protected them from the accusation that they had lied. Being accused of lying was a very serious accusation. She did not think that Transnet was lying to the Committee; she thought there was a difference as to “how they played with figures”. She retained Dr van Dyk’s concern about the figures; however, she retracted the assertion that Transnet had lied to Parliament.

Mr P van Dalen (DA) stated that the situation was putting an extra burden on the state pension. “These people should be taken out of the state pensions and made Transnet's responsibility. It was Transnet's responsibility to pay the pensioners what they were owed”. He stated that the composition of the TPFBT was interesting. Usually when there was a closed pension, there was more pensioner representation. He wondered for how long there would only be two pensioner representatives on the TPFBT where, in a board made up of six people, the employer representatives would always over-rule the pensioner representatives. He thought this was very unhealthy and there should be a 50-50 split in the board.

Ms G Borman (DA) addressed the concept of pension bonuses. She asked if the ex gratia payments made by Transnet were also included as bonuses. The Transnet presentation gave the impression that giving pensioners once-off bonuses was the best situation. However, the Representatives of Pensioners' presentation showed a very different story. She asked why there was such a big discrepancy between the two entities presentations. She noted that Transnet said that spouses as well as their children would benefit from the TSDBF. She wondered where the “cut-off” would be regarding beneficiaries of the fund.

Ms Walsh replied that the ex gratia payments were made by Transnet, whereas the bonuses were given from the TSDBF. The ex gratia payments did not impact on the bonuses.

Mr Kahla explained that ex gratia payments were payments made by the company from its own resources and not from the pension fund.

He admitted that not all the interventions used by Transnet had made everyone happy. However, there had been improvements through the various interventions that were made.

The Chairperson stated that she wanted to protect Transnet. She noted that Transnet's presentation acknowledged that there was a problem with the TSDBF. She just wanted to clarify this to the Committee.

Mr Kahla replied that Transnet admitted that there was a problem and they had been seeking solutions for a very long time. This included having engagements with the government.

Mr Mokoena stated that the Committee empathised with the pensioners. He stated that the Committee had to ensure that they made the situation better and not worse. He noted that Parliament was allowed to alter Rule 24 of the Schedule in the Transnet Pension Fund Amendment Act. However, the Committee had to be careful that they did not become a remunerations committee. The question that the Committee needed to look at was whether this plight was unique to Transnet or if there other similar problems in the country as well. The Committee had to ensure that its intervention was an appropriate one.

The Chairperson noted that Mr Mokoena's statement was directed at the Committee and not the other entities present at the meeting.

Mr Dikobo stated that the Committee regretted the fact that the black widows were not represented at the meeting. He wanted to address the issue of affordability of pension payments, as he did not want Transnet to do anything that they could not afford to do. This would not be sustainable. His understanding of a closed fund was that the number of pensioners should be declining all the time. He understood that the children of pensioners also benefited from the fund. However, when the children turned eighteen they were not eligible to benefit from the fund any longer. This meant that the number of beneficiaries of the TSDBF was declining. The fewer beneficiaries there were, the bigger the “slice” that they should have been getting from the fund. He asked Transnet to clarify this issue. He wondered what Transnet considered to be an acceptable funding level. He seemed to hear a threat from Transnet that if the annual increase in pension was going to be increased then they would abolish the pension bonuses.

Mr Benwell replied that they wanted to bring some of the black widows to the meeting, but they had been told that they would have to come at their own costs, which they could not afford.

The Chairperson stated that there had to be a representative for the black widows at the next meeting. Transnet would have to cover the costs.

Mr Kahla replied that Transnet would cover the costs. He agreed that all the parties that could help find a solution had to be brought to the meeting.

Ms Walsh replied that the fund would end when all beneficiaries, such as principle members and their spouses, were deceased and when their children reached the age when they were no longer entitled to benefits. Transnet would provide the Committee with a schedule with greater details of the beneficiaries. It would explain why the numbers of beneficiaries were reducing but why the liabilities were not. The principle beneficiaries were reflected in the numbers; however, the spouses and children were not reflected. This was also why the beneficiaries were not receiving a bigger “slice” of the fund.

Mr Kahla replied that the last thing Transnet wanted was to do anything that would put pensioners in a worse position. They were simply pointing out the implications of increasing the per annum pension increase. Transnet did not want to make the situation worse than it was.

Ms Walsh addressed the question on whether Transnet would be able to handle an increase in the per annum pension payments. Her understanding was that the question asked if Transnet would still be able to pay the ad hoc bonuses even if the CPI-linked increases were not implemented. She wanted the actuaries to advise on this because if the fund went in to an actuarial deficit there would be knock-on consequences to the cash flow of the fund that was available to pensioners.

Mr Nel stated that before 2007, there was not enough money in the fund to award bonuses. After 2007, there were funding levels to the excess of 100%, which enabled the trustees to pay additional bonuses. In the event that the fund was in deficit or was funded at less than 100%, the trustees were not able to grant any bonuses because it would threaten the solvency of the fund.

Mr Benwell commented that the pensioners really appreciated the pension bonuses. However, the bonuses that they were being paid over the last three years had been calculated on pensions that had been drastically reduced over the past few years. The pensions could have been substantially higher had the per annum pension increase been linked to inflation rather than the 2% minimum increases.

The Chairperson noted that the Transnet officials were nodding their heads in agreement with the statement made by Mr Benwell.

Mr Nel added that the ideal funding level would have been at 100%.

Mr Oriani-Ambrosini clarified that Transnet put enough money in to the fund so that the fund could work at the 2% interest rate. If there was to be an increase in pension payments per annum then there would not be enough money. According to laws that were passed, Transnet was liable for the obligations of the TSDBF. If the Committee amended the law and increased the 2% minimum pension increase per annum to a minimum of 100% of the CPI, it would be an obligation beyond the capability of the TSDBF and would become Transnet's responsibility. He wanted to know what the shortfall of such an amendment would be. Would the amendment be borne by Transnet or the state? He addressed the Representatives of Pensioners. He understood that Transnet's workers had not kept track of the amount of pension that they were supposed to have received over the years. He noted that Parliament had passed an absurd law when they made a 2% minimum pension increase per annum. This seemed unconstitutional. He wondered how Transnet and the government reached this point. It was sixteen years in to the democratic dispensation. The DPE should have indentified this provision that was unconstitutional and repugnant to morality, and they should have corrected the situation.  

The Chairperson clarified that it was only since the year 2000 that the 2% minimum increase was enforced. So the problem had existed for ten years, not sixteen.

Mr Nel answered that if the pension increases were to be increased to CPI standards, the costs would be calculated at over R3 billion due to lower inflation in 2010. In 2009, it was calculated at just over R5 billion because inflation had been higher. If Transnet had to finance the pension that was lost for the past few years, it would add another R13 or R14 billion to the R3 billion inflation. Going forward, the total shortfall would be close to R20 billion.

The Chairperson noted that Transnet's balance sheet would not be able to handle a liability of R20 billion. The Minister of Public Enterprises, the Minister of Finance, the DPE, the NT and the Committee had to get together and discuss the way forward for Transnet and the TSDBF.

Dr van Dyk added that the Committee needed better figures to work with. The Committee could not work with speculated costs.

The Chairperson stated that the actuaries would not be able to accurately calculate the costs at the meeting. They would need to get back to the Committee regarding the costs.

Mr van Dalen stated that Transnet's actuaries knew they were coming to Parliament and they knew they would be asked these questions. They should have had the answers.

The Chairperson stated that she would give the actuaries more time to calculate the costs. The fact of the matter was that they did not know the figures and needed more time to calculate them.

Ms Walsh addressed the question on how much of the liability would be borne by Transnet and how much would be borne by the state. She replied that this was not a question that Transnet could answer at the meeting as it needed to be looked at more closely.

Mr M Nhanha (COPE) stated that the situation of the employees really touched his heart. His own aunt married a man that worked for Transnet for more than forty years. The widow now receives R350 a month. She only received R2900 this month because of the once-off bonus. Mr van Dalen mentioned that Transnet seemed to put more responsibility on an already over-burdened social system. He agreed with the Member and said it was time that Transnet owned up to the problem and took responsibility for it. The Minister for Public Services and Administration announced in June that there was a second payment that would be made to civil servants that were not allowed to have a pension fund in the mid 1980's. The purpose of this was to try to balance the scales for those that were not allowed to part of pension funds. He wondered why it was difficult for Transnet to approach the NT to try and resolve the matter.

Ms Walsh replied that the question on why Transnet had not approached the NT had been answered in Mr Kahla's introduction. 

The Chairperson informed Transnet that Parliament could intervene in the matter; however, that would be seen as a draconian approach. The Committee could have corrected the situation through amending the legislation, but they thought that an engagement with the relevant entities was more appropriate. She stated that she definitely had a problem with Transnet selling the V&A Waterfront as well as the MTN shares. She wondered what the rationale was behind the sale of the Waterfront. There was a notion that Transnet was selling their non-core assets. However, the Committee sometimes got the impression that it was sold to deal with this issue of Transnet's deficit. The matter of selling the non-core assets was an issue that the Committee still had to look in to. The Committee also had to look at the sale of the MTN shares. She noted that Transnet wanted to resolve the problems regarding the TSDBF; however, they had not given the Committee any timelines by which the Members could see if they were actually addressing the problems. Transnet had to talk to the NT and the DPE about making more revenue available to the entity.

Mr Kahla addressed the sale of the MTN shares. Before the sale even happened, the government considered that it was important to dispose of the asset in order to strengthen the position of the TSDBF and to deal with the entity's deficit. Transnet agreed that the shares should be disposed of at the maximum market value in order to benefit the TSDBF. The sale of the shares brought in more than R5 billion. Transnet thought that it was a non-core asset that should be disposed of.

The same applied to the sale of the V&A Waterfront. Transnet only held 23% of the shares of the Waterfront. It was considered a non-core asset. At the time, the sale of the Waterfront for R7 billion made a massive difference to the TSDBF because it received R3 billion. All these decisions were factored on the best interests of the company.

Mr Kahla added that Transnet could not determine the timelines for finding effective solution to the problems themselves. The determination of timelines would require the help of the government, in particular, the Minister of Public Enterprises and the Minister of Finance. Transnet would work with the Committee to avoid having any “draconian” solutions.

Mr Mokoena noted that Mr Kahla's explanation of the sale of the Waterfront was about the R7 billion transaction. There was an original sale of R250 million. This was the figure that the Committee wanted to query.

Ms Walsh replied that she was not aware of the sale of R250 million, therefore she was only commenting on the R7 billion sale.

Mr Oriani-Ambrosini stated that he did not feel good about the matter of the TSDBF. The government seemed to find money to build stadiums that the country did not need. It showed that money could always be found. However, when it came to pensioners that worked for Transnet for forty years, the money was unobtainable. The Committee had to act quickly without thinking about who would bear the “pain” because the pensioners should not have to suffer any longer.

The Chairperson agreed with Mr Oriani-Ambrosini's last statement, she also did not like to think of how many would affect a situation if it urgently needed to be resolved. The performance of the fund was such that, moving forward, the Committee and Transnet could effect a change. Currently, the position of the TSDBF was quite healthy. The question was how big the Committee's intervention should be.

Dr van Dyk stated that the reality was that Transnet pensioners were receiving a 2% increase in their pension per annum. Transnet could not say that the increase in pensions for the past three years was 13.4% per annum. This was not correct, as it was misleading. He stated the purpose of the meeting was not to put blame on anyone. The country inherited this problem when the South African Transport Service became Transnet. They inherited a deficit of R17.1 billion, which was never properly addressed over the past twenty years. He noted that Transnet's pensioners' net income was lower now than it was in 2000. The 2% per annum increase in their pensions are not enough to cover their costs, as inflation to medical contributions as well as water and electricity costs are very high. These pensioners were becoming poorer. Transnet pensioners also only received R213 per month as a medical aid contribution.

Mr Oriani-Ambrosini stated that there were two ways to fix the TSDBF situation. One way was to amend Rule 24 of the Schedule of the Transnet Pension Fund Amendment Act to say an increase of 100% of CPI instead of the 2% annual increase in pension. The trustees could amend the schedule of the Act with the consent of Transnet. This was allowed by law. The Member thought that this was unconstitutional. The other way would be to tell the Minister of Public Enterprises to tell Transnet to amend the Rule to say the increase in pension should be 100% of the CPI. He asked Transnet if there was a preference between the two methods or if there was another way of correcting issue.

Mr Nhanha addressed the Representatives of Pensioners. He stated that the country was highly charged when it came to race relations. He wondered if it would be “prudent” on their part to have one pension club. It seemed as there were deep racial connotations and racial divides. It would help to enhance the pensioner representatives’ image. Both the pensioner representatives in the TSDBF were white. He asked the Representatives of Pensioners to consider the suggestion.

Mr Benwell replied that there were plenty of black pensioners in other pensioner clubs. They represented pensioners of all colours. 

The Chairperson stated that they would need to have another meeting with all the entities that were involved in the matter of the TSDBF. She cautioned that they would have to look at all of the options before resorting to amending Rule 24 of the Schedule of the Act. Amending the rule would be a last resort. Transnet had to bring forward more solutions. The issue of the worker-employer representatives in the board had to be looked at. She hoped that the NT and the DPE had taken notes. The Committee implored them to share the details of the meetings with their management teams.

Mr Kahla added that appropriate solutions had to be found. Transnet and the Committee had to look at everything and assess the implications. They had to look at how all the issues would be attended to.

The Chairperson proposed that this matter should be resolved by the end of the year.

Mr Oriani-Ambrosini was glad that the Chairperson made this commitment. He did not want to fight with people over promises that were made to the pensioners’ years ago.

The Chairperson stated that the NT, the DPE and Transnet would have to bring their proposed solutions to Parliament within the next three weeks. If no solutions were found, then Rule 24 of the Schedule of the Act would have to be amended.

Consideration of the Third Term Committee Programme
The Chairperson stated that there were a few issues that she wanted to add to the draft programme. One of the issues included succession planning in State Owned Enterprises (SOEs). Another issue concerned Articles of Association, regulations and acts. She could not remember the other issues.

She stated that the Committee would discuss and approve programme at the next meeting.

The meeting was adjourned.