Revenue Laws Amendment Bill [B4-2016]: public hearings; Treasury, COSATU, ASISA submissions

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Finance Standing Committee

03 March 2016
Chairperson: Mr Y Carrim (ANC), Mr C de Beer (ANC, Northern Cape)
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Meeting Summary

Co-Chairperson Mr Y Carrim (ANC) read out a statement, which drew heavily from the November 2015 Report of the Standing Committee on Finance to the National Assembly, on behalf of the Standing Committee. This statement mainly dealt with allegations that there had been insufficient or no consultation by that Committee while processing the Taxation Laws Amendment Bill 2015. Furthermore it pointed out that several engagements took place between National Treasury and relevant parties in NEDLAC, but the Committee could not comment on the quality of those engagements. It also urged the executive to produce the comprehensive Social Security Reform Paper, which was critical to the present process. The point was made that the history of the matter was well understood but it was now necessary for all parties to consider the current Bill, which dealt with a number of similar proposals, but also with some changes, and move forward.

Following the statement Mr D Maynier (DA) alleged that a representative of the Congress of South African Trade Unions had deliberately been dishonest in stating that there had been no consultation by Parliament. The Co-Chairperson ruled that COSATU did not have to respond to the allegation. Later, however, he repeated that assertion and, when he refused to retract it, was asked to withdraw from the meeting, for not retracting an unparliamentary statement.

National Treasury then briefed the Committee on the Bill, setting out the background events leading up to the present point and stating that it was open to engagements with all stakeholders towards resolution retirement reforms. Further, it indicated the salient issues around the reforms proposed. It stressed that no nationalisation of retirement savings was proposed and that the annuitisation requirements were in fact enacted by the 2013 Taxation Laws Amendment Act, which came into effect on 1 March 2016. The clauses were described, with National Treasury stressing that effectively the Bill was a one-liner because it simply changed the effective date of the sections dealing with annuitisation, to 1 March 2018, and the only substantive change was a technical correction to the deemed value of a contribution for defined benefit members, such as for members of the Government Employees Pension Fund (GEPF). A previous Taxation Laws Amendment Act had deemed a value for the fringe benefit for the employer contribution, based on the benefits members get out of the provident fund, similar to deeming values for company cars. There was a slight technical error which limited the value of the deduction one could get, which means that inadvertently some members of defined benefit funds would pay more tax. This was never the policy intent and the deduction was supposed to be the full value of the fringe benefit.

National Treasury also indicated that the clause requiring the continued consultation over the next two years and the tax deduction for provident fund members remained in the amendments, but warned that if there is no resolution of the annuitisation, within the deadline, the retirement fund industry could be exposed to avoidance schemes exploiting the deduction. It announced the increase of the limit on the lump sum which could be withdrawn to R247 500.

Members asked for clarity on the ability of people to transfer funds between various kinds of retirement funds, and the taxability of those withdrawals, and it was stressed that a person could withdraw a portion of a provident fund tax free and pay to another pension fund, pension preservation fund or annuity, but not the reverse, because a person withdrawing from a pension fund would have to pay tax on the withdrawal according to the tax tables.

The Co-Chairperson stressed that the Standing Committee had required National Treasury to have a  massive consultation and engagement process in collaboration with the unions and civil society, in all languages, and he said that whatever the outcome in Parliament, and whatever people thought of annuitisation proposals, that must still be done, to allay fears about retirement reforms. The point was made that all parties recognised the need for preservation of savings wherever possible.

The Congress of South African Trade Unions (COSATU) and the Association for Savings and Investments South Africa (ASISA) made submissions on the Bill. COSATU indicated that it wished to leave the past in the past and wanted to engage towards a solution. It was very concerned that the social security reform papers still had not been published, because this was critical to it obtaining a mandate to discuss retirement reform. It objected to having annuitisation of workers’ deferred remuneration imposed by government. The reasons included the point that this was workers' own money, and that people often found themselves in difficult circumstances where they needed a lump sum pay-out on retirement. It was also objecting to the proposed postponement and preferred the annuitisation sections to be “expunged”. It also dealt with the notion that working people do not have a saving culture and the risk of an increased burden on social grants without annuitisation.

ASISA made a plea for certainty, because the rebuilding and unbuilding of systems cost money which was not good for reducing charges. Its members were generally in favour of the retirement reforms proposed by National Treasury as they would facilitate a streamlined and rationalised retirement sector. Further, it would allow for the consolidation of the various types of retirement funds if they were governed by similar rules. It understood the need for compromise and therefore accepted the postponement of the annuitisation sections.

Members questioned whether COSATU was opposed to annuitisation in principle or whether it would be prepared to discuss the percentages that could be taken out as a lump sum, examining where there might be scope for engagement. COSATU responded that it would not be able to give a position, until it had considered the Social Security Reform Paper. The Co-Chairperson then proposed that all interested parties work out some form of compromise between total removal of the annuitisation sections and postponement. National Treasury, COSATU and ASISA all indicated their willingness to engage in such a process. The timelines were discussed and the point was made that any proposals could still be made to the Committe right up to the time of voting on the Bill. The deadline would be 7 March 2016.

Meeting report

Revenue Laws Amendment Bill : Public Hearings
Chairperson's introductory remarks

The Co-chairperson said as the Committee is trying to expedite this Bill, there will be a briefing from National Treasury (Treasury) and public hearings afterwards. First he wanted to read a statement, because people had been raising matters regarding the Standing Committee on Finance’s report to Parliament. The DA had been courteous enough to phone him to say the sweeping claims being made in the media that Parliament was not doing its job regarding consultation were wrong and that it would issue a statement to that effect. Others have raised the point that these reports reflect badly on the role of Parliament, whatever the differences may be with a stakeholder.  He then proceeded to read a statement, in his capacity as the Chairperson Standing Committee on Finance, which he had drafted and which is consistent with what the majority party discussed in two study groups. This statement was as follows:

“The majority in the Committee welcome the decision by government to seek consensus on the annuitisation aspects of retirement reform and the request to Parliament to consider some amendments to the Bill we passed in November regarding this. We have to however respond to sweeping comments made about the Parliamentary processing, as against, the government processing of this Bill. We refer in particular to the report we tabled in Parliament on the Bill on 25 November 2015. Among the more relevant aspects of the report include the following: the Standing Committee on Finance requested stakeholders and the public to comment on the latest amendments. Written submissions were received and a public hearing was held on 10 November 2015. The majority of stakeholders supported the amendments. The Chairperson of the Committee also facilitated further engagements outside of the formal sittings of the Committee with stakeholders who did not agree with the amendments, and National Treasury. Besides the Committee’s engagements with stakeholders and the public, National Treasury reported to the Committee that it had also engaged with stakeholders before and after the Bill was introduced to Parliament. In the case of the retirement reform amendments, these consultations, according to National Treasury, have been taking place since 2012 including through NEDLAC, even though finally there was no agreement in NEDLAC on the tax harmonisation and annuitisation amendments.”

He wanted to stress that whatever happened between Treasury and Congress of South African Trade Unions (COSATU), the fact is Treasury came before the Committee and said there was no consensus in NEDLAC. He had checked with the Parliamentary Legal Advisors and there is no law which requires consensus in NEDLAC before Parliament can proceed with a Bill. The Committee must make this clear so it does not recur.

The Co-Chairperson then continued to read the statement:
“The Committee is unable to tell about the quality and depth of these negotiations, but that there have been negotiations is clear to the Committee. The Committee did everything possible under difficult circumstances to try to get consensus on these amendments and it deeply regrets that it was not able to. Treasury has provided evidence that those aspects of the amendments which the Congress of South African Trade Unions disagrees with requiring annuitisation will begin to come into effect after five years or more for most workers. The Committee has amended the Bill to require the Minister to review them, through consulting further with stakeholders and reporting back to Parliament by 20 June 2018… Given the levels of indebtedness, the Committee is excruciatingly aware about how strongly workers feel about access to their provident funds and has urged Treasury to embark on a massive campaign to engage with workers and their representatives.”

He noted that the last part, entitled “Massive Communications and Engagement Programme” of the report deals with how the Committee refused to vote on the Bill until NT came forward with a proposal. What he subsequently gathered was that they intended to begin this from the beginning of December, but certain events happened on 9 December 2015 and this led Treasury to not get things done in the intended manner.  

The Co-chairperson continued his statement:

“The Committee believes that the Comprehensive Social Security Reform Paper, which has been on the agenda for more than ten years, needs to be finalised and urges government to ensure the paper is published as soon as possible. National Treasury has made it clear that the retirement reform amendments are consistent with the pending paper. The Committee did in fact have public hearings, did in fact get a report from National Treasury on the NEDLAC process, did in fact say it could not judge the quality of the NEDLAC negotiations and did in fact, over a further two weeks, foster discussion with parties opposed to annuitisation. Perhaps the Committee could have done more to ensure public participation and foster consensus, but it seems to us not much more.” 

He felt that Parliament has to defend its integrity and has to account, because many people have raised the matter, particularly as government was having sensitive negotiations with COSATU, with the Presidency being involved. The matter should be done now, with Parliament’s position on record, and he pleaded that the meeting not get caught up in the past. The Standing Committee had rejected the “conveyor belt” approach to public consultation, it held public hearings almost right up to the Bill being voted upon. He did not think the Committee could be accused of failing in its duty to consult. Perhaps it could be accused of failing in its duty to be more sensitive to some of the issues at stake or to understand some of the complexities from the point of view of those aggrieved by annuitisation, but he did not think it fair to charge the Committee with lack of consultation. He noted that the bulk of his statement came from the Committee’s report to Parliament, with only two paragraphs added. He asked Members to avoid fighting about whether there was consultation or not, and rather seek consensus.

Mr D Maynier (DA) said the Committee does need to get on, but the Co-chairperson has set out that there has been a consultative process in the executive, whatever its merits. Equally the Co-Chairperson has pointed out that there was an extensive consultation process, both inside the Committee and outside the Committee. To cut to the chase, COSATU lied to the public and he would like an explanation from COSATU as to why it lied, and given this fact, it should also apologise and own up. He repeated that there was extensive consultation, both inside the Committee and out.

The Co-Chairperson said that the whole idea of reading the statement was to cover all flanks and he had anticipated that these issues will come up. To be fair to the DA, it had phoned him indicating that it would be issuing a statement, because someone had said over radio that there were no public hearings and the matter was getting worse. He did not think there was a need for that. There is a need to establish some form of stability. The Committee is not a court or in an investigative position and it would have to find out whether COSATU did actually lie, whether it was misinformed and if the person who said that had the mandate of the officials to make those comments. When people are emotionally challenged and aggrieved, anyone could say sweeping things. He did not think COSATU had to reply, although that is Mr Maynier’s view, but it may. He did not think Mr Maynier was helping anyone, because the statement had covered the entire Committee.

Mr Maynier said he wanted COSATU to be honest. 

Ms T Tobias (ANC) said Members have a choice whether to take responsibility as leadership in the country. An important decision was taken to revisit the process, which is why Members were present. This decision was taken, regardless of the differences in the past. All Members agreed that the meeting would be held for further public hearings and all stakeholders would be given an opportunity. She asked for the meeting to stick to the agenda, receive the submissions and engage with them.  COSATU could respond that they did not say that, and then newspaper clippings and justifications would have to be brought up, which will not be of any help. The Committee’s responsibility is to look at the challenges and, where there are differences, there needs to be agreement in principle.

Ms D Mahlangu (ANC) also requested that the response should not be given now and that the meeting should proceed in line with the agenda. She was unsure what Mr Maynier was trying to do, because there was a platform for that in the House. The Co-Chairperson has presented the statement on behalf of the Committee and Members should behave in line with that.

The Co-Chairperson said the Bill would be referred to the Select Committee on Finance, after the debate in the National Assembly, and be before the NCOP plenary on 15 March 2016.

The Co-Chairperson said the point was mooted whether, since Parliament had called off sittings today, the present meeting should also be called off. However, the Committee could not, because these are public hearings and they must be finished before the rising of the House from this quarter. If there was no sitting the following day then the Committee will not be able to vote and the National Assembly will not be able to vote the following Wednesday. He asked for a brief explanation of the relationship between NEDLAC processes and the legislative process.

Adv Frank Jenkins, Senior Parliamentary Legal Advisor, said  NEDLAC replaced a pre-1994 body and its purpose is to be a consensus-seeking body between government, organised labour and business. The emphasis is on “seeking” and therefore actually reaching consensus is not critical. What is critical is that the executive has taken it upon itself to process any labour legislation through NEDLAC, before bringing it to Parliament. This applies equally to socio-economic policy. It is not a legislative requirement for Bills to go through NEDLAC, from Parliament’s perspective, but when it comes to labour legislation, that is the case. Furthermore, tax matters which have policy implications relevant to NEDLAC should be processed by it, and it has the power to report on whatever comes before it. NEDLAC reports to the Minister of Labour and it is incumbent on that person to bring NEDLAC’s reports on legislation or policy before Parliament. Parliament does not have official standing to sit in NEDLAC or make representations, because it is managed as an executive organ of state. 

The Co-Chairperson said there is a grey area about what happens if a written or verbal report is required. If there is no consensus, must there still be a report detailing when NEDLAC met and that there is no consensus? The Committee should set some time aside and consider an opinion from Adv Jenkins, because it is not very clear what happens to a report from NEDLAC.

Ms Tobias asked for part of Adv Jenkins’ opinion to explain whether an absence of consensus in NEDLAC can prevent a Minister from bringing legislation to Parliament.

Adv Jenkins said the aim is consensus seeking, so if there is no consensus and the legislation has gone through the deliberative process in NEDLAC, it can come to Parliament.

The Chairperson recalled a number of Bills on which there had not been complete consensus, but which were still processed.

Ms Tobias said that was how she understood consensus seeking, which speaks to consultation, but not necessarily to agreement. This deals with the perception that there was not enough consultation in that context. The Committee worked from the position that there had been engagement at the NEDLAC level.

The Chairperson said of course it would be preferable if there could be consensus. However, there is nothing stopping Parliament from agreeing with the aggrieved party, but it cannot stop a Minister from bringing a Bill.

National Treasury (NT) submission
Mr Ismail Momoniat, Deputy Director General: Tax and Financial Policy, National Treasury, said NT seeks a way forward with the existing retirement reforms and does not think we should dwell on the past. The focus should be what is best for members of retirement funds, which is in line with treating customers fairly. Further, retirement savings of members must be and be seen to be safe and protected at all times. This is a matter close to the hearts of people who have saved, meaning confidence and trust are quite important. Not unlike the banking sector, people want to know their retirement savings will be safe and that the commitments made by the fund would materialise over 50 years, so the fund could not go insolvent  over that extended period.  NT would like to strive for a united message with all key stakeholders, because when there is no consensus there is a lot of suspicion. If there are public attacks on each other’s integrity, this creates a lot of confusion on the ground and does lead to perverse results, like resignations. While there will be differences and criticism, he urged that all parties should be constructive in criticism and focus on solutions. When there is a situation in the retirement space, panic could easily be caused.  NT is open to further enforcement, and said that there would always be differing views because any rules would be out of line with certain people’s personal objectives, but certainly there will always be a role for the state and all stakeholders. Such engagements must be clear and lead to timely outcomes. From NT’s perspective there is a lot to be reformed in retirement. NT has long felt this has been a very considered process and it believes there are many bad practices which exist, including high charges, poor communication and poor governance. Often the faults are not with one party or the other, but rather exist across the board and not all were doing as they should.

Mr Momoniat moved on to a brief history of the laws on annuitisation and the tax harmonisation which was passed in 2013. The 2014 Taxation Laws Amendment Bill (TLAB) postponed it by one year and the 2015 Bill only refines some coverage issues. It only touches the annuitisation by increasing the so called de minimus, which would have stood at R150 000 and was now increased to R247 500. Even if the 2015 TLAB had not been signed into law, the annuitisation provisions would still have been law, enacted by the 2013 Bill. Therefore, calls to scrap the 2015 TLAB, such as in the NEDLAC section 77 processes, would not have dealt with the concerns that various parties had.  The Committee’s report of 25 November 2015 spelt out a lot of the issues around consultation and he wanted to move away from those issues. The report did also cover what was done, the meetings which took place and NT  coming to Parliament to state that there had been no consensus. The draft TLAB last year did not deal with the above issues, but when the Bill was tabled NT presented two options. One of these was to delay annuitisation, but this was discussed thoroughly by the Committee and the report which it issued is a good summary. He would recommend that anyone who wants to know the facts should read this report.

Mr Momoniat turned to the post-enactment events. Firstly COSATU expressed its strong opposition and other unions followed. COSATU then launched a section 77 notice indicating intention to strike, unless the issues were dealt with. Initially COSATU was calling for the total scrapping of the legislation, but the demands became more refined as time passed. The other unions followed, with NUMSA, NUPSAW and AMCU filing section 77 notices. National Treasury therefore faces four section 77 notices in NEDLAC. There are those unions who continue to favour the legislation such as FEDUSA, BUSA and NECTU. The fact that there was strong public opposition and differences ignited fears, leading to people resigning and cashing out their retirement savings. That brought him back to  the point that when it comes to retirement it is better to argue behind closed doors, so that when communication is made with the public it does not scare them. Even if the intention is not to scare people, strong differences tended to do so. Government was concerned that there was not enough consensus to deal with all of the open public statements. Government convened several meetings with NEDLAC labour constituents and several bi-lateral discussions have taken place. Cabinet, on 17 February, announced a two year postponement of the provident fund sections and Treasury issued a statement titled Tax Benefits Continue, Annuitisation Postponed. This announced the approach which NT would take and guides the Revenue Laws Amendment Bill (RLAB or the Bill) before the Committee. The very long delay and continued non-publication of a Social Security Reform Paper (SSRP) has led to government committing to getting it published. The Minister, in the Budget Speech, spoke about it being published in the first half of the year.

Mr Momoniat said he would not speak to the stakeholders' views in depth, but NT had not seen anyone’s draft comments. The sorts of concerns raised included the SSRP still not being out. Some parties regarded annuitisation as a form of preservation, but he would like them to speak for themselves. He did want to deal with some misconceptions the Co-chairperson had mentioned, but many people felt that there had been no hearings last year. NT had to remind people that the President signs every law of the country into effect and these obviously come from Parliament. This meant that there has been some process and he found it strange that he had to talk to people about the normal parliamentary process. There is certainly a misconception that no meetings took place in NEDLAC, whereas in fact many meetings took place.

The Chairperson interjected to remind him that these points had already been covered and Treasury itself was asking to move forward, so he asked him to move on to the main point.

Mr Momoniat continued that there was also a lot of confusion coming from the media and some noted publications have gotten the law wrong. Therefore, the confusion had been quite broad. He was raising these misconceptions, because it is important to sort them out.

Mr Momoniat turned to the salient facts. Many people thought government was going to take over their retirement funds, and this was not true. The Government Employees Pension Fund (GEPF) was not affected and therefore there was no point in people resigning. The new law does not amend the pre-retirement preservation story, in the sense that anyone who resigns can still cash in their retirement savings, whether it is a pension or provident fund. NT would obviously strongly discourage that, but the possibility existed if people wanted to do that. NT did feel that the matter of preservation needs to be dealt with, throughout further consultations over the next two years. Going through the section 77 process, there were many contradictory views coming through, which made it quite difficult to craft a way forward. For example there were those who strongly argued that there is no role for the state in dealing with retirement funds, even when it is pointed out that when people have enjoyed a tax deduction which incentivises saving, meaning there should be some role for the state. There has also been strong views expressed for pretty radical economic policies, yet some would draw on the Conservative Party example in the United Kingdom which phased out annuitisation. There has also been strong opposition to preservation, although many agreed that people at retirement are open to opportunistic “financial advisors”.

Mr Momoniat spoke to the demand that the 2015 TLAB be scrapped. He reiterated that scrapping any TLAB is in effect a rejection of the taxation proposals in the Budget. Although, there is a separate Rates Bill, this could lead to funding problems and allow existing tax abuses to continue. He was not even sure that “the egg could be unscrambled” in certain instances. The present Bill tries to emphasise that the concern has been annuitisation, so the proposal which the Minister of Finance put forward in his 18 February statement was to postpone the requirement for provident fund members to purchase an annuity for two years. Furthermore, the tax deduction would also be given to members of provident funds, in the same way it is given to everyone else. This was the major proposal of the RLAB. The point the Minister made was that if there is no agreement on annuitisation, whatever form it may take, after two years, then the deduction will have to stop because otherwise it would open up the entire retirement sector to massive leakage from pension funds to provident funds. The Bill also extended the vested rights that were in place up to 1 March 2016, for another two years.  It also helps to ensure that the problem of transfers does not have to be dealt with as NT wanted more mobility between pension, provident and retirement annuities, but tax free. There are tax provisions which have been in the system and they will continue to apply.

Mr Chris Axelson, Director: Personal Income Tax and Savings, NT, took the Committee through the six clauses of the Bill.

Clause 1 is very long, but it is restating the paragraphs in the definitions of the different types of retirement funds, and then changing is the date of 1 March 2016 to 1 March 2018, at lines 41, 47, 55 and 58 of page 3 of the Bill. Changing the vested rights to a later date is why the Bill could not simply be one line. Clause 1(a) is for pension funds and clause 1(b) is slightly different, because there are a few different clauses for provident funds. Clause 1(c) is for provident funds, 1(d) is for provident preservation funds and 1(e) is for retirement annuity funds.

Clause 2 started on page 7, where NT made a technical correction of the deductions which would be allowed for the fringe defined-benefit contributions. This is an important technical correction. In respect of the deemed value of a contribution for defined benefit members, such as for members of the GEPF, the previous TLAB deemed a value for the fringe benefit for the employer contribution, based on the benefits members get out of the fund. This had been similar to how values are deemed for company cars. There was a slight technical error which limited the value of the deduction one could get, which meant that inadvertently some members of defined benefit funds would pay more tax. This was never the policy intention and the deduction was supposed to be the full value of the fringe benefit.

Mr Momoniat said this is the only provision which had nothing to do with the postponement, and had been included because some of the payroll administrators and pension funds had approached NT for clarity.

Mr Axelson continued that clause 3 deletes the paragraphs dealing with vested rights in the previous Bill, that is paragraphs (p), (t) and (z) The rest of the paragraphs (k), (l), (o), (w), (x) and (y) are postponed until March 2018. These deal with a variety of things including excluding the GEPF, removing “provident fund” within the definition of pension funds, and would not allow tax free transfers into pension preservation funds or provident preservation funds. Furthermore it does not allow some other types of transfers. NT, having removed annuitisation, did not want pension fund members transferring to a provident fund, allowing them to suddenly get their whole fund in a lump sum, tax free.

Clause 3(c), which deletes subsection (8), deletes the two year review which the Committee requested in the final version of the 2015 TLAB.

Clause 4 is a postponement of tax free income from compulsory annuities, which means that if a person who was a provident fund member made a contribution above the limit, it was taxable. If a person was forced to purchase an annuity, the income to be received on that annuity would be tax free. Because NT is no longer forcing provident funds to annuitise, this provision can be delayed by two years.

Clause 5 deals with the tax free transfer element that was under paragraph 6 of the second schedule to the 2015 TLAB. That stated that a person cannot transfer, tax free, from a pension or pension preservation fund to a provident or provident preservation fund; this can only be done in two years.

Mr Momoniat said the only one line clause of the Bill was clause 6 which gives the name of the Bill.

The Chairperson said he realised that his statement at the beginning of the meeting was a waste of time. He asked the meeting to focus on the issues and move forward.

Mr Axelson said it was also important to look at what was not included in the Bill, such as the delay with the tax deduction and all the tax amendments which go through. This was because of the administrative difficulty of changing every employer’s payroll to deal with new tax deductions on employer contributions. NT has also still allowed the de minimus to be increased to R247 500, but the previous Bill's provisions were not deleted.

Mr Axelson said there are advantages including no late changes for employer’s payrolls, and members should still get the tax advantage up front. Further, there is the possibility for continued engagement to get to the bottom of the issues around annuitisation and potential solutions. The disadvantages are that even more confusion has been created and the pension fund administrators, because they cannot annuitise, have to go back to their old rules, even though a lot of them had already tried to move towards annuitisation. The big risk is on the tax deduction side, because if it is allowed but  in two years there is still no agreement, the entire retirement regime is put at risk. That cannot be allowed to just continue, because provident fund members will get a full tax deduction and pension fund members will be forced to annuitise. The country would have to deal with that point within the two years, and the preservation outcomes should not be allowed to arise.

Mr Momoniat said NT wanted to point out that there are certain risks and stressed that agreement needs to be found within the two years. The other urgent reforms which are still being processed, like default rights, are the first steps to lowering charges and correcting market conduct. NT hopes to proceed with these. NT has heard concerns about whether annuities deal effectively with widows and beneficiaries. NT wants to help members who are retiring to provide in-house annuities. All retirement funds must provide mandatory financial advice when members retire, so that these members know exactly what their life circumstances are and can make a decision. Government also intends to offer retail bond linked annuities. NT has heard the concerns about the means test for the old age grant, so that it can be fast tracked for those who save.

Mr A Lees (DA)wanted to speak to vested interests and transfers between retirement funds towards rationalisation of the industry. He asked if those vested interests are not going to be lost if these transfers happen. Even if the RLAB is put aside, there was some concern about the loss of vested interest where provident funds amalgamate. He commented, in relation to the tax deductions for the provident fund contributions for the next two years, that NT correctly says it will be an issue, but he would suggest that it was an issue now, not only after two years time. He thought it completely inequitable that people get a tax deduction for the next two years and can take their money out before that two years is finished, without any tax implication. This is not right. He asked why the Minister and NT are not proposing that that benefit also stop for two years. He was not clear about the mechanism to stop pension funds being transferred into provident funds to get the benefit of tax deductions and tax free lump-sum withdrawals.

Ms Tobias asked for clarity on the issue of age, asking for confirmation that a person over 55 years one does not have to annuitise under the new Bill.

Mr Axelson said the vested rights, or the ability to take an amount as a lump sum, will only need to be implemented from 1 March 2018 when provident fund members would be finally required to annuitise. If they make any transfer before that, it can still be taken as a lump sum. If, after that, they transfer to a pension fund or pension preservation fund the new vested rights will mean that any amount in the account on 1 March 2018 and any growth on it can still be taken as a lump sum when the member retires. Therefore, it should be slightly beneficial. A person aged 53  will not have to annuitise anything. From an administrative perspective it would have been a huge issue for every employer in the country, to remove the tax deduction  less than a month before it was to be implemented. 

Mr Momoniat said that the fact of having no time was a big factor. However, on the flip side, the current employer contribution was a non-taxable fringe benefit. In a sense the taxpayer would be getting a tax deduction on that portion and at higher incomes people would structure their packages to mean that their employers make the entire contribution. Lower income earners worked the other way, contributing more than their employer. If the tax deduction was not given on the employer contribution it would create a lot of hardship and would be destabilising socially. Stopping a tax deduction which people are already getting would require time. A similar issue will be faced in two years if there is no agreement and people will have to get used to a lower take home pay, because the tax will then kick in. This is both an issue for now and will be an issue in 2018, assuming no agreement.

Mr Axelson spoke to how to achieve the stopping of transfers. At the moment if a person was in a provident fund and would like to transfer to a pension fund, he or she would withdraw and pay tax on that withdrawal. The new Bill would make t easier for everyone to transfer between the different funds, so that hopefully there would be amalgamation of funds. NT has now taken the ability to transfer tax free and the barrier remains.

Mr Lees asked if a person could transfer from a pension to a provident fund.

Mr Axelson said he did not think a person was allowed to transfer from a pension to a provident fund, because then the lump sum withdrawal would apply. He explained the age 55 issue. As previously structured, the law meant that a person who was 54 on 1 March 2016 would be able, when reaching retirement as a provident fund member, be able to withdraw anything in that fund, even future contributions. Now NT is proposing that if a person is below 55 on 1 March 2018, then the same will apply and that person can take the full amount. The person will still get the tax deductions for 10 to 15 years and can take the lump sum. This was done because NT did not want people to change their plans so close to retirement.

A Member asked whether there are any implications for the fiscus.

Mr Axelson said the big revenue implications are on the tax deductibility side, because there was a  tax deduction for employee contributions to provident funds, capping the contributions at R350 000. As this had all gone through, it was already part of National Treasury’s forecast.

Mr Momoniat said Annexure C of the Budget Review showed that there is a figure of about R26 billion for deductions on retirement savings. The tax expenditure table also set this out.

Ms Tobias followed up on the previous question, asking what would the fiscal implication be, now that it has been decided to postpone the annuitisation section, if people decided to cash out their pensions. She gave the example that before 2018, 500 000 people might decide to resign, who are provident fund members, and all decide to take lump sums. The country would have preferred to make certain investments for government’s plans in the outer years. Further, she was worried about the social implications of encouraging people to cash in their pensions, as this may lead to more people being back on social grants. She asked if there was a way to calculate the impact of such decisions?

Mr Momoniat said NT had tried to design things  to avoid a “cliff effect”, so even if a person was 54 on 1 March, all the person’s savings were a vested right under the old rules. It was only the new savings, and for a person of under 55, that would fall into the annuitisation net, and those must also surpass the amount of R247 500. There was never a situation that, after the deadline, the entire amount saved in a retirement fund had suddenly to be annuitised. That was why there was no need for people to worry about withdrawals. The cost is harder to measure, but the reality is that people who cash out are in any event hardly ever likely to have enough money when they retire, for their income, and they will be dependent on their families or the state. NT’s message has been that people have to get used to the concept of a monthly income, even past retirement, and this is what annuitisation is.

The Co-Chairperson said it would be recalled that the Committee did want a massive consultation and engagement process  with the unions and civil society, and that must be done in all languages. Whatever the outcome in Parliament, that should still be done, and whatever people think of the concept of annuitisation. The common interest is that all workers must be informed and they should not resign because they feared their money is going to be “nationalised”.  Parliament should also get involved with this and the Committee should put it in its report. COSATU had said in one of its statements that the fears of public sector employees was unfounded.

The Co-Chairperson acknowledged the receipt of written submissions from various parties.

Congress of the South African Trade Unions submission
Mr Bheki Ntshalintshali, General Secretary, COSATU, wanted to move from the statement made that the focus should not be the past, but the way forward. COSATU would not respond to some of the questions raised, save to say that COSATU abided by the issues already raised. This is not why COSATU was invited and at an appropriate time, it would respond on that if invited to. COSATU also wanted to take NT’s point that it is seeking ways on how to respond to the broader issue of retirement reform, the fact that everyone wants to see their savings protected and that getting across a united message is important. This would avoid the public attacks and reputational damage which has happened in trying to deal with this issue. COSATU is looking for open engagement and agrees that whatever is done, the issues of integrity and giving confidence back to the public discourse are very important. COSATU would not deal with who is right or wrong, because this is history and has been recorded as such. The matter has now been put into the public space and there is a disagreement about the processes involved, whether there had been consultation and the quality of that, but the important point was to consider the way forward.

Mr Ntshalintshali said COSATU had certain objections and there is a process on the table now, in an attempt to address the concerns and objection to compulsory annuitisation. It is now looking at the proposal that the provisions be postponed by two years.

COSATU confirmed that the proposal of postponement is not new, and had been done in the past, with the understanding that retirement fund reform could not be done in isolation from the SSRP. The SSRP has been requested for the past 15 years. The SSRP is not the sole responsibility of NT, sod the Department of Social Development should be the lead Department, as this is not solely a tax law issue. COSATU has been told that Cabinet has mandated the two Ministries to co-chair the interdepartmental forum, with the aim of presenting the SSRP at NEDLAC. COSATU understands that Parliament is not limited by the absence of agreement in NEDLAC, but that process should not be taken as simply going through the motions. Consensus must be sought and a report produced, according the NEDLAC Act and its constitution, not solely for the Minister of Labour, but the relevant Minister. This would be separate from the annual report which is tabled in Cabinet by the Minister of Labour. COSATU is not debating that Parliament is entitled to pass laws regardless of NEDLAC, but wants to stress that there must be proper consultation and reports must be submitted.

Mr Ntshalintshali said COSATU is opposed to the postponement for two years. He did conceded that  a postponement had happened in the past, but the obligation to respect the requirement that the SSRP be tabled was not observed. For that reason, there was nothing to guarantee that if the postponement goes ahead the proposals will not come back in the same form. There has been an undertaking, which COSATU appreciates, and emphasis that there must be an SSRP. However, postponement may lead to the issue being brought in the same form as it is today. COSATU wanted to have a process which achieved true engagement, to debate with government how it had determined that workers should only be able to take 25% of their lump sum as saved in a provident fund. Currently they are entitled to receive 100%. Postponement is not the right word for COSATU, because it fears annuitisation will be imposed in 2018. Therefore, its proposal remains that the impugned sections must be expunged from the Bill, allowing the process to be honest and transparent.  COSATU does not want to debate the issue whether government has the right to interfere with workers’ differed salaries, because there was a move to a  new dispensation which will allow this. If there are any proposals which would give confidence that the postponement will also see Treasury prepared to engage honestly, then COSATU could seek a mandate and engage.

Mr Ntshalintshali said there is no doubt that workers want to save. Provident funds are the products of workers, on their own, engaging with their employers to facilitate saving. This was not initiated by government or anyone else. Workers withdraw the entire lump sum upon retirement for good reasons, and by their own choice. They could choose to belong either to a pension fund or a provident fund, but they tended to choose provident funds for certain reasons. This decision cannot be made by the stroke of a pen. Workers take a risk in belonging to a provident fund. COSATU agreed that the issue of mass resignations was a concern, because 96 000 resignations was bad. When statements are issued, COSATU always makes the plea for people not to resign.

Mr Ntshalintshali said people are talking about the risk that government will eventually have to bear the burden of people using up their entire retirement savings by having taken out a lump sum. Another big risk is that when workers are not satisfied by this explanation, they may collapse the retirement fund industry. There is nothing stopping provident fund members from withdrawing all their money, and asking their employers to pay their provident fund contributions to the employees. Unless the country could manage these issues properly, and see to it that workers gained confidence in the process, that remained a major risk. The issue which was hindering acceptance of the proposed Bill is whether the annuitisation sections are postponed or scrapped. Whatever happens, COSATU does not want these issues packaged up for now only to be implemented in the same form in 2018, without the SSRP or proper engagement. 

The Co-Chairperson noted the point that postponement must come with an assurance of better engagement.

Association for Savings and Investment South Africa (ASISA) submission
Ms Rosemary Lightbody, Senior Policy Advisor, ASISA, said ASISA represents a large percentage of the retirement fund administrators, life assurers and asset managers in the country. Therefore, when it speaks on this element it speaks on a mandated basis from its members, particularly those who are retirement fund administrators. ASISA reiterated that it has always supported the harmonisation of retirement funds, because there are three different types at the moment, including a similar tax treatment of those funds. Access to benefits upon resignation and retrenchment, as well as annuitisation requirements, should be the same across all funds. Annuitisation is the present concern, with the proposal being a part lump sum and the balance being provided as an annuity or retirement income. Currently, pension funds and retirement annuity funds operated by allowing that already, since that was the way the tax laws require members of funds to retire. However, provident funds are not aligned and allowed a full payout of 100% of the benefit at retirement. National Treasury has indicated a long term intention of streamlining the system, by simplifying and harmonising, which ASISA strongly supports. Harmonisation can facilitate consolidation of funds. At present there are funds which treat members differently regarding tax treatment of contributions, access to benefits on retrenchment, resignation and retirement. If all these factors are standardised then the reforms might achieve one kind of retirement fund. That would be less confusing, simpler to administer and would lead to better outcomes. NT had already begun that journey when the same tax treatment was achieved from 1 March 2016, and the same benefit structure upon retirement is currently legislated although there was a proposal that this should be delayed to 1 March 2018. Hopefully in the future there would be the same access upon resignation or retrenchment.  

Ms Lightbody said the result of streamlining the system and ability to consolidate funds will achieve cost saving in many respects. Therefore, ASISA members are very disappointed with the two year delay in the annuitisation of provident funds. The gradual changes were already underway, with the vested rights of members. ASISA members incurred significant costs in order to introduce the annuitisation and this was now having to be undone very quickly, because of the changes which seem inevitable.

ASISA members wanted to assure Members that they are committed to reducing charges, but having to build and deconstruct systems, and the extensive training involved did not help in reducing costs or promoting an understanding of how the changed system would work. However, ASISA members do hear and understand the concerns of various labour constituencies as to why they do not want annuitisation to commence. ASISA understand the need for compromise at this point, so it will support the temporary postponement. At the same time, ASISA urged NT to engage with stakeholders and perhaps also adopt a new approach to engagement. This would assist in avoiding the stalemate which resulted previously. In ASISA’s view the retirement system cannot afford any more confusion or delays to this important step in retirement fund reforms aimed at better outcomes for all citizens.

Ms Lightbody made the point that the laws which are subject to change are in fact in force, because 1 March 2016 has come and gone. Systems are being rebuilt and ASISA members have had to make a call about what is going to happen. They are generally assuming the postponement will go ahead and it is not desirable to operate without final legislation. She urged that speedy resolution must be found on these issues.

Ms Tobias posed two questions to COSATU. She had heard it said that any percentage to be dedicated to annuitisation should be determined through the NEDLAC processes. Was she correct in understanding that this was the crux of the matter, and if so, was it correct that COSATU did not have a problem with annuitisation as such, but rather with the percentage to be annuitised. Secondly, now that the process was in Parliament, she asked if COSATU would be prepared to accept that the discussions, which ideally could have happened at NEDLAC level, could now happen at this level. Preservation was the only issue that COSATU had raised so far.

Mr Maynier noted that COSATU had made the point that there needs to be proper and transparent engagement. He asked what COSATU will do differently to ensure that there will be proper and transparent engagement, given that in the last round, COSATU had been, quite frankly, dishonest. It did not seem to him that under such circumstances there could be a proper and transparent engagement process, if COSATU is simply an unreliable and dishonest negotiating party.

The Co-Chairperson asked for order and said Members needed to find a way forward. The integrity of Parliament is at stake, and the Committee must deal with the issue as a collective, and he asked for all Members to accept full responsibility and assist each other.

The Co-Chairperson said there are certain norms, not necessarily set out in the Rules of the National Assembly, which define relationships between stakeholders and Members. He had needed to speak to Mr Maynier before, during the South African Airways matter. Members could be aggressive and robust in the content, but they should not speak in the manner that Mr Maynier had just done. Mr Maynier’s point was whether COSATU would negotiate in good faith. He did not think Members could say someone is lying in a Committee, for this is unparliamentary. He asked for Adv Jenkins' opinion on whether any Member could say someone is lying.

Adv Jenkins said the same rules apply in both plenary and Committees. Essentially, a Member cannot do that.

The Co-Chairperson asked if any Member could say someone is dishonest.

Adv Jenkins said it would be necessary to take advice from the National Assembly Table, but the point he was making was that Members must make their points without attacking another person. 

The Co-Chairperson asked Mr Maynier to withdraw the statement.

Mr Maynier said he would not withdraw it, with respect, because COSATU is lying and someone has to say so.

The Co-Chairperson, having agreed that point with Co-Chairperson de Beer, said that he could ask Mr Maynier to leave the meeting. He would give Mr Maynier two minutes to think about it, because he could not act outside the norms and rules of Parliament. Mr Maynier's statements would get into the media that evening, which was presumably what he wanted.

Mr Maynier said it was very unlikely.

The Co-Chairperson asked whether Mr Maynier had already issued a statement, or if he would alert the media on his point that COSATU is lying.

Mr Maynier said he had not and had no intention to do that.

The Co-Chairperson asked Adv Jenkins for confirmation that he was within his rights to ask Mr Maynier to withdraw his statement, and, in the event that he refused, to then leave the meeting.

Adv Jenkins said the Co-Chairperson may do that.

The Co-Chairperson said Mr Maynier would be given two minutes to mull it over.

The Co-Chairperson said the Rules of the House apply in Committee meetings and Members must acquaint themselves with them.

Ms Tobias agreed fully, because a Committee meeting is an extension of the House, according to the Rules. She suggested that in future certain rules should be read out to Members, in the event there is a misunderstanding. She had noted on many occasions the abrasive approach of Mr Maynier, with personal attacks being made upon individuals who appear before the Committee. She was not satisfied with how Mr Maynier spoke to people who were present to engage at an intellectual level with the Committee. The Committee needs to record its concern about the manner in which Mr Maynier engages in meetings, because it is unacceptable in terms of the rules.

Ms Mahlangu said Mr Maynier should be aware that whilst other Members could also do what he is doing, they are respecting the Rules of the House. Members of the Committee had been tolerating him for too long. If he had issues, there is a platform for him to raise them. Members must restore respect for the House, and if Mr Maynier also wanted to be respected then he must act accordingly.

The Co-Chairperson said he had not asked a Member to leave since he had first become a Chairperson in 1998, but no one was above the Rules. He appealed to Mr Maynier to recognise that he was out of order and could not say COSATU was lying, and should therefore withdraw his statement.

Mr Maynier said he would not withdraw the statement. He did respect the Rules and would respect the Co-Chairperson’s ruling that he leave. He affirmed his conviction that COSATU had been dishonest and lied.

The Chairperson said Mr Maynier would have to leave, which he did.

Mr L Nzimande (ANC; Kwa-Zulu Natal) noted COSATU’s fear that if the postponement is agreed upon, the very same situation will recur, leading to the same result. He asked then what COSATU proposed the Committee should do to ensure that all fears are allayed.

Mr O Terblanche (DA; Western Cape) said that the Committee needs to ensure that any decision taken and how the legislation changes is done, in future, following proper consultation processes. Everybody must agree on what the needs are, and cannot postpone for the sake of postponing. 

The Co-Chairperson asked what the legal situation is, given that it was now 3 March 2016, and the effective date was 1 March 2016. ASISA was calling upon Members to finish the Bill quickly for certainty’s sake and the NCOP process would be finished by 15 March 2016, and after that it would be up to the Minister and NT to ensure the President promulgates it quickly. His understanding was that COSATU also wanted to have it passed quickly. The Committee must express Parliament’s regret that ASISA members are faced with the challenges around systems. To be fair the matter had been postponed every year. ASISA members had invested a lot of money in systems and training, but every year it was deferred. Parliament, government and even COSATU with all its reservations, all want investment and growth. The responses to the Budget, even from parties from the left which are usually critical of the budget, acknowledged that perhaps South Africa needed the private sector on board more than before. Parliament apologised to ASISA members for their challenges and wanted now to avoid this situation happening again to any industry in the private sector. Parliament would like to see investment and job creation. He asked for a report on the SSRP, because the Committee had, in its report, asked for the process to be expedited. The Chairperson of the Standing Committee had been engaging with the executive and at one stage it was thought that the SSRP was nearly complete. Minister of Finance, Mr Pravin Gordhan, had indicated that it would be complete by June 2016, and he urged that this must be finalised quickly. He would like some assurance that NT is working with the Department of Social Development to finalise this matter.

He also asked how NT would respond to COSATU’s concerns about the postponement being done, and then to have the same results in 2018. Given the argument that COSATU was not showing sufficient good faith, he asked for a commitment that it too would take the discussion seriously, participating fully in NEDLAC once the SSRP is tabled. Parliament has a right to demand commitment, because it was being asked to defer the provisions, and it must know that COSATU will cooperate fully regarding the SSRP and the finalisation of the annuitisation matter. If COSATU insists on that clause being expunged, would COSATU heed NT’s argument that it would mean that the workers who were members of provident funds would lose their tax deduction.

He asked both COSATU and NT whether there was  no way of compromising between complete removal and deferment. He asked for Members to think about this too. One possibility may be some sort of conditional deferment. ASISA would understandably be concerned because this would cause more uncertainty, and it had a right to have its say. The Bill had been brought back in an attempt to secure consensus, but government had been clear that it cannot only secure cooperation from the private sector. Labour sectors had been concerned that they had not been consulted enough. He asked if ASISA could also think about proposals for a compromise situation.

He stressed that there was not much time, for the Bill is supposed to be voted on in the Standing Committee on Tuesday 8 March, and taken to plenary on 9 March 2016. If need be, a 24 hour postponement may be requested. He reiterated that the whole aim of bringing the Bill back was to get consensus, but if a strong labour constituency was still unhappy, then the parties must really put their heads together and try to present a solution by 7 March 2016. The DA is opposed to the Bill and would presumably vote against it, but there had been many times when the opposition, although finally voting against something, had nonetheless put forward very valuable ideas. He urged everyone to move forward swiftly in an amicable manner.

Mr Ntshalintshali said COSATU was not familiar with the rules and processes of Parliament, but normally tried to avoid reacting to provocation.  Some of the questions hinged on the future, but there was at present disagreement with NT on how to move forward. In response to Ms Tobias, he said the percentages of the lump sum versus annuities were indeed the major points where COSATU felt there was a need for further engagement. Its concerns were more complex than simply the percentages should be, but also went to the issue that workers want to save. There are difficult issues which need to be engaged upon, which may lead to a particular percentage being determined. COSATU is not suggesting that Parliament should replace NEDLAC, because Parliament does not have capacity to engage on these matters in detail, as the social partners needed to do. It was true that the main issue which concerned COSATU was annuitisation and it was asking that this must be removed. Retirement reform is broader than that particular issue, including high costs charged by fund administrators. He said that history repeating itself may inspire fear, but a difficult situation had happened with different officials saying different things over the last 15 years.

The Co-Chairperson agreed. This was what Members had heard. He felt the Committee needed to be tough on the executive to deliver the SSRP.

Mr Ntshalintshali said it had been said, even to ministers and the Deputy President, that the SSRP would be ready in as little as two weeks. That was of concern to COSATU. The key to discussing annuitisation was the tabling of the SSRP in NEDLAC. COSATU would not run away from engagement, because besides annuitisation question, there are broader concerns in the retirement fund area. COSATU did not want the Bill to be unilaterally forced, without at the same time putting forward the SSRP. For example, if the annuity received is R1 000 and someone who is on the old age grant gets R1 500, would it be fair to deny a bridge to close that gap to the workers who had saved, as opposed to creating a better position for the ones who had never saved at all. National Treasury heard the concerns to a certain point, but to them the starting point is annuitisation. For COSATU it is for the lawmakers to look to the current amendments, and whether some compromise can be found.  COSATU heard NT's concerns that if the annuitisation provisions are removed, people who do the harmonisation will lose out on tax benefits. COSATU feels it should look to the law to speak to the two year period. At the same time a legal framework could be worked out, but keeping in mind the past experience with postponements. He concluded that COSATU would find it possible to look towards a compromise. 

The Chairperson said Ms Tobias’ question was whether COSATU is unhappy with the amounts which are to be dedicated to annuitisation and lump sum withdrawals, or was COSATU opposed to annuitisation in principle. One of the options could be that the percentages change, gradually coming to the present ratio. Contrary to what Mr Maynier suggested, the ANC does not have to kowtow to COSATU, but the ANC does represent workers as well. Everyone wanted to see some form of preservation, but the problem is the extreme over-indebtedness of workers and the poor generally.  This was exacerbated by the sluggish growth in the economy, and lack of jobs. The pressures on people who are currently with provident funds will increase much more and more people will be likely to want to take  a lump sum in future. Recognising all of this, it seemed to be reasonable for Parliament to say there needed to be some form of preservation, especially if it is incrementally implemented. If there were open negotiations, it is possible that workers could be allowed to take two thirds as a lump sum and gradually reduce this amount. Concomitant to that would be the introduction of the SSRP and increased economic growth.

It is also difficult for the Committee to understand how all these difficulties will be solved by the SSRP. Members need to think about this and perhaps COSATU will have a response. It is probably the case that, given the enormous constraints on the budget such as the National Health Insurance, the social security reforms which Ms Geraldine Fraser-Moloketi had proposed ten years earlier might differ from the new version of the SSRP. There is an immediate issue, but it is linked to longer term issues which apply to other Committees’ functional areas. At some stage it would be useful for COSATU to bring its views on preservation to the Committee, because there are other forms of preservation aside from annuitisation. As the Bill has been tabled, Parliament has an obligation to be briefed on these negotiations and needs to communicate to the Parliament. The Committee cannot limit its thinking to removing annuitisation or deferring it, but must look also to the broader issues.

Ms Tobias said she wanted to pursue COSATU and NT on how they would each deal with the issue of preservation. She wanted Mr Ntshalintshali to consider importance of preservation - the specifics can be a matter for later discussion. COSATU must take into consideration the economic challenges so that all parties could in principle agree that there needed to be preservation. This is why she was asking about the crux of COSATU’s concern. She did not believe that COSATU was opposed to its members being encouraged to save. However, as she understood it, this was secondary to the issues of indebtedness and the high poverty levels. The Committee raised with NT that it may want to re-look at the percentages of the lump sums to accommodate these issues. She would like an indication of where the parties were going.

Mr Lees said he wanted to check whether the question about tax free transfers between pension funds and provident funds had been dealt with. 

Mr Momoniat said NT certainly understands COSATU’s frustrations on the SSRP and NT is equally frustrated. It is a complex issue and has to go through Cabinet so NT could not commit to a date. The Minister had mentioned June in his budget speech and that would certainly be the aim, because the failure to publish the SSRP so far had led to a lot of suspicion. Once the paper is published it could disappoint some, and please others and it would have to look into how far the country could go with the grant system. The Chairperson had alluded to the change in circumstances from ten years ago, but even assuming there was agreement, it would be many years, even after the SSRP is published, to sort out all the issues. There are some urgent issues to fix in the meantime and NT does not have a problem with doing this piecemeal. COSATU had said that if the roadmap could be seen, then a discussion could be had about the details, and he felt that was a reasonable request. The problem had been that NT has not yet heard COSATU's concerns on annuitisation, whether related to the ratio or the question of widows and beneficiaries.  A lot of those can be resolved sooner or later, because even pension fund members must buy an annuity. NT agrees that an annuity may not be the best possible product. If the process of engagement could be accelerated this would be good. He got the impression, from COSATU’s submission, that they were not that far apart on some of these issues. The Minister has indicated that as the negotiations happen over the next two years, annuitisation might not have to happen as it did currently, so the design of annuities could be changed. Whether it was eventually two thirds or one third is neither here nor there. Presently, the problem is that “the bucket is full of holes” so that if one problem was fixed, others might remain. However the principle of preservation is important. When NT started this issue it took the hard line of 100% preservation but later, in consultation with the unions, a much more flexible approach was put forward so that people could cash out a certain amount. Some discipline – and therefore rules – were needed, because if people know they can cash out any time it becomes a problem. Perhaps once a year there could be an opportunity to do so – there is room for discussion on that also.

He urged that the parties should start the consultation soon, even before the publication of the SSRP, to address some of the detail. Government is committing to publication of the SSRP in the two year period, but if it is not out then progress will not be made on the other issues. Another issue which must be taken into account is that there are now other unions such as National Union of Metalworkers of South Africa (NUMSA) represented in NEDLAC. An agreement could be crafted with COSATU alone, but the other trade union federations might not agree. If the section 77 submissions are looked at, their demands are slightly different. All key players need to come to some form of agreement. While there may be some disagreement, the fight will not be taken outside, because this frightens people. NT will need help in this respect, and made the point that bilateral discussions were also held with key roleplayers who were outside of NEDLAC; for instance there have been interactions with NUMSA, but a meeting could not even be arranged with AMCU. On the next day, a section 77 meeting would happen with NUMSA, AMCU and NUPSW.

Mr Axelson said there are many issues around annuitisation which NT was open to discussing, such as people getting annuities which are smaller than an old age grant. The proposal to universalise the old age grant could probably address that concern. On the tax free transfers, he assured Members that a pension fund member could currently transfer money, tax free, to another pension fund, pension preservation fund or annuity, but could not transfer to provident fund. To do that, the person would have to withdraw from the pension fund, and pay the tax on that withdrawal according to the tax tables. Members who were currently in a provident fund could transfer tax free into any form of retirement fund.

Mr Ntshalintshali said some of the questions posed by Ms Tobias are very difficult and fundamental questions. One of the reasons workers went to provident funds was that they could make lump sum withdrawals, and they were now asking if those were to be abolished. Many of the provident funds were pension funds in the 1980s and they moved to provident funds, because of political pressure at the time and workers lost a lot of their savings in that process. It is similar to the debate about inflation versus salary increases. If workers ask for more money, inflation goes up. COSATU wants to dispel the notion that workers are not saving, for provident funds are savings and are nothing but the savings of workers. The issue was with the withdrawal, and whether this must be a monthly amount or a lump sum. In 2005, when this issue came up previously, the workers took the position that SSRP and retirement reform need to be considered together, so that if they agreed to annuitisation they would have an idea of what the percentages should be. He was not going to say that workers were in favour of annuitisation, but they were not against annuitisation completely. Working people cannot afford to get some form of money through the provident fund members. He noted that the people who are resigning en masse are not the provident fund members, but pension fund members. The reason for this is that they are over-indebted, and they resign to get their one-third. By the time people then get to retirement age, they have saved less. Therefore, this is not just a provident fund saving concern but the broader issue was around savings generally, and living conditions also need to be addressed. COSATU is trying to avoid negotiating annuitisation in Parliament, although the reasons for the request are understood, but would rather debate this in the right forum, with the current mandate. Not everyone is represented in NEDLAC, but the same applies to Parliament. It however needs to be accepted that to get that kind of representation, there is a threshold which must be met, and if not, then other parties should not be able to obstruct those sectors that have met the threshold from passing the law. COSATU was not condemning people who are not in NEDLAC, and public hearings can be used to allow these groups more space. However, he was saying that NEDLAC should not be held to ransom, negotiations must be held and the report tabled, and Parliament will give those people access. On the Co-Chairperson’s proposal, he said that if amendments have to be made to the current Bill, there should be engagement. He took the point that any good ideas must be submitted before the Committee votes. He assured Ms Tobias that COSATU is always available and should be invited. 

Ms Lightbody appreciated the NT's apology on the many changes, and said ASISA members are dealing with them the best they can. ASISA would certainly contribute to a collective effort to determine what kind of conditional postponement could be acceptable to all parties. If COSATU would be prepared to work with ASISA it would be appreciated, because it would be pointless for ASISA to come up with something which COSATU might find unacceptable.

The Co-Chairperson said the Bill is in Parliament now and if a suggestion is made which is very good, it will be for Parliament to decide on that, not COSATU. Meantime, he agreed that it would be great if  ASISA and COSATU could engage and come up with a proposal. He asked Members to think about the following points – although they were not binding at the moment. Parliament is not NEDLAC, it does not have the capacity, but it would like to see COSATU working more effectively. He would raise this with the Chairperson of the Portfolio Committee on Labour. Secondly, a point that COSATU is constantly raising did not come up in the Committee’s public hearings – namely, the view that African people in general had a lower life span, so the effect of the changes could mean that African people are cross subsidising others who live longer. Furthermore, with provident funds the benefit is clear, but with pension funds there are other issues which were not thought through fully. The Committee as a whole supported preservation, but the form which it takes needed greater consultation. He would also argue that having 27% of people on social security, one of the highest figures in the world, could be done previously but was not sustainable unless the economy was grown substantially. However,  bringing the social security budget down would require growth, so it is an interesting problem and the right balance needs to be struck. Annuitisation should not be used an excuse for not giving grants, but the imperative of having more able bodied people working in the economy is recognised. The options may be many-fold, beyond the current proposals, and all sides need to discuss the issues. It is fair to say that there is a suspicion by COSATU of NT, given their past experience. There is also a reasonable degree of caution on the side on NT, because it is unsure whether COSATU will play ball. Overall, however, he did not think that the gap between the parties is insurmountable. Whatever the views on the current proposals, all parties need to communicate that there is no threat of people’s pension funds disappearing. If people have other reasons for needing the money or leaving their jobs that is fine, but it should not be because of that fear. Finally, he noted that there is a deadline and the Committee urges all parties to come up with proposals before the Committee voted by the deadline of 12:00 on 7 March.

The meeting was adjourned. 

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