Retirement Savings: National Treasury briefing; Financial Markets Bill [B12-2012] & Credit Rating Services Bill [B8-2012]: consideration - adoption deferred

Meeting report

Strengthening Retirement Savings: National Treasury briefing
Background: Twin Peaks Reform after the Great Financial Crisis
Mr Ismail Momoniat, Deputy Director-General: Tax and Financial Sector Policy, said that the twin peaks reform after the great financial crisis had resulted in a fundamental rethink on the approach to regulation. South Africa was shifting to tougher macro-prudential and twin peaks reforms. He explained the implications for financial regulators and institutions. He referred to National Treasury's May 2012 document: Strengthening Retirement Savings: An Overview of Proposals Announced in the 2012 Budget. This contained an urgent set of proposals, some more urgent than others. These were draft proposals for strengthening the current policy framework for retirement savings. The Minister was keen that vested rights would be protected and was committed to extensive consultations over the next few months. Broader proposals on social security reforms would be released for public discussion once Cabinet processes had been completed. The retirement proposals were complementary and required whether or not social security reform took place.

The proposals for improving retirement savings sought to address the following concerns:
▪ Inadequate retirement savings
▪ Low levels of preservation and portability
▪ High fees and charges
▪ Low levels of annuitisation.
Currently, retirement funds (which managed around R2.4 trillion) were the destination of more than half of household savings. (Slide 8).

Mr Momoniat highlighted household savings flows, 1999 to 2010 (pie chart, slide 9).

Proposed urgent short-to-medium-term reforms:
▪ Requiring preservation and portability
▪ Improving fund governance and the role of trustees
▪ Extending existing pension laws to all public pension funds
▪ Reforming the annuities market
▪ Creating a uniform approach to the taxation of retirement funds
▪ Measures to reduce the costs of retirement products
▪ Introducing tax incentives to promote retirement and other investment products.
A series of technical discussion papers would be released over 2012 in the above areas
Longer-term reforms would be dealt with through Social Security Reforms. (Slide 10).

Preservation and portability
Preservation sought to address pre-retirement leakage caused by payments to:
– members leaving pension and provident funds upon job changes and retrenchment
– non-members in cases of divorce order settlements

Preservation was 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 when a person changed jobs or received a divorce order settlement (without incurring taxes or penalties).

While the stated intention was to protect retirement funding through preservation and portability, there might be a need to allow access to the retirement benefits in some limited instances.
– Withdrawals to be allowed for individuals who were temporarily unemployed or needed to undergo life-saving operations, up to a 1/3rd of accumulated benefits.

Proposal to be phased in given consideration to protecting vested rights.
Paper due to be released by September 2012.

Improving fund governance
Pension fund governance problems emerged from weaknesses in governing boards of trustees
▪ No relevant experience and skills
▪ Conflicts of interest
▪ But this was a tough job!

Proposal
▪ Application of “fit and proper” standards
▪ Put in place mechanisms and legal requirement to achieve proper training (e.g. trustee toolkit training a requirement)
▪ Strengthen governance by elevating Pension Fund (PF) Circular 130 to a Directive
▪ Empower and legally protect trustees (“whistle-blowers”) to act independently without fear or favour
▪ Professionalise the role of principal officer.
Part of the preservation and portability discussion paper to be released by September 2012 (Slide 12)

Extending pension laws to public funds
Government Employee Pension Fund (GEPF), local government and other official pension funds characterised by rules and regulations fragmented from private sector funds.

Pension Funds Act (PFA) rules and developments not incorporated into public sector pension funds:
▪ Clean break policy (currently being implemented for GEPF)
▪ Members access to Pension Funds Adjudicator
▪ Minimum benefits

Proposals
▪ All public sector pension funds to register under PFA and be supervised by the FSB
▪ Design a uniform public sector pension funds act consolidating all funds not supervised under the PFA

Reform of annuities market
▪ Annuitisation was crucial in dealing with post-retirement leakage; investment & longevity risk
▪ Living annuities in particular were a complex product, requiring financial advice and regular reviews, people might not be managing them effectively yet more were being sold. (See graph, slide 14)
▪ Conventional life annuities protected against longevity and investment risk but were not accurately rated, so were more expensive for the poor
▪ Looking into conventional annuities or a life-living annuity combination as a default product
▪ Review paper to be released by September 2012.

Reducing retirement fund costs
▪ Reducing costs to reasonable/fair levels was important
▪ Standardising disclosure and transparency
▪ Further consolidation of pension funds would aid effective supervision and provide for economies of scale
▪ Consideration for standardising products - Encourage competition on prices and not product type
▪ Final review to be released by October 2012.

40-year Reduction in Yield (RiY) for selected international retirement systems

South African retirement funds of all kinds appear expensive relative to international benchmarks.
(See bar graph, slide 16).

Introduce a tax-free savings vehicle
▪ Nature of tax incentivised product
– Similar to many accounts in Organisation of Economic Cooperation and Development (OECD) countries (e.g. Canadian Registered Education Savings Plan (RESP), UK Individual Savings Account (ISA)
– Can be invested in savings accounts, Treasury Retail Bonds, money market instruments, Collective Investment Schemes (CIS)

▪ Nature of tax incentive
– Tax free capital growth, income and exit (T-E-E)

▪ Administration
– Limits legislated and promoters of products required to run them within the
 legislated parameters
– SARS makes an assessment on documented accounts of conduct

▪ Ideal take-up (target) market
– Middle to high income households

▪ Contribution caps
– Yearly contribution limit (e.g. R30 000)
– Lifetime contribution limit (e.g. R500 000)

Harmonising retirement fund taxation
▪ Uniform retirement contribution model:
– Proposed harmonising the tax treatment of contributions to and benefits from pension and provident funds (and retirement annuity funds)
– Would substantially reduce the complexity of our current retirement system
– Achieve greater equity in the tax system by rationing tax exemptions

▪ Treatment of contributions:
– Employer contributions treated as fringe benefit & therefore taxable in hands of employee, if above caps
– Exemption for employer & employee contributions, up to a percentage ceiling (22.5% of income, 27.5% for over-45s), and up to a rand amount (R250 000 and R300 000, latter for over-45s)

▪ Treatment of benefits:
– Proposal to phase in annuitisation of 2/3rds of provident fund benefits, similar to pension and retirement annuity fund
– NB : alignment will lead to tax benefit for provident funds employee contributions
– Proposal to be phased in given consideration to protecting vested rights

▪ Consider raising de minimus annuitisation requirement from R75 000

▪ Paper to be released with the tax proposals by September 2012.

Technical discussion papers to be released for consultation during 2012

▪ Providing a retirement income – Reviews retirement income markets & measures to ensure cost-effective, standardized, easily accessible products available to public. Paper due for release by September 2012.

▪ Preservation, portability and uniform access to retirement savings – Gives consideration to phasing in preservation on job changes & divorce settlement orders, & harmonising annuitisation requirements. Aim is to strengthen retirement provisioning, long-term savings and fund governance. Paper: Sept 2012.

▪ Savings and fiscal incentives – Discusses how short- to medium-term savings can be enhanced, and dependency on excessive credit reduced, through tax-preferred individual savings and investment accounts. Also discusses design of incentives to encourage savings in lower-income households. Paper: Sept 2012.

▪ Uniform retirement contribution model – Proposes harmonising tax treatment for contributions to retirement funds to simplify the tax regime around retirement fund contributions. Paper: Sept 2012.
▪ Retirement fund costs – Reviews the costs of retirement funds and measures proposed to reduce them. Paper due to be released by October 2012.

Process of Consultations for Retirement
 Savings proposals
▪ Broad consultations and public comment on Overview Paper
▪ Specific and more detailed consultations over coming technical discussion papers
– Some papers require less consultations (e.g. over lowering costs) than others (e.g. preservation)
– Appropriate consultation processes for different papers
– Meetings will be convened with key stakeholders (trade unions, employers, businesses and industry).
▪ Additional consultations when any proposals put in the form of legislation
– Two periods of public comment with bills:
First period is after bill is approved by Government, but before it is tabled in Parliament
Second period is after bill is tabled in Parliament
▪ Further consultations on request – we are always open to consultations.

Mr Momoniat emphasised that this was an urgent set of proposals announced in the 2012 budget. National Treasury's approach was to protect vested rights. He gave assurances that pension holder funds were secure, and National Treasury was committed to extensive consultation on these complex issues. He noted that very few people took out annuities.

Discussion
Mr E Mthethwa (ANC) asked if those who transferred from one employer to another would be given the opportunity to consolidate into one account the money that they wanted to save in preservation funds.

Mr Momoniat replied that discussions were needed on how to deal with such issues. The defaults should be changed so that there was a bias to preserving funds. A much more robust approach was needed to commission, as the wrong products were being sold, and sales were driven by commission, not by what was good for the customer.

Mr Momoniat noted that South Africans looked for any opportunity to take out their pension funds.

Ms Z Dlamini-Dubazana (ANC) asked for clarity on the financial sector regulation now that there was a move to the twin peaks model and the many reforms projected, for example, in social security.

Mr Momoniat replied to Ms Dlamini-Dubazana that National Treasury hoped to publish a paper in the next two months that would give more detail, and to table twin peaks legislation next year, and hopefully by the end of 2013 establish the two regulatory agencies. These would still be in their formative stages. Having said that, it was not necessary for the law to change for the FSB to examine market conduct, in the banking sector, for example.

Mr D van Rooyen (ANC) asked if National Treasury was still on course as to the deadlines indicated in the presentation.

Mr D Ross (DA) asked about the publication deadlines for the technical discussion papers.

Mr Momoniat acknowledged that National Treasury had failed to deliver on time, because the consultation process had taken longer than expected. The Minister had wanted consultations to be thorough. It was hoped to publish four papers within the next two weeks.

Mr Ross noted that only half the country's workers belonged to retirement funds.

Mr Momoniat replied that if one belonged to a big industry, one was obliged to belong to a pension or provident fund. With preservation, the issue of compelling a person, by way of auto-enrollment, to join a pension or provident fund on taking up employment was something that should be considered.

Mr Ross noted that access to credit was important, as people who did not have credit were sidelined from the economy, but giving people too much credit, especially those on low incomes, had a negative effect on savings.

Mr Momoniat replied that there was indeed a dilemma on credit. However, the National Credit Regulator had done good work. It was important not to facilitate easy debit orders to be given to all and sundry. This especially applied to those who were lending recklessly. The system had been biased to protect the small lenders who were often the lenders of last resort.

Mr N Koornhof (COPE) asked how long it would take to realise the implications indicated in slide 5, for example, making the financial regulators and supervisors such as the FSB and Banking Supervision Department much stronger, more intrusive, and much tougher. How long would be wait for real action?

Mr Momoniat did not believe that legislative change was necessary in order to toughen some of the enforcement mechanisms. It was unfortunate that the criminal justice system was not as effective as it should be. A better way of dealing with these issues was needed. Some of the issues in the retirement industry should have been picked up.

Ms J Tshabalala (ANC) asked if the savings strategy would apply also to the private sector. What was the extent of the GEPF's assets?

Mr Momoniat replied that GEPF accounted for half the R2.4 trillion funds mentioned in the presentation. He did not give any further response on the GEPF.

Financial Markets Bill: consideration
The Chairperson noted that certain amendments had been submitted to the State Law Advisers.

Mr Roy Havemann, National Treasury Chief Director: Financial Markets and Stability, had circulated a document [for Members only] in response to issues raised the previous week. There had been five outstanding issues which required legal advice. The five issues were: the inclusion of competition as an Object of the Act: Clause 2; the exclusion of gross negligence from the limitation of liability in the market infrastructure: Clause 72; the role of Parliament in approving regulations: Clause 107(2)(a)(6); the management of conflicts of interest in market infrastructure by the Registrar which proposal was modeled from Clause 62 and was in Clause 6; and linking penalty provisions to inflation. He gave National Treasury's response to each of these items.

The inclusion of competition as an Object of the Act
National Treasury had received a legal opinion that this proposal was less a constitutional question than a practical one. If one included competition as an object of an act, one then needed to have a whole section in the act dealing with how one would go about achieving that object. The Competition Act provided a whole range of measures which the State should take to ensure competition. The two major measures that were introduced in the Competition Act were obviously the creation of the Competition Tribunal and the creation of the Competition Commission. The legal opinion was that one could include competition in the Objects of the Act but then one would need subsequent provisions that dealt with how one would achieve this objective of competition that would be different from those in the Competition Act. Having discussed the opinion with the National Treasury drafting team, National Treasury felt that it did not want necessarily to create, by including competition as a specific Object, unnecessary overlap between the Financial Markets Bill and the Competition Act and thereby raise concerns about conflicts of jurisdictions. However, National Treasury agreed that the intention of the proposal was quite correct. So it proposed a new Clause 2(e) that promoted the domestic and international competitiveness of the South African financial markets and securities services in the Republic. It would also propose an additional Clause 5(3) to say that in performing his or her functions the Minister must take into account the Objects of the Act and the principle that competition between regulated persons must not be impeded or distorted. That wording was cut and pasted from Clause 6, in which the Registrar was subject to a similar requirement. Moreover, competition should not be the primary Object of the Act.

Mr T Harris (DA) did not have the documents to which National Treasury was referring and it was hard for him to follow the new formulation. He was insistent on including competition as an Object of the Act.

Mr Koornhof accepted that it would not be unconstitutional to include competition as an Object, but accepted National Treasury's view. To include it, however, would completely change the Objects, and one could not do so without giving notice to the Competition Commission. It would be highly inappropriate to make the change.

Adv Frank Jenkins, Senior Parliamentary Legal Adviser, gave a legal opinion: to include competition would not be unconstitutional, and there was nothing in the rules of Parliament to prevent its inclusion. However, as things stood, there was a competition regime in South Africa, which ruled on competitive behaviour and, restrictive practices on the one hand, and on the other gave permission from mergers and acquisitions to take place. If this Bill were to include competition as an Object, it would then say that second function of the Competition Tribunal would rest with the Registrar on the one hand and with the Minister on the other, depending on the circumstances of the merger or the acquisition of shares. This would pertain only to market infrastructure institutions and participants. As the Bill was introduced, the Minister's decisions to allow a merger or acquisition to take place was not bounded by these principles of competition by law. The Registrar's decision was, however, bound by them. The Bill's Objects were effective in law. It was a legal, enforceable principle. So, to include competition, whether in the Objects, or in Clause 5, would now make that Minister take cognizance of competition issues. So it would be open to challenge. It was a 'policy matter'. However, there was nothing 'wrong' with the proposal.

Ms Dlamini-Dubazana indicated her agreement.

The Chairperson inferred that most Members agreed.

Mr Harris construed Adv Jenkins' opinion as supporting his, Mr Harris's initial position, that one should include competition upfront in the Objects. National Treasury's suggestion was fine, but, as he had said previously, competitiveness was different from competition. As Adv Jenkins had said, to insert competition as an Object would be a policy decision, and would oblige the Minister to consider those issues. Mr Harris did not see a conflict with the Competition Act. His proposal would align this Bill with the twin peaks reforms. Twin peaks essentially required a prudential focus from the South African Reserve Bank (SARB) and a focus on market conduct from the Financial Services Board (FSB). The former was very much based on stability and the latter was inherently about competition. Furthermore, he did not think inclusion of competition as an Object would require further elaboration in the Bill's Clauses. He was happy to accept National Treasury's proposal of international and domestic competitiveness but not to leave out the commitment to competition, as this was what the market conduct aspect of twin peaks was all about.

Mr Koornhof was uncomfortable with the proposal. Competition law in South Africa was completely different. One would have to consult the Competition Commission.

Adv Jenkins repeated that it was a policy matter. There were two exceptions to the functions of the Competition Commission and the Competition Tribunal in deciding on mergers and acquisitions. Those two exceptions, in terms of the Bill, were the banks and the financial markets. He would argue as a lawyer that one should treat them similarly. He noted that there was little in the Banks Act about competition as to when the Minister must decide whether or not to allow mergers or acquisitions of banks. To treat this differently in the Financial Markets Bill would create confusion. If the Minister was to entertain competition issues in deciding on mergers and acquisitions in the financial markets area, it had to be asked how he or she would do so. He would imagine that the Minister would refer to the criteria in the Competition Act. Therefore it would be appropriate to leave the whole thing to the Competition Commission and Competition Tribunal. These bodies had the capacity to handle matters concerning competition. He cautioned against fudging competition and competitiveness. The Constitution required that policy was formulated at the level of the Executive.

Adv S Swart (ACDP) said that the heart of the debate was the word 'competition' as opposed to competitiveness. He was not in favour of 'fudging'. If one included competition in the Objects Clause one would have to give context to what one meant by it. One would have to define that the Regulator had concurrent jurisdiction with the Competition Tribunal. While he appreciated Mr Harris's concerns, he would prefer to leave out competition and insert competitiveness. However, in Clause 6(1)(b)(5) there was the word competition. Did this not introduce an element of fudging? Would this Clause not give the Competition Tribunal and Competition Commission jurisdiction?

Mr Momoniat emphasised what Mr Havemann had said. Also it would be better to consider the issue of competition in the architecture of the twin peaks reforms. He supported the views of Mr Koornhof and Adv Swart.

Mr Havemann said that Clause 6(1)(b) did not refer to competition but to avoiding distortion of competition, but if it was the Committee's view that these words were to strong, the words could perhaps be taken out. The Minister should have the same requirements around competition as the Registrar.

Adv Swart did not want the Competition authorities to have any jurisdiction in the area of the Bill. He feared major implications and delays, all the way to the Constitutional Court.

Mr Mthethwa did not want the Committee to remain bogged down on this same issue. Now that the legal opinion was to hand, the Committee should proceed. It should not go back over the same discussion as if there had been no legal opinion. It was high time to close the matter.

Mr Harris said that there was a danger of confusing the broader principle of competition with competition policy. Nobody was suggesting that the Bill should deal with competition policy. Adv Jenkins had just explained how, in his opinion, the Bill could include a commitment to competition without contradicting the established competition legislation. If competition was central to the market conduct pillar of twin peaks, there was a need to commit to the principle of competition in the Objects.

Ms Dlamini-Dubazana did not find a uniformity of view between National Treasury and Adv Jenkins.

Adv Xoliswa Mdludlu, Principal State Law Adviser, said that an Object laid down what a Bill sought to do. If competition was in the object, it meant that the Bill sought to deal with competition. Thereafter there had to be a provision. She agreed with the legal opinion provided to National Treasury. If competition was not going to be provided for in the Bill, it must not be put in the Objects. Otherwise the Minister of Finance would be required to consult the Minister of Trade and Industry.

Mr Harris argued that competition was dealt with in the Bill, as it effectively set up part of the market conduct component of twin peaks. Competition was part of the market conduct responsibility of the FSB. So the principle of competition underpinned everything that one was trying to do in this Bill. The legal opinion showed that it did not create a contradiction with the existing competition law. One was not dealing here with competition policy but with the principle of competition.

Mr Momoniat said that this issue of competition was very important. However, one could not separate market conduct regulation from the prudential. Financial stability was important, as was lowering costs and ensuring that consumers were protected. However, it would be better to deal with competition in the twin peaks architecture. To include competition as an Object at this late stage would be a mistake.

Ms Dlamini-Dubazana fully agreed with Mr Momoniat.

Mr Van Rooyen could not locate the legal opinion given to National Treasury (referred to as Annexure A but not to be found in the document before him). He wanted to compare this opinion with that of Adv Jenkins, which had been circulated to Members. He had expected the two teams to work together. What was National Treasury's view of the advice of the Senior Parliamentary Legal Adviser.

Mr Harris registered an objection.

The Chairperson said that the Committee had sought extensive advice. One must consider that there was a Competition Act and its Objects were clearly stated. There was no absence of competition laws in South Africa, and it was implied that the spirit of this Bill should embrace the existence of other laws. The matter on which the committee was deliberating upon was not exhausted. He noted Mr Harris's concern, but preferred to agree with the broader consensus: the word competition should not be 'do or die' in the Bill. One could not anticipate the possible consequences.

Mr Harris registered his objection to the rejection of the word 'competition'. He failed to understand National Treasury's arguments.

Adv Swart asked if National Treasury's own legal opinion contradicted that of the Senior Parliamentary Legal Adviser. It would seem to do so.

Mr Havemann replied that National Treasury was constrained by its not having read Adv Jenkins' opinion. It had circulated to Members its own legal opinion.

Mr Harris denied that Members had received the National Treasury's legal opinion. National Treasury's explanation was based on a legal opinion which Members did not have.

Adv Swart said that the issue should be flagged.

Mr Havemann offered to print out copes of the legal opinion. He thought that Adv Jenkins' opinion related to the constitutionality of including competition as an Object, whereas the legal opinion provided to National Treasury related to the practicalities of including competition as an Object. It did not work when two Government departments had the same objectives.

The Chairperson confirmed that both legal opinions had been circulated. Moreover, National Treasury had spoken about its legal opinion. It was up to the Committee to apply its own mind and make a decision.

The Committee agreed, by a majority, that competition would be excluded as an Object of the Bill.

The Chairperson noted that the Committee was of a majority opinion and the National Treasury was comfortable with the Committee's majority view.

Mr Harris pointed out that the Committee should consider National Treasury's alternative proposals: a new Clause 2(e) that promoted the domestic and international competitiveness of the South African financial markets and securities services in the Republic. It would also propose an additional Clause 5(3) to say that in performing his or her functions the Minister must take into account the Objects of the Act and the principle that competition between regulated persons must not be impeded or distorted. These proposals were on page 3 of the document circulated to Members only.

The Committee agreed to adopt these alternatives.

Mr Harris was content that the poor cousin of his original proposal had been adopted.

The exclusion of gross negligence from the limitation of liability in the market infrastructure
Mr Havemann said that National Treasury was not opposed to the proposed change.

The role of Parliament in approving regulations
National Treasury had held substantial discussions and consultations with a view to providing Parliament with enhanced oversight of regulations. An opinion provided to National Treasury had highlighted practical considerations around Parliament's specifically approving regulations. He gave the example of the regulations of the Banks Act (No. 94 of 1990), which extended to over a thousand pages. These did not tell people what to do as prescribe the reporting of data. There was a similar set of regulations in the Pension Funds Act. This Bill would require regulated persons to submit similar data, on, for example, what derivatives they held. There would be only a limited number of legislation-like regulations.

Mr Momoniat said that National Treasury did not want to be involved in all the 'gory' detail of regulations, which should preferably be dealt with by the Regulator. There were cost problems in publishing such lengthy regulations in the Government Gazette. National Treasury would prefer Parliament to play a greater role, but it must be asked if Parliament wanted to have a greater role in these regulations than it had with other regulations.

Adv Swart said, from his experience on the Justice and Constitutional Development Portfolio Committee, that there was a difference from bill to bill. He gave as an example the Protection of Personal Information Bill, according to which the regulations should merely be tabled, without even a requirement for Parliament to scrutinise them. He was concerned about delays from Parliament's side, and appreciated the need to pass regulations as quickly as possible. The present provisions of the Bill required Parliament to scrutinise the regulations, which he felt was adequate.

The Chairperson agreed with Adv Swart.

Mr Koornhof suggested including a definition of scrutiny.

Adv Jenkins said that the word 'scrutiny' came straight from the Constitution. Definition might be difficult. He explained the work of the Joint Committee on the Scrutiny of Delegated Legislation. He advised against requiring that Parliament must first approve regulations. It was more effective to let Parliament see the drafts of regulations and comment, as with the draft Taxation Laws Amendment Bill.

The Chairperson said that it was for Parliament to define its role.

Adv Swart understood that Adv Jenkins and National Treasury supported keeping this Clause as it was. He thought that there was broad consensus.

The Chairperson noted that Members agreed.

The management of conflicts of interest in market infrastructure by the Registrar
Mr Havemann felt that much of what National Treasury had intended was already captured in Clause 62 which prescribed a role for the Registrar. Clause 62 covered this matter sufficiently, and a change was unnecessary.

The Chairperson noted that Members agreed.

Linking penalty provisions to inflation
Mr Havemann said that National Treasury had incorporated the suggestion of Mr Van Rooyen that there should be an adjustment by the Registrar annually to reflect the Consumer Price Index.

The Committee agreed that National Treasury would revise its final draft and submit it in readiness for next week's meeting (4 September 2012, subject to confirmation).

Credit Rating Services Bill: consideration
Mr Harris asked if the version in front of him was the same version of the Bill seen the previous week.

Ms Jeannine Bednar-Giyose, National Treasury Director: Fiscal and Inter-governmental Legislation, replied that there was one change from the version circulated to Members last week and this was in the exemption clause. Otherwise the present version was exactly the same as the version circulated last week.

Mr Harris still tried to understand the different versions. Did the last paragraph of the definition of 'credit rating' read 'issues' or 'uses'?

Ms Bednar-Giyose replied that it should read 'issued using'.

Mr Harris said that the version that he had from last week and the present version that he had did not have the word 'issued'. However, National Treasury's amendments did.

Adv Mongameli Kweta, State Law Advisor, Office of the Chief State Law Advisor, said that the Committee should focus on the 'B' version of the Bill and refer to the proposed 'A' version. To use the other versions which incorporated all the proposed amendments would cause confusion.

Mr Harris was still confused.

Ms Tshabalala proposed deliberating Clause-by-Clause.

The Chairperson said that he had two documents: the proposed amendments, and the Bill. He asked if the amendments were incorporated in this version of the Bill. If they were incorporated, the Committee should proceed Clause-by-Clause.

Ms Bednar-Giyose, to avoid possible confusion, preferred to focus on the proposed amendments – 'the A list' – because this was what the State Law Adviser had thoroughly checked.

Mr Harris was happy for 'the A list' to be the reference, but for Members it was quite confusing. Ultimately, Clause-by-Clause deliberation had to be on the basis of the Bill itself.

Mr Mthethwa said that there was ambiguity.

Ms Dlamini-Dubazana also suggested Clause-by-Clause deliberation on the B version of the Bill.

Adv Swart advised that the 'A list' made reference to the Bill as introduced, but did not make reference to the present version of the Bill. He preferred that the Committee should work with both versions – B version and A version. It seemed that there was an error, as the word 'issued' was not incorporated.

The Chairperson inferred a consensus that the Committee should proceed Clause-by-Clause.

Clause 1: Definitions
Ms Dlamini-Dubazana pointed out a difference in page numbering.

Mr Havemann explained this on account of the completely different format of the printed version.

Mr Harris wanted to proceed with one definition at a time.

The Chairperson, however, wanted to stop only if there was an issue arising.

Ms Dlamini-Dubazana agreed with the Chairperson and wanted to continue.

The Chairperson observed that even the delegation appeared somewhat confused by its own documents.

Mr Momoniat acknowledged that he and his colleagues were. He felt that this version had incorporated all the changes, except for the mistake with the word 'issued'.

Ms Bednar-Giyose said that the version should incorporate all the proposed changes, and apologies for a typographical mistake. She referred to the 'comparison document' which had all the tracked changes and should reflect the changes in the 'A version' of the Bill. Nevertheless, the changes should be included in the version of the Bill that was distributed.

No further Clauses were discussed.

Conclusion
The Chairperson determined, with due respect, that National Treasury was not completely ready with a final version of the Bill that the Committee could adopt. He proposed that National Treasury return with its revised final version the following week (04 September).

Members agreed.

Mr Harris asked that National Treasury send its revised final version to the Committee well in advance of the next meeting.

Mr Momoniat apologised for the confusion, and would ensure that the revised final version for next week would be indeed the final version with the changes.

The Chairperson accepted the apology

The Chairperson thanked Mr Van Rooyen, the Committee Whip, for deputising for him during his absence, and adjourned the meeting.

Appendix
National Treasury Media Release

STRENGTHENING RETIREMENT SAVINGS: Overview of the 2012 Budget proposals
The Minister of Finance announced in the 2012 Budget that a series of technical discussion papers on the promotion of retirement savings will be released this year. These papers will deal with how best to ensure that South Africans have access to appropriate savings vehicles and that they make adequate provision for retirement. Today’s release is an overview of the discussion papers to be released later this year.

The draft proposals in this overview focus on more urgent reforms to the retirement industry that will complement the longer-term social security reform that government will publish later this year. This overview also builds on the shift to a twin peaks system of regulation that government announced in the 2011 Budget, which will also lead to the establishment separate market conduct and prudential regulators.
Adequate retirement savings require an active public, an engaged government and an industry that is fit for purpose. There are currently a number of challenges within the existing South African retirement structure that negatively impact ordinary South Africans.

Despite the high membership rates for retirement funds and significant accumulated savings, only about 10 per cent of South Africans are able to maintain the same level of consumption they had before they stopped working. This is explained by the low levels of preservation of retirement savings.

Government is therefore proposing a number of measures to address this, for further public consultation. An overview of these draft proposals is presented in the document, Strengthening Retirement Savings: Overview of the 2012 Budget Proposals, which is being published today.

The National Treasury will over the next couple of months publish a series of more detailed technical discussion papers on these matters:
• Retirement fund costs: Small annual charges accumulate over many years and significantly erode retirement benefits. National Treasury is in this regard working on proposals which include increasing competition on the basis of price rather than design and encouraging the use of low-cost passive investment management.
• Providing a retirement income: Living annuities, which do not provide any longevity protection, are purchased by too many South Africans. These products also expose retirees to investment risk and potentially reduce income by up to 20 per cent. The paper reviews retirement income markets and measures to ensure that cost-effective, standardised and easily accessible products are available.
• Preservation, portability and uniform access to retirement savings: National Treasury is proposing to phase in preservation of accumulated retirement savings and consideration will be given to protecting vested rights. This will address the prevalent high pre-retirement leakage and ensure that workers have sufficient provision for retirement.
• Savings and fiscal incentives: This paper discusses how short- to medium-term savings can be enhanced and the dependency on excessive borrowing be reduced, through tax-preferred individual savings and investment accounts. It also discusses the design of incentives to encourage savings among lower-income groups.
• Uniform retirement contribution model: Proposes the harmonisation of tax treatment of contributions to and benefits from retirement funds (pension, provident and retirement annuity funds) to simplify taxation and contribution systems. The proposal will reduce the complexity of the current retirement system and achieve greater equity in the tax system.

“These are structural changes and a paradigm shift. At the end of day government has one interest and that is to ensure that the beneficiaries of the retirement process benefit substantially from their own savings,” said Finance Minister Pravin Gordhan.

Copies of the discussion document, Strengthening Retirement Savings: Overview of the 2012 Budget Proposals, are available from the National Treasury website (www.treasury.gov.za). Comments can be submitted by 31 July 2012 to:

The Chief Director of Financial Investments and Savings, Olano Makhubela, Private Bag X115, Pretoria, 0001; or per facsimile to (012) 315 5206; or per email to [email protected]
Further comments on the technical discussion papers will be taken at later submission dates in 2012.

Consultations will also be convened with trade unions, employers, retirement funds and the broader public to refine the draft proposals. National Treasury will arrange workshops with stakeholders, and take appropriate steps to inform and engage with the public.

Issued by the National Treasury
14 May 2012