Government Employees Pension Fund Law; Special Pensions Amendment Bill: discussion

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Finance Standing Committee

19 February 2003
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Meeting report

FINANCE PORTFOLIO COMMITTEE
20 February 2003
GOVERNMENT EMPLOYEES PENSION FUND LAW; SPECIAL PENSIONS AMENDMENT BILL: DISCUSSION

Chairperson
: Ms Hogan (ANC)

Previous meeting on this:
Government Employees Pension Fund Increase: briefing by Department of Defence; Insurance Amendment Bill: briefing Monday 27 January 2003
Relevant document:
Department of Defence Presentation: Recognition of Former Non-Statutory Force (NSF) Service for the Provisioning of Pension Benefits

SUMMARY
The Committee continued their discussion on the financial model for the provision of pension benefits to previous non-statutory force members. It has concerns about the discriminatory nature of the 7.5% payback contribution non-statutory members have to make to the pension fund for years served before 1992 and the banding of service years as used in this model.

Treasury appealed that the Committee not delay the Bill but the Committee insisted on further information.

MINUTES
The Chairperson commented that the first issue on the table was the legal status of the Committee's ability to influence the collective bargaining agreement. She added that they are being asked to pass a Bill without knowing the exact details of the agreement and its rules. She proposed looking at the rationale behind the agreement; especially those issues that the Committee believed could be construed as discriminatory.

Ms Taljaard (DA) enquired whether enough legal attention had been given to Parliament's oversight role. She also wondered what the status of the schedule is. (Schedule 5 in the Bill contains the mathematical options explored for the distribution of pensions.)

Mr Smuts (Legal Advisor, Treasury) replied that Parliament can legislate on the schedule but questioned the wisdom of this from a policy perspective. He suggested asking the bargaining council to reconsider their decisions.

The Chair stated that the question is whether this Bill is complete enough at this stage.

Mr Maritz (Chief Director: Pensions Administration, Treasury) reiterated that what had been brought before Parliament are the enabling clauses. He added that all the mathematical formulas are contained in the rules of the agreement and not in the legislation.

Mr Smuts added that as there are currently no board of directors (until then the Minister of Finance acts in their capacity), the rules cannot be finalised and until then they cannot be seen as discriminatory.

The Chair reiterated that she is not sure what parliament's oversight role is on the agreement reached in the bargaining chamber. She wondered what powers of oversight they have when directed to pass legislation about which they have concerns that it may be discriminatory. She was also worried about interfering with the board's work. Basically they had two options:
- not to pass the legislation or
- ask the powers-that-be to go back and find some kind of solution.

She proposed that they first satisfy themselves how happy or unhappy they are with the actual agreement. She listed their biggest concerns with the agreement:
1. The 7.5% payback contribution non-statutory members have to make to the pension fund for years served before 1992 (while the state contributes 15%). The Committee wondered whether this is not discriminatory and whether the state should pay this instead. They were also concerned about those people who are retiring immediately and do not have any years of service left to pay off the contribution.

2. The banding used in the model.

3. The actuarial interest accumulated according to the bargaining agreement. The Committee needed more clarity on this concept.

Ms Taljaard asked whether the departments could come up with complete figures for costing implications for the different options in the model.

Ms Joemat (ANC) enquired whether any packages have been offered in the past and the details thereof.

Ms Mabe (ANC) asked for figures on women and whether they earn lesser packages.

On the issue of those retiring now, Mr Maritz commented that for these retirees a lump sum would be deducted from their gratuity.

In reply to Mr Nene (ANC) asking whether the lump sum would be tax deductible, Mr Maritz said that it would not.

In asnwer to Ms Joemat (ANC) enquiring if any packages had been offered in the past, Mr Maritz said that NSF members did not qualify for packages offered in the past.

The Chair asked why they did not qualify.

Mr Motumi (Deputy Director-General: Policy and Planning, DOD) told the Committee that NSF members did qualify but that they had to contribute for 10 years to get the employers contribution. He clarified that this option was too expensive and not feasible for NSF members.

The Chair remarked that they have to see the figures of the salary scales and different scenarios to get a better idea of how much members will have to pay in.

Ms Mabe again stressed that they wanted to see figures for women also.

Me Maritz acknowledged that before 1996 there had been inequality but since then women are paid the same.

The Chair enquired about the rationale behind the banding of number of years of service.

Colonel Zobane (Department of Defense, DOD) said that they were given a R501 million ceiling with which to make their calculations. She added that Cabinet had approved the option currently on the table. She stressed that the age distribution of the members guided their banding structure.

The Chair wondered why they did not use the exact number of service years for their calculations rather than banding categories. She gave the example of someone who had worked for 10 years would get recognition for 8 of those 10 years while according to this model someone who had worked for 9 years, would only get recognition for 2.7 of those years of service. This is a huge difference and is seen as discriminatory by the Committee.

Ms Taljaard asked the Treasury to produce figures showing the population density of the different bands and figures for age spread.

Ms Joemat asked for figures showing the financial implications if the breakdown was done according to actual years of service.

Ms Taljaard asked whether other options have been explored. She asked the Treasury's what its thinking was.

Deputy Finance Minister Mphahlwa commented that he was not convinced that sending this back to the bargaining council would change anything. He contended that "discriminatory" was too strong a term to use. He added that this type of agreement was commonplace in South Africa. He stressed that the Committee must recognize the complexities that will arise if they send this Bill back.

The Chair asked what it would cost if everyone was reimbursed for 100% of their service years.

Mr Maritz stated that this would cost R1.2 billion (and they only have R501 million available).

Brig van Schalkwyk (DP member of Joint Defence Committee) brought to the Committee's attention that there are veterans who had served in the SADF who did not have an opportunity to contribute to a pension fund before 1992 because they were not white. He said that this has been brought to the Minister's attention.

Col Zobane replied that they are aware of these cases but that short-term contract workers do not qualify for pensions.

The Chair reiterated that they needed to see more detailed figures (of the other available options) to get a better understanding of this agreement.

Meeting adjourned.

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