Government Employees Pension Fund, Government Pension Administration Agency & Financial Services Board on their roles and mandates and contribution to the NDP and economy

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Finance Standing Committee

19 August 2014
Chairperson: Mr Y Carrim (ANC)
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Meeting Summary

The Standing Committee on Finance was briefed by the Government Employees Pension Fund (GEPF), the Government Pension Administration Agency (GPAA) and the Financial Services Board (FSB) on their roles and mandates.

The GEPF was described as the largest pension fund in Africa, with assets of R1.4 trillion under management. The GEPF presentation covered the background to its establishment, the composition of the Board and its governance framework, its operating model, its financial highlights, its strategic objectives, what roles the GPAA and the Public Investment Corporation played, and how it related to the National Development Plan (NDP) and the New Growth Path (NGP).

Members said some of the slides on actuarial results were not in the presentation handed out to Members, and were important from a fiscal oversight perspective. Had the Board reviewed the investment strategy?  Members were concerned about the proliferation of municipal pension schemes.  Was there any thought of combining municipalities into one government pension scheme encompassing all three tiers of government?  What was making the GEPF successful?  As the Government was the main guarantor of the GEPF, did that mean Members of Parliament should serve as board members?  They questioned whether this would not be a conflict of interest with their oversight role.

Members were interested in where the allocation of strategic assets in equity and bonds were, and what assets were invested offshore -- and why there were offshore investments, because public entities had to be held accountable.  There was a need to understand the framework and scope of the investment policy.  There should be full disclosure of who the beneficiaries were. Members said that many complaints were received that when pensioners wanted their benefits upon retirement, they could not get them all and that this regime had to be reviewed so that lump sum payments were enabled.

Members acknowledged the growth of the assets of the GEPF and that the fund was one of the top funds in Africa, but referred to a media article where the writer said that the GEPF was under-funded and therefore needed contingent liability funds. Did the GEPF agree or disagree with this?   Further information was needed on Camac Energy, Kgalagadi manganese mining company, the Independent Media Group, SANRAL and the issue of unclaimed pension funds.  Press reports indicated that over R650m in retirement funds were unclaimed.   Members had written many letters to the GEPF on the matter. Members called for a serious advocacy programme on the implications of the new act dealing with accessing pension funds.

The Government Pension Administration Agency (GPAA) presentation covered the legislative mandate, the funds it administered, where its budget came from, its core operations, how it related to the NDP and the SA economy.

Members said people sometimes went on pension but were then recalled, like retired nurses and doctors. How was this managed by the pension fund?   What was the GPAA administration fee structure in comparison to private pension companies?  Why were staff classified as “professionally qualified” and “academically qualified?”  Whose responsibility was it to pay inflation-related pensions?  Regarding the events in African Bank, what would the position be in the GEPF?   The Chairperson said GPAA should be allowed to give a comprehensive written response to the previous question, although a Member commented that this was not good enough, as the African Bank issue was a hot topic.

Members noted that the GPAA mandate had been expanded to include the military pension fund. Which processes had been followed to amend the mandate?   There was a need to look at the funding model and its impact on the financial status of the fund.   Members said they had many letters from people who had valid outstanding claims, and asked if they could be submitted to the GPAA.   

The Financial Services Board (FSB) provided a background on the mandate of the organisation, and gave a brief overview of what its work was currently and how the twin peaks financial regulatory architecture would affect its mandate.  It also described its current projects, indicated its areas of work to prepare the FSB for twin peaks, and its contribution to the NDP.

Members said the Committee needed a day with the FSB and the SA Reserve Bank (SARB) to deal with twin peaks, both from a legislative and an oversight point of view. They said there were various categories of vulnerable groups like pensioners exposed to “fly by night” operators. Was how mashonisas (informal money lenders) operated relevant to the FSB?  Who monitored lottery and gambling institutions and did they fall under the ambit of the FSB?   Who regulated how much curators earned, as for example in the Fidentia case, because there were instances where very little was left for pension fund members. Did the FSB have effective monitoring systems to anticipate a disaster before it happened?

Members said they had no idea of the organisational size of the FSB, and commented that twin peaks was a most progressive reform intervention, with the FSB moving from a punitive to a corrective institution and assisting people migrating to the mainstream banking system.  Was there a way one could combat the bullying tendencies of foreign rating agencies?  Why did the FSB allow a foreign rating agency to upgrade or downgrade SA financial institutions?  SA’s sovereignty needed to be protected.  Members asked for the FSB’s view regarding the regulation of property syndicates, namely Sharemax, where 32 000 shareholders were drifting.
 

Meeting report

Briefing by the Government Employees Pension Fund (GEPF)
Dr Renosi Mokate, Chairperson of the Board of Trustees and Chairperson of the Investment Committee, said the GEPF was the largest pension fund in Africa and had assets of R1.4 trillion (tr).

Ms Joelene Moodley, Acting Principal Officer and Chief Executive Officer, gave a presentation on the strategic objectives of the GEPF and on the administrator mandate it had with the Government Pensions Administration Authority (GPAA).  Since 1996, there had been a 33% growth in contributing members. The investment mandate was carried out by the Public Investment Corporation (PIC), which was its investment manager. The mandate was subject to investment guidelines set out in the strategic asset allocation which was agreed to by the Minister of Finance.   The GEPF was working to implement a development investment strategy where there was a financial return as well as a social, economic or environmental impact.  The GEPF had received two investment industry awards in 2013.

The Fund was seeking to enhance oversight of its main service providers and this year wanted to roll out a training programme and an ethics programme, as well as a programme to develop trustees.  In 2012, the GEPF had launched its corporate brand.  It recognised that there were rumours around pension benefits circulating among its membership, but had been meeting with the Treasury to find out where the confusion was arising and to communicate more effectively with its members on the issue. The GPAA was its administrator and the PIC was its investment manager. The investments were governed by formal service level agreements.

Mr Hemal Naran, Head of Investments and Actuarial Services, said that in March 2012, assets had been valued at R1.04tr, while liabilities were at R0.1tr.  Salary increases and pensions pay-outs had been estimated at 80% but were running at 100%, and this would be a strain on finances.

Discussion
Dr M Khoza (ANC) said some of the slides presented were not in the presentation handed out. She said there were some important actuarial results from a fiscal oversight perspective. Had the Board reviewed the investment strategy?  She was concerned about the proliferation of municipal pension schemes, with 79 of them serving only 200 000 municipal employees. The way these were managed left much to be desired. Was there any thought of including municipalities into one government pension scheme encompassing all three tiers of government?  What was making GEPF successful?

Mr S Matiase (EFF) said that Government was the main guarantor of the GEPF.  Did that mean that Members of Parliament should serve as board members?   He questioned whether this would not be a conflict of interest, with MPs doing oversight.  There had been media reports that an ANC MP had been the chairperson of the board in the last parliament.  He was interested in where the allocation of strategic assets in equity and bonds were, and what assets were invested offshore and why, because public entities had to be held accountable.  There was a need to understand the framework and scope of the investment policy. With regard to the slide titled ‘approach to developmental investing’, he said there should be full disclosure of who the beneficiaries were. Many complaints were received that when pensioners wanted their benefits upon retirement they could not get them all, and that this regime had to be reviewed so that lump sum payments were enabled.

Mr D Ross (DA) acknowledged the growth of the assets of the GEPF and that the fund was one of the top funds in Africa.  Regarding the rumours, he referred to an article where the writer had said that the GEPF was under-funded and therefore needed contingent liability funds.  Mr Ross noted that there were no contingent liability funds for the GEPF.  The article felt that the GEPF needed reserves of R464billion (bn), but currently it had only R27bn.  Did the GEPF agree or disagree with this?  Regarding the performance analysis, in the category ‘others”, there had been an underperformance of -11.59%.  Was this because it was investment in assets?  He wanted further information on Camac Energy, Kgalagadi manganese mining company, the Independent Media group, SANRAL and the issue of unclaimed pension funds.  Press reports indicated that over R650m in retirement funds were unclaimed. He had written many letters to the GEPF on the matter.

Ms P Kekana (ANC) said the act under way to regulate access to pension funds was meant to encourage savings. It was important for institutions to take the issue seriously, as some public servants saw it as a quick cash in, but in the long run there were other unintended consequences.  A serious advocacy programme on the implications of the new act was needed.

Mr Prabir Badal, Vice Chairperson of the Board of Trustees and Chairperson of the Finance and Audit Committee, said that Treasury was looking at the consolidation of the 79 pension schemes into one. The GEPF was a defined benefit pension fund, while the municipal pension funds were defined contribution funds. To have a single fund, the public service had to be aligned. Once agreement was reached to have a single broad public service, the GEPF could work on determining what rules and changes to the Act needed to occur to accommodate other public servants.  Currently, the GEPF was governed by the law and municipalities fell outside the GEPF’s constituency.  The GEPF had, however, established a task team which had put forward its own vision of how it saw a unified pension fund for all public servants.

Mr Naran said the investment strategy of the GEPF was reviewed when the asset valuation was done, which was currently underway, and also when significant events occurred -- for example, an increase in the membership.

Regarding offshore investments, he said this was done to diversify the fund, as the fund totalled 30-35% of the country’s GDP and the JSE stocks totalled only 1% of all stocks globally.  10% was invested outside South Africa -- half in Africa and half in the rest of the world.

He said the Actuary and the Board determined the contingency reserves.  The contingency reserves were a contentious issue because it dealt with reserves which needed to be held contingent upon an event taking place.

Ms Moodley said, regarding the rumours and the role the GEPF had to play, that the GEPF had met with the Treasury and the GPAA and had begun initiatives to give regular feedback to newspapers and radio stations to give a clear message, as fund  members were confused.  The GEPF was also seeking to appoint brand ambassadors.

She said the GEPF would give comprehensive written responses to all the questions. 

The Chairperson said they should respond within one week. At this point the Chairperson left the meeting for another engagement and Mr D van Rooyen (ANC) took over the chair.

Briefing by the Government Pension Administration Agency (GPAA)
Mr Goolam Aboobaker, Chief Executive Officer and Principal Officer, said that while they had prepared for a detailed presentation they would give only a brief overview, as per the request of the Chairperson. He said the GPAA had dual accountability to the GEPF and to the Minister of Finance. It received its budget from the GEPF and Treasury, with 93% coming from the GEPF.

Mr Jay Morar, Chief Operations Officer, GPAA, said the GPAA was embarking on a programme to improve its data quality, which was not good currently. It was also undergoing a modernisation programme to automate manual processes from paper to digital.  There was a staff establishment of 1 000 posts, with 790 full time employees and the others on a fixed term contact. These latter contract posts would be filled once the reorganisation had been completed.

Discussion
Ms Kekana said people sometimes went on pension but were then recalled, like retired nurses and doctors. How was this managed by the pension fund?

Dr Khoza asked what the GPAA administration fee structure was in comparison to private pension companies. Why were staff classified as “professionally qualified” and “academically qualified?”

Mr Ross asked whose responsibility it was to pay inflation-related pensions. Was it the GEPF or GPAA’s responsibility, or was government ultimately responsible?  Regarding the events in African Bank (ABIL), what would the position be in GEPF?

Mr Van Rooyen said GPAA should be allowed to give a comprehensive written response to the previous question.

He noted that the GPAA mandate had expanded to include the military pension fund, and asked what processes had been followed to amend the mandate. He said there was a need to look at the funding model and its impact on the financial status of the fund.

Mr Aboobaker said the inflation-related increases were the responsibility of the GEPF and Minister of Finance. The question on ABIL was a GEPF responsibility.

Mr Morar said that members in the public sector worked only till age 65. They could return if they had retired before that age.

The fee structure was on a cost recovery basis.   The cost per member per month, excluding capital expenditure, was R37 per month.  Average industry costs were in the range of R35 – R42 per month.

Ms Meyer said public servants were classified as professionally and academically qualified in the public service. The GPAA had used the same definitions to categorise its staff.

Mr Aboobaker, regarding the mandate, said the way the agreement had been signed with the GEPF and National Treasury allowed them to request various types of administrative services from the GPAA so that they were not breaking any laws. The GPAA was not established by law, but by proclamation.  If the municipalities could be brought within the ambit of the GPAA’s operations, the GPAA would welcome it, as it would lead to economies of scale. 

Mr Morar said unclaimed benefits had been R650m, but were currently R477m. There was a process in place to track down and pay out members owed these unclaimed benefits.

Mr Ross said he had many letters from people who had valid claims.  Could he submit these to the GPAA?

He said it was not good enough for GPAA to give a written response on the ABIL issue as it was a hot topic.

Briefing by the Financial Services Board (FSB)
Adv Dube Tshidi FSB Chief Executive Officer, provided some background on the mandate of the organisation.

Ms Caroline da Silva, Financial, Advisory and Intermediary Services (FAIS) Executive, gave a brief overview of where the FSB currently operated.  She said the capital markets were regulated by the Johannesburg Securities Exchange (JSE) and were accountable to the FSB.

Adv Tshidi said the new twin peaks legislation would mean that all prudential activities of banks and insurers etc. would be the responsibility of the SA Reserve Bank (SARB) while all the market conduct activities of the non banking sector would be the responsibility of the new Market Conduct Authority (MCA).

Mr Jonathon Dixon, FSB Executive, added that the MCA would be dedicated to consumer protection through its concern with the business conduct of an organisation and how it treated its customers.

Ms Da Silva said that the FSB would be involved in the licensing and supervision of credit rating agencies.

Discussion
Ms Kekana said the Committee needed a day with the FSB and the SARB to deal with the twin peaks, both from a legislative and an oversight point of view. She said there were various categories of vulnerable groups like pensioners exposed to fly by night operators.  Was how mashonisas (informal money lenders) operate relevant to the FSB?  Who monitored lottery and gambling institutions -- did they fall under the ambit of the FSB?

Dr Khoza asked who regulated how much curators earn -- for example, in the Fidentia case -- because there were instances where very little was left for pension fund members.  Did the FSB have effective monitoring systems to anticipate a disaster before it happened?

Mr Matiase said they had no idea of the organisational size of the FSB. He said twin peaks was a most progressive reform intervention, with the FSB moving from a punitive to a corrective institution and assisting people migrating to the mainstream banking system.  Was there a way one could combat the bullying tendencies of foreign rating agencies?  Why did SA allow a foreign rating agency to upgrade or downgrade SA financial institutions?  SA’s sovereignty needed to be protected.

Mr Ross asked for the FSB’s view regarding the regulation of property syndicates such as Sharemax, where 32 000 shareholders were drifting. There was the dismantling of some institutions and no accountability to investors. Were the FSB aware of the private company called PIC?

Regarding the Fidentia matter, Mr Tshidi said the public perception was that curators were making money in this and other similar cases, such as Cadac. On the Cadac matter, also referred to as the Gavallas funds, FSB was still fighting to get the monies back, but were being confronted by the perpetrators and the media. FSB had been to court for many cases and had won all of them.  In the Cadac case, the fund was deregistered because there was no money in it.  However, one pensioner had approached the FSB and told them the registrar was lying, claiming the monies had been stolen.  R36m had been stolen and given to the employer.  The fund had then been re-registered and put under a contingency arrangement with a court-approved curator. The perpetrators still went to court claiming that regulators were asking for information they should not be asking.  As the FSB was fighting the perpetrators, they were spending money and the perpetrators would claim that the more monies were recovered, the more they were spending. The FSB would not give up the case, because that R36m was now worth R100m.

In the case of Fidentia, monies were taken from a mine workers trust fund. The list of what Mr Brown had done was put before the Cape High Court. He had admitted guilt but had received a sentence that was the equivalent of a slap on the wrist.  The FSB did not agree with the sentence, and therefore the case had been taken to the appellate division. 

On the issue of counsellors not getting paid, this was because of the failure of the trustees of the funds. Trustees -- not the administrators -- had a responsibility to look after the assets of a fund.  Administrators were outsourced to do the work, but it was still the trustees’ responsibility. The FSB had issued toolkits to assist trustees to know what to do.  Many of the problems also came from the GEPF, but the FSB did not regulate the GEPF.

On the control of the rating agencies, he said they were currently dealing with the downgrading of Capitec Bank. They had been in contact with the agencies on the matter. The Act contained one clause on confidentiality. Whenever it was asked of the agency why a downgrade occurred, they would claim confidentiality. The agencies had to inform the entity timeously prior to a downgrade, but the time was not clearly defined.  Capitec was supposed to inform the regulator immediately, but in this case there had been a delay. The matter was serious because it affected the trust people had in the banking industry as a whole. Legislation should ensure control over these matters.

On property syndications such as Sharemax, he said the FSB did not regulate property syndications. His wish was that the twin peaks legislation was passed this year so that implementation would start the following year. He said the FSB had pushed for a clause where no player in the financial sector could operate unlicensed, unauthorised or without permission to cover a broad spectrum, otherwise there would always be players who played within the gaps in legislation.

Ms Da Silva said money lending and gambling did not fall under the ambit of the FSB. 

The FSB was nationally, not provincially, based with one office and 520 staff members, and a budget of R511 million through industry and sector levies.

The Fidentia losses amounted to R1.6bn, and Arthur Brown had spent R1bn before curatorship took over. The FSB had undertaken an audit of the Fidentia curatorship costs. The fees from 2007 till present amounted to R79m including all legal costs, of which R14m were for curators.

Regarding “fly by night” operators, Mr Ross said it was an important issue for the FSB. There were unlicensed or unregistered insurers, like funeral parlours, and the FSB followed up cases as well as doing educational initiatives encouraging these operators to enter the formal financial sector.

Regarding mashonisas, Mr Tshidi said they were not regulated by the FSB, which was why the twin peaks legislation was important.  Mashonisas were abusing garnishee orders.

The meeting was adjourned.
 

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