Financial Intelligence Centre Amendment Bill [B33-2015]: public hearings (NUMSA)

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Finance Standing Committee

09 March 2016
Chairperson: Mr Y Carrim (ANC)
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Meeting Summary

Public hearings on the Revenue Laws Amendment Bill continued, with the National Union of Metalworkers of SA (NUMSA) making its submission.

NUMSA emphasised that the Bill must be seen as part of a broader discussion around comprehensive social security and retirement reform. NUMSA stated it remained opposed to compulsory annuitisation, despite the safeguards built into the system. This Bill was merely postponing this, but NUMSA would rather have the principles repealed. It was concerned about the low levels of consultation by National Treasury and was also concerned that the discussion to date seemed to have been divorced from the broader discussion around social security reform. It felt the Bill was incorrectly tagged as a section 77 Money Bill, because the annuitisation requirements are not a tax matter per se, and NUMSA was considering its options on raising a constitutional challenge on that aspect. NUMSA did not agree with the assertions that South Africa had a “poor savings culture”, saying that this was not a culture but a reality in which low income earners had traditionally been excluded from the formal financial sector. Nonetheless they did recognise the value of savings, which had been done through stokvels and burial societies. Low household savings in South Africa was no different to similar situations in other countries that had low income earners. NUMSA cited the anomaly that whilst South Africa has pension fund savings similar to those of a developed country, and a strong market, most people in the country will not receive adequate coverage. This pointed to a weakness in the economic and financial systems.

Members questioned the veracity of the statement that workers do save for retirement, and also felt that trends did indicate a culture, and made the point that most of the so-called saving was in fact geared to periodic consumption. They also cited examples of what had happened to those who had worked with annuitisation in the past, and those who took lump sum amounts and ended up dependent on social security in a few years. The Chairperson asked whether NUMSA was opposed to all forms of annuitisation and preservation, or whether it would find some form of it perhaps acceptable. NUMSA responded that it was the compulsory nature of the annuitisation which was the concern, and that it was not opposed to all forms of preservation. National Treasury then also responded to issues, including the continued existence of the tax deduction for employed contributions to provident funds and the interplay between retirement reform and comprehensive social security.

The Parliamentary legal advisors responded on the tagging issue and explained why they felt that this was in fact a money Bill, clarifying that it was not so much the wording as the effect that had to be seen.  Members raised questions around the perceived lack of consultation and the Chairperson indicated that he had made a statement on behalf of the Committee previously. The current position was then summarised. Following discussions which had included COSATU and the Association for Savings and Investments South Africa (ASISA) it had been suggested that National Treasury and all stakeholders should sign a Memorandum of Understanding and in terms of which the Minister of Finance would be required to report to the Committee on progress before the postponement deadline was reached. However the parties indicated that they would like this to be stipulated in the Committee's Report to Parliament, as that would be binding not only on the parties to the MoU. The specifics would be spelt out in the Committee Report.

The Committee accepted that proposal, pending a look at the full text of the clauses. NT later read out the proposals formally.

The DA then said that it wanted to make some more proposals. The first concern was that the Bill now appeared to be the product of discussions limited to COSATU as the main stakeholder, and from an ethical standpoint, the DA would like to see the opportunity for more engagement also offered to other stakeholders who had commented on the Bill. It also proposed that all the clauses postponing annuitisation should be deleted and only the technical amendment contained in the Bill preserved. After some misunderstandings on this were clarified, the Chairperson noted that the majority of the Committee did not support these proposals, and also said that there was precedent for a parliamentary committee consulting with a particular constituency that showed specific concerns, but that the Committee was open to representations from any sector of the public. It was also possible that interested parties may wish to make representations to the NCOP, which had indicated that it would probably hold public hearings. ASISA confirmed that it was not unhappy with the proposals and was formally invited to attend further meetings of the subcommittee. The main purpose of the discussions was to try to reach an acceptable compromise, and to create more certainty for the retirement industry.

The NT took the Committee briefly through the clauses of the Bill again, indicating how the proposed amendment would read. It was noted that a suitable time would be set, outside the meeting.

Meeting report

Revenue Laws Amendment Bill: National Union of Metalworkers of South Africa (NUMSA) submission
Ms Prakashnee Govender, Parliamentary Officer, NUMSA, said that although the political leadership of NUMSA had intended to be present, they had been called away to deal with a crisis in the steel industry and she would therefore present the submissions.

She firstly spoke to the context of the Bill; this was not a stand-alone Bill and it was necessary to look at the motivation behind the approach. Historically, primarily black, low income workers had fought for the establishment of provident funds under apartheid. This was to ensure that they had a measure of control over their retirement savings, by being able to take out a lump sum, rather than investing in funds which workers did not trust. Furthermore, provident fund contributions were effectively deferred wages, so were essentially workers' money and they ought to have a right to decide how the money is controlled.

Along with other organisations, NUMSA feels there needs to be a broader discussion around comprehensive social security, which feeds into the broader arguments of the historical legacy of poverty and inequality. Lastly, NUMSA wanted to see the radical transformation of the retirement industry, because there are literally trillions of rands invested and workers have no control over he nature of the investments. This would enable workers to steer retirement funds towards making more ethical or job-creating investments.

Ms Govender said this Bill does not deal with compulsory annuitisation itself, for that comes from the Taxation Laws Amendment Bills (TLAB) of the previous years. NUMSA is opposed to compulsory annuitisation, with the emphasis on the “compulsory” aspect, notwithstanding the fact that some differentiation has been built into the law with the R245 700 threshold for a lump sum withdrawal, the exclusion of persons older than 55 years old, and of provident fund contributions made prior to the law coming into operation. This fragments the ability of workers to engage with the issue and discriminates against younger workers who also have the right to make decisions in relation to their retirement savings,
NUMSA understands the purpose of the Bill to be postponing annuitisation, but it would prefer that this be repealed. It welcomes the Bill not postponing the equalisation of the tax treatment of contributions towards provident funds. National Treasury’s (NT or Treasury) argument had been that it could not argue this at a political level, but NUMSA feels there is discrimination against workers who contribute to provident funds. Provident fund contributors pay twice or even triple the amount of tax, because even if they claim the tax credit on contributions, they will be taxed heavily if they make withdrawals before retirement age. Furthermore, if they take a lump sum as opposed to annuitising, there are further tax implications. There are thus already other tax disincentives built in against provident fund holders.

Ms Govender said there is another procedural matter, because as NUMSA understands it compulsory annuitisation is in operation already from 1 March 2016. Therefore, there would have to be some compliance by the retirement fund industry and this brings about uncertainty. The present situation is “condoned non-compliance”.

Ms Govender said NUMSA is concerned that there has been very minimal consultation by NT with the trade unions, including but not limited to those in NEDLAC. It is particularly concerned that these discussion have been divorced from discussions around a comprehensive social security framework, which it would argue that NT has been delaying for some time. NUMSA feels that compulsory annuitisation is not a tax matter, and felt that annuitisation is not the same as imposition of taxes and should not have been treated as a section 77 Money Bill, which opens it up to constitutional challenge. This would not be the first Bill that had been incorrectly tagged and successfully challenged in the Constitutional Court. NUMSA was currently considering its legal options on how to respond to the 2013 Taxation Laws Amendment Bill.

Ms Govender said NUMSA wanted to address the idea of a poor savings culture, because it had underpinned the principle of annuitisation. National Treasury aimed to reduce reliance on the state for social assistance, which NUMSA would like to see done through the creation of decent work. That would also increase tax revenues and have other spin-off effects. NUMSA accepted that there are poor savings, but argued that this had nothing to do with culture at all. South Africa is no different from any country in the world with low income earners, who have a lower propensity to save, simply because poorer households spend a greater part of their income on consumption. Furthermore, the financial sector as a whole had marginalised low income earners. Recently there had been a failed attempt to establish a retirement fund model for domestic workers, which could have laid the foundation for other low income workers. This showed that the retirement fund industry and financial sector were still not friendly to low income earners, and this fact also reduced savings. The existence of stokvels and burial societies did demonstrate that low income workers and households did show a willingness to save, but have had to find alternative ways to do this, as the financial and economic system forced them out.

Ms Govender spoke to slides detailing pension fund assets, as a percentage of GDP, for non-Organisation for Economic Cooperation and Development (OECD) countries. South Africa has the largest pension fund asset to GDP ratio and would find itself just below the United Kingdom, an OECD country. The industry is massive, not just relatively large, and would reflect the average savings of a wealthy, industrialised country. There was a big gap between South Africa and the other developing countries listed on her presentation. However, the huge assets on the one hand, and the fact that the majority of people in this country will not be covered adequately by retirement funds on the other hand showed a huge inequality. This pointed to the fact that the country needed to do something about comprehensive social security. It was not only about workers being able to assert their rights, but also having an understanding of how to equalise access and protection of a stable income, before and during retirement. This discussion had not been held in a unified way.

Ms Govender said the current dynamics of the post-apartheid labour market show that South Africa is not yet able to push workers to save at the desired levels to provide them with a sustainable income at retirement. Essentially, the economic system is a barrier to saving. Despite arguments pushed by National Treasury, the South African Reserve Bank (SARB) and the free market organisations globally, trends reflect that labour’s share of national income is in decline, and has been so for a long time. There is an ideological argument that wages constitute a major cost driver in the economy, but NUMSA finds that the data supporting such arguments is questionable and mostly comes from industrialised countries, where there is fuller and better quality employment. In a country where there is high informal employment and very little coverage for collective bargaining, there is in fact very little indication that wages would be a cost driver. NUMSA also finds a contradiction in NT pushing for legislation which would drive down wages, yet expecting workers to save more. NUMSA would argue that in order to save more, people have to earn more, and the apartheid wage gap needs to be deal with. Another contradiction, which relates to the broader reforms required in the retirement industry and the financial sector, is that there is data showing South Africa to be one of the leading countries for illegal and legal capital flight. On one hand NT has made the system open to that, but at the same time it is locking workers' funds into retirement funds, where they are  unable to access the funds through lump sum withdrawals.

Ms Govender said NUMSA is concerned with workers during, before and after retirement. The problem is that workers are having to use retirement funds to plug the gaps in the comprehensive social security net, and to pay for things which are not related to retirement. If a person is faced with retrenchment, it is very difficult to tell him to save for later but starve now. Annuitisation is not being enacted directly, and is being pushed for implicitly, which is not correct. Further, NUMSA’s calculations show that the annuities will not provide a decent income. Often workers will withdraw the lump sum not to consume, but to attempt to generate income in an alternative way that needs a lump sum. NUMSA would argue for a more holistic and redistributive way of dealing with the problem. Also, workers who are and will be unable to contribute to retirement funds need to be looked into, such as domestic and seasonal workers, and there is a need to consider how those workers can be provided with a decent income after retirement.

Ms Govender concluded that NUMSA had both procedural and substantive concerns. It maintains the position that the Committee should rather repeal than postpone the sections of the Taxation Laws legislation covered in the Bill. NUMSA will also be pursuing these calls through other processes, and currently has a section 77 process before NEDLAC. If completed, this will allow NUMSA to embark on protest action. It will be assessing its legal options to challenge compulsory annuitisation as well.

Dr M Khoza (ANC) wanted to find out if NUMSA was aware that the kind of “savings culture” spoken about in the submission was largely consumptive. People are saving to buy food at the end of the year, and that should be taken into account. She felt that it was contradictory for NUMSA to say that that the poor savings was not a culture, but that lower savings for low income households reflected global trends. While she sympathised with the plight of workers, she felt that they should not be discouraged from moving to a position where they really did save for the future. She asked NUMSA how competitive it thought that the South African labour market was, compared to other African countries. She had spoken to someone who had been concerned about opening a plant in South Africa because workers demanded higher wages, but did not match this with productivity. If the country were to keep denying the realities, it would end up with workers who did not save. She believed that people had to be taught to save, and at times this might need to be imposed. It is largely the black African working class affected by this Bill but she was not sure where the country would end up if it kept moving the goalposts.

Ms P Kekane (ANC) said she had a general comment. The Taxation Laws Amendment Act did not necessarily affect the public service. Annuitisation had been happening in the public sector ,and a teacher who took a pension ten years ago was currently still able to survive. She gave an example of a family member who had been laid off ten years ago, and was paid out his whole retirement savings. Today, he was reliant on social grants, because he had no means to survive. There may be challenges around the provident fund constituency, but she asked what could be done to assist. She had not heard NUMSA say that all of the provident fund members who withdrew their money 10 years ago were proudly surviving today and were not a burden to the state. She wondered if any such survey had been done, if the majority of their constituencies are provident fund members. She urged that the parties must not be short sighted when dealing with this issue, for she was worried that in the future legislation could well be suggested to the effect that any public service employee who had squandered retirement savings would not be able to claim from the state for social assistance afterwards. The buck must stop somewhere. All interested parties should be practical and realistic. 

Ms S Nkomo (IFP) agreed that it was necessary to be realistic and educate people into a culture of saving. African people always have had stokvels and that was how they learnt about saving during the times when banks were not offering that facility to black people, who were saving their money in trunks under the beds. Banks later realised they had missed out an opportunity, which is when they started allowing stokvels to bank. The culture of saving was thus nothing new but it would have to be encouraged. She said that the debate on postponement versus repealing should be taken up in structures like NEDLAC. The Committee would be interested to hear the finer details of proposals worked through in such forums. She said that the points raised by Ms Kekane were valid, and in the absence of any comprehensive social security, she asked what type of proposals NUMSA would put forward to ensure that the interests of the country were kept in mind. She asked how NUMSA would do things differently, in view of the fact that many of those leaving the mining sector would be poverty stricken. She asked also how NUMSA would, without posing a threat to the economy by taking to the streets, pursue a resolution through engagement with Parliament, NEDLAC and the public.

The Chairperson asked whether NUMSA was saying no to compulsory annuitisation, and whether it would accept it if workers chose this for themselves. He asked whether this was about workers having the option, or whether  NUMSA was totally opposed to the whole principle of annuitisation. Surely NUMSA is interested in the long term interests of workers, and he made the point that not every worker is so hard pressed that they need the entire lump sum. Those who earn too little and are over-indebted should have an even greater impetus to save. It was perhaps true to say that those with a little should save whatever little they can.  He agreed with Members that saving was about the transference of a culture. It was not biological and had more to do with patterns of industrialisation, but some groups in society did have more of a culture of saving. Members cannot wait for workers to earn huge salaries or for socialism to come, and saving has to be encouraged now. All trade unions need to encourage saving, in the interest of the working class.

He added that if annuitisation and the harmonisation attempts are done away with, then the tax deduction for workers will fall away. There is an argument that there are a lot of people who are exploiting the present loopholes, earning huge salaries and using provident funds to avoid certain tax obligations. If things are left as they are and annuitisation is removed, the high income earners will exploit the loophole further.

He noted that he wanted to correct a statement from the previous day which had been quoted in the Business Day regarding the voluntary disclosure programme, to the effect that he had said that the people who are sympathetic to the programme are not doing so because of patriotism, but because they are in trouble. Whatever he felt personally, this Committee felt that people should be encouraged to enter the voluntary disclosure programme, errant though they may have been. Despite the claims of a poor savings culture, NUMSA had shown that South Africa is in good standing compared to other comparable countries and he wondered what NT would say to this. On the tagging issue, he felt NUMSA was on very weak ground. He took the view that there was largely agreement, because there were people who said they disagreed with annuitisation, because it is shielding government from its welfare responsibilities. Unions at times feel government is trying to push the burden of reducing the social grant burden onto the working class, rather than through higher taxes. He did not know to what extent NT felt that way, but it is a credible argument to say that in a state with such high inequality and high unemployment, the state must play its part. It was well known that this was to some extent  unsustainable, and with a 0,9% growth rate the prospects of the state being able to provide are limited. On the other hand, he personally did not support the argument that annuitisation should be in place primarily to save the state from its responsibilities. Some Members may not agree, but he felt that some form of annuitisation would be in the long term interest of workers. The Committee had previously stated it was excruciatingly aware of how strongly people felt on this point. Even people who are on pension funds feel they may be affected.

He was not convinced by a lot of what NUMSA had said, although they do directly represent the working class. The matter needs to be handled in a measured way, and NUMSA may go on its strike regardless of what happens. Members are not naïve, and this threat was not only to do with the issues currently before this Committee, but also about flexing political muscle. NUMSA wants to form a new federation and the Congress of South African Trade Unions (COSATU) needs to defend its position. All sides need to think about what is in the long term interest of workers, and he felt that some compromises needed to be found between the unions and Treasury. The question might well be posed whether NUMSA really was so concerned with the Bill, or needed to be seen to surpass the political will of COSATU. NUMSA did not have to answer his concerns, but this was something that it had brought on itself.

Adv Frank Jenkins, Senior Parliamentary Legal Advisor, spoke to the tagging of the Bill, since he would advise the Joint Tagging Mechanism (JTM) when a Bill comes to his office. There had not been any court cases on section 77. However, in other cases, the Constitutional Court had made it clear that it was necessary to look at the purpose and effect of the legislation, but the true test is what impact the legislation will have. The Bill amends the definitions in the Income Tax Act so that a postponement of annuitisation is effected and it also affects sections in the Taxation Laws Amendment Act of 2015. He had considered that this should be tagged as a section 77 Bill looking at the effect of the clauses of the current Bill, which would determine what can be deducted from tax and how to calculate that. Another way to look at it is to ask if this Committee could introduce such a Bill. If the answer is yes, then it cannot be a money Bill, for a money Bill could only be done by the Minister of Finance. The Constitution did not intend that Parliament could introduce a fiscal or financial Bill. It can be a highly technical exercise, but it is not supposed to be, according to the courts.

The Chairperson asked if it is relevant that the Bill was amending the Taxation Laws Amendment Act 2013, which was also a section 77 Bill. This Bill was also extending tax deductions to provident fund members, which again might point to it being a section 77 Bill.

Ms D Mahlangu (ANC) said a serious concern raised in NUMSA’s letter to the Chairperson was that there had been a lack of public consultation. This had been raised before, in the previous public hearings, and the public was being told that government was not consulting. She asked what NUMSA understood by “participation” and NT should also clarify this.

The Chairperson said Parliament had already put its side of this issue, and he would give a copy of the Chairperson's statement to NUMSA. He did not know what more Parliament could have done to consult. NT also produced a list of meetings, primarily those held in NEDLAC, but the Committee had noted that it could not comment on the quality of the meetings. NUMSA was not part of NEDLAC, because it only included trade union federations, so NT has to engage with NUMSA outside of the NEDLAC process. The Committee had arranged for public consultations right up until the point where it voted on a Bill. The Committee had made NT aware that NT must consult more meaningfully, rather than nominally, and it had agreed.

Mr Ismail Momoniat, Deputy Director General: Tax and Financial Sector Policy, National Treasury, said NT is not preventing people from choosing to annuitise or not, but if there is to be a tax deduction it has to be in a Tax Bill. The same would apply to any tax incentive, which NUMSA benefits from considerably. On the second point, NT has never argued that annuitisation must be done to prevent people coming to the state for grants. The state provided very little social relief, but workers did earn, and if they were to rely on the state for pensions, that income would not match or replace what had been earned. NT, last year, indicated that it was looking into removing the means test for the old age grant, at least for those who annuitise, so that there is not a perverse incentive that those who saved would not qualify for the old age grant. NT wanted to extend coverage, although it is high already, whilst removing the perverse incentives in the system. The Metal Workers' Fund was one of the best, with both pension and provident options. About 70% of its members were in provident funds and the rest in pension funds, but the assets reflected the converse, precisely because those who are in bigger numbers cash out, That was an important point to consider when looking at NUMSA’s data about pension fund assets.

He said that NT wanted to know whether NUMSA is opposed to all forms of annuitisation and preservation. This is a big issue, and strong leadership is needed. NT had had engagements with NUMSA at which its representatives had argued that NUMSA did not want annuitisation and that South Africa should follow the UK’s conservative government approach. He found it interesting to hear these arguments. NT would like to engage with NUMSA . Part of the problem was indeed that NUMSA was not part of NEDLAC. He had been engaging with Irvin Jim's office but had not yet managed to secure a meeting. NT would like to continue these discussions, because they are important, and it was important not to follow a pure ideological position when the result affected people on the ground. Given the solid base of good funds for the workers, it would be a tragedy if people are given the wrong advice. Furthermore he thought that convergence on these issues would be very important, so that NUMSA's concerns would be incorporated into the discussions.

Ms Govender spoke to whether this was merely a political exercise, as the Chairperson had asked.  NUMSA is representing the majority of the workers affected by this, and they had given NUMSA a mandate. She noted that COSATU is primarily a public service union at present, and its mandate is “somewhat shaky”. She asserted that NUMSA had no fundamental opposition to annuitisation or preservation, but it did see the compulsory nature of this as a problem. There are workers who may choose to preserve, and that option should be left there. However, on the question of ideological positions, NUMSA would argue that such as stance is apparent on both sides for NT is following an ideological path not necessarily based on statistics and data.

In relation to the tagging of the Bill, Ms Govender said that NUMSA is differentiating between the tax credits portion and the compulsory annuitisation requirement. NUMSA accepts that the tax credit provisions were correctly tagged as section 77, but the provisions that allow the taking out of a two thirds lump sum is not a tax issue. She reminded the Committee that previous bills had needed to be split – for instance, skills development and the Unemployment Insurance Fund had to be separated out.  NUMSA had taken legal advice, which supported its view that there was a good case.

Ms Govender did not think that her statements on whether there was a culture of poor savings had been contradictory, although she may have expressed the point poorly. NUMSA was saying that there had to be some economic and historical considerations built into the sociological arguments. NUMSA said that it is concerned with workers both before and after retirement. As with annuitisation and preservation, NUMSA is not opposed to saving, and agrees that the state has finite resources. It would prefer taking a position after having seen the compressive social security paper. The argument is not that workers are spending because they are being lavish, although she understood Ms Kekane’s anecdote. There were also cases of people who had had to dig into their retirement funds out of necessity – faced with a choice of putting food on the table, or saving for a retirement which will never be reached. That was one challenge that made the debate difficult, where retirement funds were being used to plug a gap although not intended for that. A system was needed that encouraged saving, and NUMSA has no objection to saving. All NUMSA’s collective bargaining would include considerations as to how workers can increase their rights regarding provident funds. The reality is that there was a need to redistribute resources so not everyone could be spending. Resources have to be built up and have to come from somewhere.

She summarised that NUMSA’s position was that annuitisation should be optional. In a different economic system more people would annuitise. In the extended family culture people understood what happened after retirement. She described the concept of ‘black tax’, where extended families have to bear the burden of a socio-economic phenomenon inherited from apartheid. She wanted to address the myth that there was low productivity among South African workers, saying that for years there had been incorrect data about labour productivity. In fact, since the end of apartheid labour productivity had always been increasing. In one year, the SARB excluded financial data and that  created the impression of a decline. Concerns about high wages and labour legislation that were being peddled were largely based on employer surveys. She asked how a survey that tests the opinions of employers could be taken as empirical, but  workers’ representatives indicating that the wages are too low and exploitative was not? It had also been proven that the World Bank and International Monetary Fund had used incorrect data and NUMSA believed it was ideologically driven. Workers are struggling under a poor image which is not factually driven, that has been put out in the media, supported by certain parties in government.

The Chairperson said that he had thought, at the previous meeting, the gap between the parties was narrowing. The Chairperson had understood that the intention was to try to move towards a memorandum of understanding, which has legal standing somewhere between a report to Parliament and the Bill. After further discussion it was decided to put the agreed points in the Committee’s report, but he had explained on behalf of the study group that there has to be an amendment to the Bill. He then asked for input on where the Committee was thus far.

Adv Jenkins said the proposal which was to be brought to the Committee to bridge the gap was to deal with the area of consultation, leading up to when the postponed annuitisation provisions would come into effect. Last year, the Committee had decided that the annuitisation provisions would start on 1 March 2016 and there would be a review of the impact of those provisions. The issues had now changed a little, given the postponement. The section in the Taxation Laws Amendment Act of 2015 must now be changed. Instead of having a review there would be a consultative process leading up to the effective date. The Minister would report on this, and the Committee would have oversight over the process. This also moved towards having further certainty, which the industry had raised as an important factor.

Ms Mahlangu said at the previous public hearing, Mr D Maynier (DA) was asked to leave because of accusations made around the consultation issue. She had asked a question, but she did not hear NUMSA answering on the point as to how NUMSA saw consultation. speaking to it. It is the perception in public that no consultation is happening, and if this was to be left up to NT, the Committee would run into problems.

Ms Govender said NUMSA’s issue with consultation involved the entire complex process. This is  not a simple Bill to analyse and NUMSA felt that proper consultation would involve a whole team. At the inception stage, she suggested that there must be engagements with NT and other relevant players. Historically, NUMSA was included through representation at COSATU. Now, however, it would insist that NUMSA and other partner unions should be consulted in a separate process, and this should have happened before the Bill got to Parliament, as it represented a very large constituency. Any consultation at the departmental level had a spin off effect in the parliamentary process, as Members were informed about the issues by the department. Parliament’s consultations are a more constrained process than what happened at the initial stage. NUMSA looked forward to other proposals, based on the indications from Members and instructions to NT.

Ms Nkomo said the consultation matter is quite important, and she requested a written response from NUMSA on the issue.

The Chairperson said there are two separate process to consultation. One involved the NT, and the other involved Parliament. Parliament had issued a statement and there was not much more that it could do in that regard.  NUMSA is free to write about the problems with the executive consultation process, but Parliament did exactly what it was meant to do in regard to the consultation.

Adv Jenkins said the intention is to effect an amendment to clause 3 of the Bill as tabled.  This would have the effect of amending the TLAB 2015.

Mr Chris Axelson, Director: Personal Income Tax, National Treasury, said the amendment would be included at the end of clause 1 of the current Bill.

Adv Jenkins added that clause 3 of the Bill would then delete section 3(8) of the TLAB 2015. A new clause would be introduced which would then require deliberations with interested parties and would stipulate an open list of what those deliberations must cover. The deliberations would be held  at NEDLAC, but it would also  include stakeholders outside of NEDLAC. The Minister would have to report on that issue by no later than 31 August 2017, which meant the report should feed into the budget planning for the year in which the annuitisation provisions would kick in. That should give  sufficient time to deal with the possibility of annuitisation going ahead, even conditionally, as well as what would happen if it were to be scrapped.

Mr Momoniat said the other parties may not want to sign a Memorandum of Understanding and would prefer these terms put into the report. The clause explained the underlying timelines and he would hope NUMSA and other parties outside of NEDLAC are happy with this approach. It was now being said that the Social Reform paper will be released by roughly the end of June 2016, according to the executive. This will include social security measures and retirement reforms, including annuitisation and preservation. National Treasury hopes that there will not only be one agreement coming out of the process, but that some this will be treated as urgent,  such as the retirement reforms. The first report from NEDLAC should be available by the end of the year. That would help, because it could be incorporated into the budget for next year. Another deadline for the middle of June would lay the basis for putting things into legislation and for the proposed subclause (c), requiring the Minister to report. NT would be happy to make that commitment. NT wanted to make it clear that if annuitisation is scrapped, then the tax deductions will follow, and there must be no expectation that the tax deduction on contributions will continue. 

Mr Matthew Parks, Parliamentary Deputy Coordinator, COSATU, said there had been good progress since the previous meeting. COSATU was working on an amendment to the Bill which required consultation with stakeholders and the details of that could come out in the Committee’s report. COSATU is comfortable with the proposed wording, because the previous provision did not stipulate NEDLAC, but its inclusion now would help by introducing legal assurance for engagement. There is even some certainty for the Association for Savings and Investments South Africa (ASISA) and the agreement helped to flesh out the conditional deferment. COSATU would rather opt to have a parliamentary report, than a Memorandum of Understanding, because the latter would be binding only on the signatories. The same content could be captured in a parliamentary report. COSATU would request that, although there is to be an additional amendment to the Bill, Parliament should still work towards passing the Bill in the following week, which would help all parties have a measure of certainty.

Ms Rosemary Lightbody, Senior Policy Advisor, ASISA, said the provisions were looking promising, but she would need to get a mandate from ASISA members. ASISA also liked the idea of a parliamentary report and the certainty brought by the dates stipulated. The major concern from ASISA was that the country must work to not perpetuating the uncertainty. There was potential for consultation processes to fail to go further, and she would not like to see a  possible repeat of the present circumstances two years down the line. .

The Chairperson agreed with the need for certainty and would put very stringent measures on checking for progress into the parliamentary report. He hoped that ASISA members can live with the circumstances.

Ms Lightbody said it looks very encouraging at the moment.

The Chairpersons said he wanted to put it on record that he had made the statement quoted in the Business Day, and he was not quoted out of context. Upon reflection, that statement was not consistent with the view of the majority in the Committee, let alone his own party. The Committee and he himself felt that people should be encouraged to make use of the voluntary disclosure programme. The point he was making was that the people who were making use of it were not doing so out of the kindness of their hearts or out of a sudden surge of patriotic fervour. They were doing this because they were vulnerable. Despite this, it is the view of the ANC and the Committee that people should be encouraged nonetheless to make use of that programme.

The Chairperson said that he would try to finish the report that evening and this report and  the proposed amendments would be sent to Members. The Committee would meet the following day, for a ten minute meeting at 14:00.

Mr A Lees (DA) said there was no way the DA could agree to that. The DA also wanted to propose some amendments as well and  a ten minute meeting would not work. It was also scheduled during plenary, which was a question time, and the DA Members would be in the plenary

The Chairperson said he would check the Rules of the National Assembly, because the Committee had met before at 14:00. He asked what time the DA caucus met.

Mr Lees said he had a previous engagement running from the end of the DA Caucus meeting through to 14:00 and he  would not be available. He did not think Mr D Maynier (DA) would be available either. He asked where the Committee was going with this amendment. It was a significant amendment being proposed, and he asked whether public hearings were not to be held. There were many role players involved who were not present and had not been given the opportunity to address the Committee. 

The Chairperson replied that the Committee had advertised the public hearings and the Committee Secretary had written to all the stakeholders. This had all been reported to Mr Lees. The Committee would not necessarily have public hearings again if an amendment was proposed to a Bill whose public hearings had already been advertised. The Committee went out of its way, and wrote to people who had come in October 2015, which it was not obliged to do. He asked Adv Jenkins to confirm whether another round of public hearings was required.

Mr Lees said this was not an amendment which has come out the Committee, but out of negotiations with a particular role player in the space. Even ASISA was not involved on the previous day. Basically the Committee had a “COSATU driven amendment”. The Committee, in allowing that, was allowing COSATU to drive something but ignoring the other role players in the industry. From the DA’s perspective this was not the right thing to do; it may be legal, but was not ethically correct. He reiterated also that the DA would be wanting to put a further amendment at the appropriate time.

The Chairperson asked him to table any amendments now. This matter was being discussed and he had thought the DA agreed. If the amendments did not find favour, the other Members would vote against them. Issues were put before the Committee and Mr Lees had not said anything. It was “absurd“ to say that there must be another round of public hearings and he noted that this had not been done in the past and Parliament had never held hearings after having had hearings, just because a Committee had made an amendment. The DA has every right to table its proposals and no one had stopped it from doing so. ASISA was invited the previous day.

Ms Lightbody clarified that she had been at the meeting of the Committee, but not at the later negotiations.

The Chairperson asked whether ASISA agreed with the outcome nonetheless.

Ms Lightbody said she had said she needed to consult the ASISA members, but the outcome looked encouraging.

DA proposals on amendments
The Chairperson asked Mr Lees to present the amendments.

Mr Lees said this Bill was really a product of certain behind-the-scenes negotiations with a particular role player. Most of the public concerns around the annuitisation of benefits payable on retirement were misinformed. Annuitisation already applies to pension funds and retirement annuities. The Revenue Laws Amendment Bill before the Committee will not change that. The Government Employee Pension Fund members are not affected by the 2015 TLAB. The 2015 TLAB brought provident funds in line with pension funds. If the desire was that this should not happen, it becomes a question of tax. He did not believe that it was correct to suggest that this was not a tax issue. If the requirement to annuitise is removed, then the tax deduction must fall away, it cannot be both ways. All contributors to provident funds may indeed withdraw the amount due to them at any day before the retirement date. It is wrong to assume that they cannot, although there may be tax implications and that is a decision which the individual would have to make. Provident fund members have vested interests and are thus not affected by the changes in the 2015 TLAB, so nobody is being prejudiced. The stated purpose of postponing the annuitisation requirement is to allow for more consultation. The proposed amendment does not require a particular output, it simply requires that consultation take place and that reports come back.

Mr Lees added that COSATU and NUMSA have made their positions quite clear. He quoted from COSATU's statement that was “COSATU’s position was and it remains adamant that compulsory annuitisation must be removed from the Act and the Amendment Bill”. COSATU and NUMSA remain deeply opposed to compulsory annuitisation and therefore it is clear that the mere postponement is not supported. The DA took the view that “we should not die in the ditch” for compulsory annuitisation, but then the tax breaks must not go to provident fund contributors. One of the biggest issues facing South Africa today is policy uncertainty, and this is a microcosm of that uncertainty. Should this proceed, he cautioned that it would effectively put this industry back into uncertainty for the next two years. That was symptomatic of the way that business was being done in South Africa today”. A lot had been said about savings. Gross savings in the third quarter of 2015 amounted to 15.2% of GDP. However, the household savings were only 0.2% of GDP and in the fourth quarter they dropped to 0.1% of GDP. This had dire consequences for poverty and old age, which in turn made the elderly very vulnerable to exploitation, at a time when they should be entitled to a secure retirement. National Treasury has emphasised that and the DA agreed. The comprehensive social security paper has been in abeyance for ten years or more and must be published as soon as possible, because this in itself leads to policy uncertainty. Retirement reform will not be a single event, it will take a considerable time to be drafted, and will of necessity be piecemeal. The changes to annuitisation of benefits already enacted in the 2015 TLAB have started the process towards comprehensive social reform and must not be reversed.

The DA proposed changes to the Bill as tabled, that clauses 1, 2 and 3 be deleted; leaving only clause 4 which is a technical amendment.

The Chairperson asked for responses.

Mr Olano Makhubela, Chief Director: Financial Investments and Savings, NT, said NT understood the concern around providing the tax benefit to provident fund members, while postponing the annuitisation requirement for two years. Various interests and challenges are at play. Removing both  the benefit and the requirement to annuitise would effectively mean that a significant portion of the upgrades that industry had already done must be reversed. NT has engaged with industry on how to make the proposed changes less painful. The two year postponement only on annuitisation is based on the system being able to manage. The principle remained that in the absence of annuitisation, it would be difficult to justify a tax benefit in the long run. 

Mr Momoniat said that two options were offered in the media statement put out on 27 October 2015 – one to implement the reforms as contained in the TLAB and the other was a phased approach to annuitisation. NT recognised that the way the law has been changed effectively means that the employer contribution was a non-taxable fringe benefit so that provident fund members have been getting a tax deduction for the employer contribution. This had led to high income earners structuring their contribution to a provident fund. It did seem that employers are making the full contribution. It is only where an employee makes their own contribution, which is the case with many workers, where this deduction would not be enjoyed. That was why NT, when looking at phasing it in, felt that the deduction had to be capped at between 10% and 15%, going gradually to 0% if there is no annuitisation. Issues like this will come up. Ultimately, NT believed that the way to go would be to have no tax deduction, but doing this immediately would mean members of provident funds would take home significantly less, as the employer contribution would not be tax-deductible. 

The Chairperson said he did not understand what Mr Lees was saying about not being able to attend a meeting at 14:00. Since 1998 the Committees which he had chaired had sat as the legislative load demands. The Members were exempted from the House. The Chairperson of the NCOP and the Speaker of the National Assembly had indicated that this Committee has a ‘blank cheque’ in this regard. Mr Lees himself served in subcommittee meetings while the House sat in 2015. In the previous week the Committee had held public hearings while plenary was supposed to sit, and the decision to call off the plenary was only made the day before. This Committee would never be able to do its work if it was unable meet during plenary sittings. Furthermore, ASISA would be given a space to say things that it felt could not be said in the public domain. Nowhere else in the world will you find a Committee of Parliament which sits until the day before it votes on a Bill and hears input.  ASISA and COSATU had been asked to work out something in between completely repealing the annuitisation requirements and postponement. The responses were then received and tabled. ASISA is not an ally in the tripartite alliance, although COSATU is, but ASISA was given the same rights as COSATU.  COSATU was in favour of repealing annuitisation, like NUMSA, but it had not got the result it wanted and so this is not “a COSATU bill”, as had been suggested. Since ASISA feels aggrieved, the team would meet and cover the same ground covered the previous day. Everything which was said would be repeated, because there was no conspiracy. This was not the first time a single constituency had been asked for input on a Bill; it was done with the South African Agricultural Union on the Property Rates Bill and the private sector on the Municipal Rates Bill, so he did not understand the objections to now doing that for COSATU? The Committee will continue to do this until it is shown to be unconstitutional, because this is the way public participation should be. He commented that since it now seemed that ASISA was apparently complaining through Mr Lees, who was speaking on their behalf, a meeting should be held after the Committee rose.

Ms Lightbody said she was not speaking through Mr Lees and was not aggrieved. ASISA understands and respects that there is a political alliance. She did not intend to gate-crash any meeting, and had she been invited she would have attended. She wanted to assure the Committee that she was not aggrieved and not speaking through anyone. 

Mr Lees said the Chairperson was very successfully twisting what he had said and he was aggrieved. He had not in any way suggested that ASISA was aggrieved. Rather, he had said the proposal on the table was a product of negotiations between COSATU, Treasury and some others.

The Chairperson interjected asking which section of industry had not been consulted.

Mr Lees said he would not answer the question as he had the floor. The Chairperson had further twisted his words, because he had not said that COSATU should not be consulted. He simply said there are players in the game who came to the public hearings and had not been given a chance to comment on the latest proposals. Whether that was legally required was not the point, but ethically he thought the Committee should allow that chance. He objected again to the Chairperson twisting his words.

The Chairperson asked which section of industry had been excluded and who the Committee should consult.

Mr Lees replied that entities such as the Banking Association of South Africa, Bowman Gilfillan and  Mr Andrew Crawford, all of whom had made submissions, at the least, but also possibly others. He was not suggesting that it had to be done, but that their submissions on the points should be considered.

The Chairperson said those were written submissions and there was no obligation on the Committee to call them again for hearings. He had read the submissions, and Mr Dumisani had looked at them too, and there was nothing in them which was particularly different from the discourse in the Committee. He did not want what had been happening to be misrepresented. He now realised that Mr Lees was referring to those who had made written submissions. No request to speak in the Committee was denied and they had simply written to the Committee, had received replies and some even stated that they did not wish to be called before the Committee. He added that he would like ASISA to come to all further subcommittee meetings. Finally, he noted that the effect of what had been said, on the clauses that the DA did not like, had been covered many times before. He then asked for other Members to respond to the DA’s proposals on the Bill.

Ms Kekane said she had thought the parties were finding each other and should go ahead with the position brought from the previous day’s engagement, as it tried to harmonise the challenges identified. She felt the Committee should accept what Adv Jenkins was saying about the proposed clause.

The Chairperson said the compromise which has been reached between NT and the aggrieved unions, as guided by the Committee, was the preferred option and the Committee was not in favour of the DA proposal.

Dr Khoza stressed the point that the intention of the Committee was to harmonise relations between the key players of labour, business and government She did not think there was anything wrong with having extended meetings with any stakeholder who had asked for more space to present its input. It must be made clear that any other stakeholder who wished to make such input is more than welcome. This was not something that the Members should argue about. If the Banking Association of South Africa had indicated that it wished to meet the Chairperson, she did not think he would have stopped them.

The Chairperson said this was done with the African Banks Bill, where Investec came to see him. He had indicated to the Committee that one stakeholder had approached him, who clearly had a deep and vested interest and who had been asked then to come to the public hearings. As Chairperson, he would therefore continue to do what Parliament expected of an active, public-participation sensitive chairperson. Instead of being credited, he was being lambasted. He asked that stakeholders should research whether such opportunities to participate were available anywhere else.

Ms Lightbody said she was quite distressed that the Chairperson had the impression that she was unhappy with any of the proceedings. The report received on the procedure and the outcomes of the meeting was satisfactory.

Mr Lees made the point that what he said had been completely misconstrued. He had not said that consultation with COSATU was inappropriate. He had asked whether, ethically speaking, the Committee should not also be calling on others to comment.  The Chairperson has pointed out that those others had not asked for the opportunity, which may be a good enough reason. For the record, he had no opposition to consulting with anyone, inside or outside the Committee. If it would help the process he would be prepared to support any consultation fully.

The Chairperson said the Bill had to be voted on and the Committee would prefer to have more than one party voting. If this could not be on the following day, it would have to be on 11 March, at 10:00.  He would like to engage outside this meeting with the opposition parties to determine a suitable time. The Bill would be debated in the House, and those parties who indicated their opposition now would have a chance to speak.

Mr Lees again wanted to set the record straight. At no stage did he say that it was a problem for the Committee to hold a meeting during plenary was a problem, but he had said that the following day was set aside for the President’s questions and he doubted whether he could make it. Before that time, he had a long-standing prior engagement that he could not cancel.

The Chairperson said a time would be determined outside the meeting and a notice sent out.

Ms Nkomo agreed. She suggested that perhaps time should be set aside to hear anyone who had made a written submission and who wished to make further submissions.

The Chairperson said he had read the written submissions and he had asked the Committee Researcher also to read through them, to  pick up anything not covered in the discussions held so far.   It would not be possible to have another round of public hearings the following day. The NCOP had spoken about possibly having public hearings and people could also request to make representations there. He would imagine that the people who really wanted to make submissions were the ones who appeared the previous week.

Mr Momoniat asked if it was possible to go through the Bill clause by clause, to check if there were any last minute issues.

The Chairperson said the Committee had been taken through the Bill and it only had one aspect. However, he asked for input on clause 1.

Mr Axelson said clause 1 dealt with the sections requiring annuitisation and had all been reproduced to show the changes to the dates. The proposed change to the Bill was to insert a new subclause into clause 1, with the requirements for consultation, as detailed earlier.

The Chairperson asked for input on clauses 2 to 5.

Mr Axelson said clause 2 dealt with the technical requirement and clause three was the deletion of the previous annuitisation requirements, and the postponement of all the sections related to transfers and compulsory annuitisation. The section requiring two year review would  be deleted by clause 3, given the insertion of the consultation requirement in clause 1. Clauses 4 and 5 related to the postponement of transfers.

The Chairperson noted that no comments had been made by Members. He noted that the Committee had thus informally  processed the Bill clause by clause. He asked for the proposed amendment to be circulated.

The meeting was adjourned. 


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