Government Employees Pension Fund Law Amendment Bill [B15-2011]: briefing by the National Treasury; Meeting with Vietnamese Delegation

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Finance Standing Committee

21 August 2011
Chairperson: Mr T Mufamadi (ANC)
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Meeting Summary

The Chairperson of the Select Committee on Finance explained the function and responsibilities of the Parliamentary Committees on Finance to a delegation from the Committee for Financial and Budgetary Affairs of the National Assembly of Viet Nam.  The delegation was on a study tour of South Africa.  Members of the Committees participated in the discussion and asked for the opinion of the delegates on the recent measures taken by the United States Federal Reserve to address the global financial crises.

The Standing Committee on Finance was briefed by the National Treasury and the Government Employees Pension Fund on the Government Employees Pension Law Amendment Bill.  The amendments included provisions to implement the “clean break” principle, whereby the non-member spouse was entitled to claim a portion of the pension benefits in terms of a divorce order.  In addition, the Bill made provision for the implementation of the Revised Non-Statutory Forces Pension Dispensation that was approved by the Cabinet in April and November 2010.  The estimated cost of the implementation of the NSF benefits was R5.804 billion.  The briefing included the consequential amendments to the Rules of the Government Employees Pension Fund.

Members were concerned that the amendments allowed for the cash withdrawal of benefits from the Government Employees Pension Fund, which contradicted Government’s position on such withdrawals.  Members were concerned that the provisions allowed members of the fund to divorce by agreement for the purpose of settling family debt.  Members queried the application of the legislation for gay and lesbian marriages and the implications for minor children.

Members queried the calculation of the estimated cost of implementation of the Bill and wanted to know how the amount was calculated and how the required funds would be obtained.  Other questions from Members concerned the qualification of claimants for the benefits provided for in the Bill.

Meeting report

Meeting with Vietnamese Delegation
Mr C de Beer (ANC; Northern Cape), Chairperson of the Standing Committee on Finance welcomed the delegation of the Committee for Financial and Budgetary Affairs of the National Assembly of Viet Nam.  The delegation was on a study tour of South Africa and was led by Dr Phung Quoc Hien (see attached document).

Mr De Beer explained the purpose and functions of the Select Committee on Finance and the Standing Committee on Finance, with particular reference to the Committees’ responsibilities in terms of the Money Bills Act, the Division of Revenue Bill and the Appropriations Bill. 

The Committees’ annual calendar commenced with the President’s January 8 statement, followed by the State of the Nation Address in February.  The Minister of Finance tabled the budget one week after the State of the Nation Address and set out the country’s fiscal framework and revenue proposals for the current and subsequent two years.  The National Treasury briefed the Committees on the budget and Members studied the documents during a ‘lock-up’ session.  The Minister of Finance tabled the Division of Revenue Bill and the Appropriations Bill, which contained the budgets for the nine provinces.  The Chairpersons of the provincial Finance Committees were invited to participate in the briefings to the Committees.  The Committees were allowed a period of 16 days to deal with the fiscal framework and to submit reports to Parliament.  The Minister of Finance was provided with the opportunity to react to the Committee reports.

The Parliamentary Committees worked closely together and public participation in the process was an important element.  The Division of Revenue Bill was published and comment invited during public hearings.  The Bill was passed by the National Council of Provinces during March/April each year.

The Select Committee conducted oversight over the financial performance of provinces.  Both Committees tabled annual reports to Parliament during September.  The Minister of Finance tabled the Medium Term Budget Policy Statement (MTBPS) during October and the Committees had to table a report within 30 days.  The MTBPS set the trend for the budget for the following year.  The provincial authorities were invited to participate in the MTBPS process.  The Committees conducted oversight over the Reserve Bank, the Land Bank and the South African Revenue Service (SARS).

Section 15 of the Money Bills Act made provision for the establishment of the Budget Office, which was currently in progress.  A copy of the Act was provided to the delegates.

Discussion
Dr Phung Quoc Hien asked if the legislation made provision for interaction between the Committee and the National Treasury.  He asked if the Committee could invite the Minister of Finance to brief Members on financial matters.  He asked if there were legal provisions concerning the voting of Members of the Committees.  He asked if the Committee reports reflected the votes and opinions of the majority as well as the minority parties.  The reports tabled in the National Assembly of Viet Nam had to reflect every vote.

Dr D George (DA) explained that the minority parties in Parliament participated in the Committee discussions of the Bills and the fiscal framework.  The views of the minority parties were included in the Committee reports but the majority vote would prevail if agreement was not reached by all the parties.  For example, the Democratic Alliance did not support the 2011 fiscal framework and revenue appropriation.

Dr Z Luyenge (ANC) explained the relationship between the Committees and the Minister.  Parliamentary Committees were an extension of Parliament and enjoyed all the powers invested in Parliament.  Members of Parliament had the right to submit verbal or written questions to the Minister and the Committees had the right to summon the Minister to appear before the Committee to offer explanations.

Mr D Van Rooyen (ANC) said that the Rules of Parliament allowed parties to call for a division of the House and to request that the position of the party on a particular issue was noted.  The Speaker would allow Members of Parliament to vote on the position.

Mr N Koornhof (COPE) remarked that South Africa was blessed with a very good Minister of Finance.  Parliamentary Committees were multi-party in nature and majority decisions were reached by consensus.

Mr De Beer said that Parliament was accountable to the people and worked with tax payers’ money.

Dr Luyenge explained that the President of the country was also the head of the African National Congress (ANC), the majority party.  The anniversary of the establishment of the ANC was 8 January and the annual Presidential Statement on that date reflected the ruling party’s position.  The performance of governmental entities was measured against the 8 January Statement.

Mr De Beer said that the 8 January Statement was a political statement by the ANC.  The State of the Nation Address delivered by the President was debated in Parliament during February each year.

Ms Z Dlamini-Dubazana (ANC) asked for the opinion of the delegation on the recent attempts by the European banks and the United States (US) Federal Reserve to resuscitate the economy.

Dr Phung Quoc Hien replied that Viet Nam and South Africa were members of the World Trade Organisation (WTO).  Most countries were affected by the deepening global economic crisis.  Any intervention by the US Federal Reserve affected the global economy.  The monetary policy of the US Federal Reserve was aimed at improving the financial situation of the US.  The recent decision by the US Congress to raise the debt ceiling was intended to avoid the technical collapse of the US financial markets.  It was hoped that the imposition of sound financial policy in the US would improve the situation in both the US and the rest of the world.  He was most concerned over the fluctuating US $ exchange rate.  The depreciation of the US $ resulted in financial losses for other countries.  For example, the Chinese Foreign Reserve owned a great deal of US bonds and the depreciation of the US $ and the instability of the US markets had resulted in difficulties for China.  The US financial policies had both positive and negative effects on the economies of other countries, in particular developing countries with weaker economies.  Many countries preferred to have less reliance on the US $.  The global financial situation had resulted in a higher gold price and an increased demand for gold.

Mr De Beer thanked the delegation from Viet Nam for the opportunity to hold discussions.  He looked forward to a strengthening of the ties between South Africa and Viet Nam and increased interaction between the Parliamentary Committees of the two countries.


Government Employees Pension Fund Law Amendment Bill: briefing by the National Treasury
Ms Jeannine Bednar-Giyose, Director: Legislation, National Treasury presented the briefing to the Committee (see attached document).

The Bill made provision for the implementation of the “clean break” principle in the legislation governing the Government Employees Pension Fund (GEPF).  The “clean break” principle allowed a non-member spouse to claim a portion of the member’s interest that was assigned in terms of a divorce order or the order for the dissolution of a customary marriage without having to wait for the member to exit the pension fund.  The amendment brought the legislation in line with the Pension Funds Act and gave effect to the Constitutional Court ruling in the case brought by Ms Mathilda Wiese handed down in June 2011.  Government was allowed 12 months to make the necessary amendments to the legislation governing the GEPF.

The Bill included amendments to enable the implementation of the Revised Non-Statutory Forces (NSF) Pension Dispensation that was approved by the Cabinet in April and November 2010.

The presentation included the background to the “clean break” principle and the Revised NSF Pension Dispensation, the Objects of the Bill, a clause-by-clause analysis of the Bill and the financial implications of the Bill.  The implementation of the “clean break” principle had no financial implications for Government but the cost of the provision of the NSF benefits was estimated to be R5.804 billion.


Briefing by the Government Employees Pension Fund (GEPF)
Ms Joelene Moodley, Head: Corporate Services, GEPF presented the briefing to the Committee (see attached document).

The presentation included the background to the Bill and the amendments to the Rules of the GEPF.  The definitions of ‘divorce debt’, ‘former spouse’s share’ and ‘pension interest’ were amended.  Details were provided of the new Rule 14.10, which allowed for the implementation of the “clean break” principle.  The process to implement the amendments was outlined.

Mr Rean Fourie, Legal Adviser, Government Pensions Administration Agency (GPAA) presented the briefing on the amendment of the Rules of the GEPF to give effect to the Revised Non-Statutory Forces Pension Dispensation.

Discussion
Mr Koornhof asked if the non-member spouse was allowed to utilise the payment received in terms of the “clean break” principle at his/her own discretion. If the non-member spouse was not required to invest the payment in a retirement plan, there was no prohibition of divorce by agreement so that the payout could be used to clear family debt. He asked if there was a cut-off date for qualification of the NSF pension benefits and who would be responsible for verifying the bona fides of new applicants.

Dr George noted that the Pension Funds Act was amended in 2007 to make provision for the “clean break” principle but Ms Wiese was forced to approach the Constitutional Court before the GEPF was amended accordingly.  He asked who was responsible for ensuring that the GEPF followed best practices.  He wanted to know how the cost of implementation of the NSF benefits of R5.8 billion was calculated and where the required funding would be coming from.

Mr Van Rooyen asked if the studies undertaken into the application of the “clean break” principle had indicated in increase in the number of divorces by agreement. Reference was made to customary marriages but no mention was made of gay or lesbian marriages.

Ms Moodley explained that the provisions allowed for “clean break” payouts to be in cash as well as transfers to pension funds.  She confirmed that the studies had found evidence that the practice was abused in order to clear debt.  The GEPF acknowledge the risk of divorce by agreement but had to comply with the Constitutional Court ruling on the issue.

Ms Bednar-Giyose advised that the National Treasury was concerned over the early withdrawal of pension fund benefits in general.  The Treasury planned to address the issue in all the applicable pieces of legislation in due course.  The matter was referred to in the policy document released in February 2011 and it was important that the policy was applied in a consistent manner.  The definition of members of non-statutory forces remained unchanged and would apply to any new claimants for the NSF benefits.

Ms Moodley added that members of the non-statutory forces were listed on the GEPF database.

Ms Esti De Witt, Legal Services, GPAA advised that ordinary members of the non-statutory forces had to be employed prior to 31 March 2002.  Under-cover NSF members had to be employed before 31 March 2004.  The various forces as well as the Department of Defence had personnel records and issued service certificates in recognition of the service rendered by the members.

Ms Laurel Shipalana, Director: Civil and Military Pensions, National Treasury explained that an amount of R4.7 billion was required for the Revised Non-Statutory Forces Pension Dispensation and an amount of R80 million was required for the provision of special pensions.  The GEPF had agreed to advance the required amount and would be refunded by the National Treasury out of the fiscus.  The amount of R5.804 billion indicated in the Bill was an estimate and another year would be needed to develop the funding model.

Ms Moodley said that the GEPF was constantly aware of developments in the private sector.  The GEPF Board ensured that the principles governing best practice were applied by the GEPF administration.  The GEPF did not consider the risk of divorce by agreement to be unacceptable but acknowledged that it was necessary to educate members on the new provisions.

Ms Bednar-Giyose said that it would be necessary for the Treasury to consider the application of the “clean break” principle in the Pension Funds Act and the alignment with the Divorce Act.

Ms Dlamini-Dubazana suggested that the National Treasury considered Government’s position on the issue of the preservation of pension benefits.  The Committee had to be consistent on the issue of the withdrawal of lump sum benefits from retirement funds.  Referring to the Objects of the Bill, she said that the Committee would have preferred the briefing to have included reference to the original provisions in the Act and a clearer indication of the amendments.  She asked for clarity on the definitions of ‘divorce debt’ and ‘pension interest’.  The powers of the Board were very broad as described in the Rules.  It was preferable that the powers were narrowed to apply only to the “clean break” principle in order to avoid the Board from amending any other Rules.

Mr E Mthethwa (ANC) noted that reference was only made to the non-member spouse.  He asked what provision was made to protect the interests of minor children.

Dr George acknowledged that the implementation cost of R5.8 billion was an estimate but insisted on a full explanation on how this amount was calculated.

Ms Moodley replied that the amendments to the GEPF Act were limited to the alignment with the Pension Funds Act.  The issue of the preservation of retirement benefits was a separate matter.

Ms De Witt confirmed that the GPAA appreciated Government’s concerns regarding the preservation of retirement benefits.  The “clean break” principle applied to the entitlement of the non-member spouse upon divorce.  The spouse had full discretion on how the payment would be used and individual circumstances would dictate whether or not the money should be applied to the spouse’s retirement plan.  The Bill dealt with the issue of divorce orders whilst the issue of benefits to minor and other dependants was dealt with on the death of the member.

Ms Dlamini-Dubazana stressed that the Minister of Finance wanted to stop cash withdrawals from retirement funds.  The payouts in terms of the “clean break” principle contradicted policy as it was a cash withdrawal, with no guarantee that the funds would be invested in a retirement plan for the spouse.  She urged the GEPF and the Treasury to reconsider the issue.

Ms De Witt noted the concerns raised by the Committee.

Ms Moodley explained that the GEPF had no minimum benefit concept and it was necessary to ascertain the value of the member’s pension benefit at the date of divorce.  The divorce benefit was calculated by using the same formula applied to calculate the benefit at the death of the member.

Ms Shipalana said that the additional R80 million required for NSF Special Pensions were derived from the data available on the database of NSF members.  The majority of the members of the non-statutory forces were employed by the Department of Defence.  Approximately R3 billion would be recouped from the Department’s baseline expenditure and the remaining R1.8 billion would be recovered from various other Government entities that employed NSF members.  The Treasury was currently engaged in verifying the processes and calculation methods used to cost the Bill and would be in a position to provide more detail in due course.

Ms Sibhidla thanked the presenters for the briefing.  The financial implications of the Bill were of critical importance and the Committee required clarity on the matter.  The estimated cost of implementation had to be very close to the actual cost.  The Committee was aware that a number of applications from former members of the non-statutory forces remained unprocessed.  There was a need to educate members on retirement savings and the Committee wanted the GEPF to have a strategy and systems in place to address this issue.

The meeting was adjourned.

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