Government Employees Pension Law Amendment Bill [B15-2011]: Treasury response to submissions; consideration & adoption

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Finance Standing Committee

12 September 2011
Chairperson: Mr T Mufamadi (ANC)
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Meeting Summary

The National Treasury briefed Members on its responses to public submissions and to queries from the Standing Committee on the Government Employees Pension Law Amendment Bill, 2011. National Treasury explained the costing of the revised non-statutory forces pension dispensation. The Fund actuary had estimated that the respective departments and institutions owed the Fund R4.735 billion in additional liability as at 31 December 2010. The Fund therefore required a cash injection of R1.378 billion for the payment of lump sums to members who had already left the Fund. National Treasury explained the methodology for determining the costs involved in changing the dispensations for active members and for exits as at 31 December 2010. National Treasury noted that the results had then been accumulated with interest from the particular date of exit of each member to 31 December 2010, explained how short-term and market related interest had been calculated, and summarised the costs. The financial implications were that the National Treasury was dependent on Parliament's appropriation of funds for this purpose. National Treasury would make a submission to the Ministers' Committee on the budget this year for inclusion of the required funding in the 2012 Medium Term Expenditure Framework allocations. However, the National Treasury would need to conduct an appropriate actuarial diligence exercise to verify the costs. The Fund had been requested to provide documentation and information for this purpose.

National Treasury reviewed the written submission from the Commission for Gender Equality and supported the Commission's proposal for the inclusion in the Bill of a definition of 'spouse' while noting that the rules of the Fund, however, already contained a definition of 'spouse' and had been crafted so as to apply appropriately to all the various types of relationship. The Cape Bar Council's key proposal was that the Bill could potentially be improved by incorporating provisions of the Income Tax Act. This was so that the question of the tax to be paid on any amount to be assigned to a non-member spouse from a member's benefit would be dealt with as set out in Section 37D(1)(d)(ii) of the Pension Funds Act. The Council had noted that amendments would need to be made to the Income Tax Act to provide appropriately for the 'clean-break' principle. National Treasury's view was that it was important that tax amendments should be addressed in the Taxation Laws Amendment Bill not in the Government Employees Pension Law Amendment Bill; it was not desirable that tax legislation should be enacted by other mechanisms unless absolutely necessary. With reference to the Cape Law Society's submission, it would be preferable to effect appropriate amendments to the Income Tax Act to include specific appropriate references to the Fund so as to avoid unintended uncertainty or ambiguity arising on how the Income Tax would apply to pension payments made in terms of the 'clean break' principle. A submission by a Ms Molefe had proposed that the Fund should be guided by a Settlement Agreement that a former couple had signed when their marriage was dissolved by a court. This was provided that the member of the Fund had submitted a copy of the Settlement Agreement to his or her human resources department.

National Treasury explained preservation - the requirement that money saved for retirement through a pension fund or provident fund should remain in such a fund until the person retired, or should be rolled over into another similar retirement savings vehicle (without incurring taxes or penalties) when a person changed jobs. The lack of mandatory preservation resulted in employees not having sufficient income on retirement, led to an increased social security burden and adversely affected long-term economic growth. Government planned to introduce mandatory preservation, which was common in the world, to protect retirement savings from being squandered due to lack of foresight and long-term planning. The National Treasury would in due course undertake consistent legislative reform applicable to all pension funds, including the Government Employees Pension Fund. It was important that preservation be implemented consistently for all pension funds at the same time.

National Treasury proposed a rewording of the proposed Section 33A(2) to clarify that the intended scope was confined to applications confined to the application of the 'clean-break' principle in terms of Section 24A. This proposed sub-section was intended only to allow the Fund to address those divorces which were already noted and endorsed on its system but which were not able to be paid out as yet because of the inability to apply the 'clean-break' principle.

Members asked, with reference to the proposed Section 33A(2) how far back the National Treasury and the Fund were prepared for resubmission of claims and if they had anticipated the number of such claims and the costs thereof, and thought that the method for calculating the short-term interest was ambiguous. Where, amid the data, was the formula? A Member asked, with reference to preservation, when National Treasury and the Fund expected changes to the Pension Act, and if we should not wait for them. A Member was concerned that the costing was not a verified one, moreover, Parliament would need to appropriate the money required. As to the members of the Fund who had already exited, it sounded as if the Fund had already made payments to people on the basis of past service, and that the law was now just catching up. On requesting a confirmation – 'yes' or 'no'. On receiving an answer in the affirmative, the Member was 'enormously discomforted'; if the Fund had not first had the law amended then it had actually broken the rules that applied at the moment. The fact was that people had already been paid. It had to be asked what happened if the Committee did not want to pass this law. However, Treasury's subsequent explanation clarified the matter.

The Democratic Alliance put on record that it reserved its position. The Congress of the People foresaw no problem in supporting the Bill but would discuss it in its study group. The African National Congress supported the Bill but the Committee's Report on the Bill had to emphasise the sustainability of the funding model and the promotion of preservation. The Committee then approved the Bill without amendments. The aim was for the Bill to be approved by the National Assembly before recess.

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