The Public Investment Corporation (PIC) noted its largest clients were the Government Employees Pension Fund (GEPF) and the Unemployment Insurance Fund (UIF). The PIC investment process emphasised rigorous governance interventions at various stages of the investment process. Net contributions by the top five clients were indicated. Key strategic objectives were contributing to the development and transformation of the South African economy and financial services and asset management sectors in particular, within the prescripts of client mandates, and to develop internal capacity to expand infrastructure investments in key sectors of the South African economy. Corporate highlights were cited. Audit opinion highlights indicated a disclosure finding. The unlisted investments were reported on.
In discussion, members had questions and comments about the PIC African footprint; Audit issues; the lack of challenges mentioned; female and young black participation as asset managers; food security; interventions at local government level; returns; negative contributions; disclosure of unlisted investments; black participation, and deracialisation in the economy. An EFF Member proposed a 2.5% levy on all pension funds, which could be diverted to fund fee-free education. They congratulated the PIC for providing the information on the PIC unlisted investments and were satisfied with these.
The GEPF was currently the largest pension fund in Africa. There were 1.266 million active members. Government and labour were sponsors. It was a juristic entity, separate from government, and was managed by a board of trustees. The GEPF was the custodian of a significant portion of the wealth of public servants. Its mission was to ensure sustainability of the fund; to provide for effective delivery of benefits, and to empower beneficiaries through effective communication. Strategic objectives were to improve benefits administration; member and beneficiary communication and education; investment monitoring; risk management architecture, and stakeholder relations. Priorities until March 2017 included strategic asset allocation; a PIC mandate review; pension increases, and financial literacy.
In discussion, members had questions and comments about board representation; consolidation of pension funds; funding of higher education; challenges of indebtedness; education of pension fund members; the proposed 2.5% levy on pension funds, and financial literacy.
The Government Pensions Administration Agency (GPAA) achieved 21 out of 23 performance indicators (91%) which showed an increased from 2014/15. One of the unachieved targets was the requirement to pay 80% of pension claims within 45 days. GPAA achieved 77% and was close to meeting the target. One of the issues relating to the missed target, was that GPAA had seen a considerable increase in the number of claims over the two past years and GPAA simply did not have the infrastructure to pay out 80 000 claims as opposed to the average of 65 000.
Total benefits paid for 2015/16 was R78 billion. The contributions received by the GEPF was R60 billion. Therefore, there was a short fall of R18 billion. This trend occurred in 2014/15 and 2015/16 as the volume of the claims increased while the volume of the contributions had decreased.
The number of resignations was similar to 2014/15, in which 36 000 resignations were received, an increase of 59% from 2013/14. The GPAA expects to see the same resignation trends for the exit claims of the GPEF in 2016/17. There is also a deficit in the funding claims, because although there has been an incremental increase in the contributions, the amount of claims paid will still be as high as 2015/16 and therefore, there will be a decrease in cash balances.
GPAA and GEPF have engaged in numerous activities to inform state employees on the National Treasury reform process and what it is about. Desktop research through telephonic and in person interview processes with those who had resigned showed these results:
- Age 35-49: 51.6% resigned due to financial problems;
- Age 19-34: 50% resigned due to bad working conditions;
- Age 19-34: 48% resigned due to no promotion;
- Age 55-60: 41.2% resigned because they were tired of working;
- Age 55-60: 37.9% resigned due to medical reasons;
- Age 19-60: 15% resigned due to the new retirement reform scare;
- Age 19-60: 84% had no regret and was cashing their pension.
Some of the individuals may have cited multiple reasons as to why they have resigned. Thus, there is no particular reason linked to why people were resigning.
GPAA and GPEF have established a dedicated team to deal with unclaimed benefits. Use has been made of the Offices of the Premier more effectively in dealing with this matter. GEPF and GPAA have been engaging with other national departments, such as Health, Correctional Services, Education and SAPS, as the majority of the GEPF membership is pulled from these departments. Substantial progress made in dealing with unclaimed benefits.
The July 2016 Public Service Commission Report - Assessment of management of service terminations and pension pay-outs in the Public Service - had identified areas of concern and various initiatives have been designed to deal with these.
The total cost of GPAA for 2015/16 has not increased that much, but in fact, decreased. There was about a 7% increase on compensation of employees. There was increased capital expenditure on modernisation but a decrease in the spending on goods and services as a result of cost management implemented by GPAA. Over the past five years, GPAA has always obtained an unqualified audit report with findings.
Members asked what actions were taken by GPAA to address non-compliance; requested a breakdown of its wasteful expenditure; why a bonus was paid to a senior official who had not signed a performance contract; requested quarterly reports from the GPAA; asked about consequence management and suggested GPAA use the South African Reserve Bank (SARB) model of training; asked why GPAA is accountable only to the Minister. The Committee said the presentation was unclear about the statistics on the number of people resigning and why so many people are resigning. It was noted that the GPAA regulations prescribe a turnaround time of 60 days so 45 days is good and they should push on for a 30 day turnaround.
The Chairperson noted there were two issues with regard to PIC. One was the report, and the other was outstanding issues from their previous engagement. He asked that the PIC include those in their report.
Public Investment Corporation on its Annual Report
The Committee was briefed by Dr Daniel Matjila, CEO; Ms Matshepo More, CFO; Ms Rubeena Solomon: GM, Investment Management; Mr Royith Rajdhar: Executive Head, Developmental Investment, and Ms Bongani Mathebula: Company Secretary. A list of PIC clients was presented. The largest were the GEPF and the Unemployment Insurance Fund (UIF). The investment process emphasised rigorous governance interventions. Interventions included independent investment reviews and reports. Net contributions by the top five clients were indicated. Key strategic intent objectives were to contribute to development and transformation of the South African economy and financial services and asset management sectors in particular, within the prescripts of client mandates; and to develop internal capacity to expand economic infrastructure investments in key sectors of the SA economy within the prescripts of client mandates. PIC corporate financial highlights were 6% higher revenue; 3% lower costs; total assets increased from R1.6 billion to R2.1 billion; with no fruitless and wasteful or irregular expenditure. The audit opinion indicated a disclosure finding. The Committee was taken through the social impact of unlisted investments since inception, and performance against strategic intent. Unlisted investments were reported on.
Mr S Buthelezi (ANC) commended the presentation. He found the development of an own BEE scorecard by the PIC impressive. Government could take the PIC as an example. He commended the women-targeted programmes and graduate programmes. It would be better to look not at typical universities like UCT and Wits, but rather at institutions like Fort Hare or Turfloop. The PIC could encourage asset managers to have similar graduate programmes. There was a focus on trying to absorb graduates. He asked if the PIC was only taking finance and accounting students. There was a lot of legal work to be done in the PIC. He referred to the PIC footprint on the African continent. Apart from investment, he asked if the PIC was looking to provide GEPF services to the rest of the continent. He noted with reference to company asset management, that whoever paid the piper called the tune. He asked about interaction with the Futuregrowth pronouncement that state owned enterprises (SOEs) would no longer be funded. He asked if any other asset management companies would follow suit, where they had their money, and if so who they were.
Ms D Mahlangu (ANC) referred to the R11.5 billion BEE issue, as mentioned on page 81 of the Annual Report. She had expected PIC to expand on the matter and make it simpler. It was too technical. She referred to audit report on page 72. The audit findings had to be taken seriously. PIC had to provide an audit action plan on how it would deal with those. She appreciated that a workshop would be held with the Auditor-General. It had to be possible to hold PIC to account. The Committee had met with the Auditor-General the week before, and did not want to be told other things by PIC. She referred to the social impact of unlisted investments since inception (slide 35). She asked if people were helped to access their pension money. The Committee had raised concerns about education and housing in the meeting with PIC the previous year. A number of people from Member constituencies had resigned due to indebtedness. The Honourable Shivambu would probably like to speak on #FeesmustFall. Members had to be involved with such issues as a Finance Committee. The PIC should make a contribution to education and housing. The PIC had mostly reported on what had been achieved, rather than on what had not. To fulfill its oversight role, the Committee had to know the PIC challenges.
Ms P Kekana (ANC) referred to Futuregrowth as well. The PIC had to indicate progress on women as asset managers. There had to be a positive report at the next engagement. The PIC had to take the initiative and deliberately look at black female participation as asset managers. She asked if young black asset managers were coming in. They had to be empowered. She called for PIC outreach to rural universities. There had to be more tangible results. The CEO had stated that PIC would invest in agriculture and renewable energy. She had looked at detailed reports on the Isibaya Fund. The PIC had to enlarge its footprint and work closer to the Ministries of Agriculture, Forestry and Fisheries, and Rural Development and Land Reform as rural communities could benefit from PIC.
Mr Maynier said that PIC disclosure about unlisted investments was discussed the week before. This had to be formally presented.
Ms Kekana said that as the matter was tabled, she assumed it could be engaged with.
The Chairperson said that he had approached the Deputy Minister of Finance after the matter was raised. A meeting was facilitated. The PIC explained that there were market sensitivities, which ruled out certain sectors. There were also legal issues. The Parliamentary Senior Legal Advisor, Adv Jenkins, and his team had to decide about criteria for what was to be seen as market sensitive and what not. He as Chairperson had facilitated that meeting. Members had had a discussion and could be privy to the issue.
Mr Maynier said that he had thought that the Deputy Minister would speak to the issue.
Mr F Shivambu (EFF) commented that Mr Maynier was completely out of order. He asked why the Chairperson allowed Mr Maynier to interject when another Member was speaking. He should speak when it was his turn.
The Chairperson asked Mr Maynier not to make things difficult. The decision to call PIC had been taken in November of the previous year, and it was fast-tracked. He could not recall if it was before or after a certain issue was raised in the public domain. It was agreed in 2014 that the Committee would not adopt a conveyor belt approach to oversight, like some other committees. The Committee would rotate, and only take three entities at a time. The ANC had decided in the last quarter of the previous year that there was to be no party political division. The left had been saying for ten years that PIC was not investing in the right things, and that there was no developmental investment. There was a need for openness and transparency. The rules were operative for majority and minority parties alike.
Ms Kekana continued with her comment about the Isibaya Fund Food security was critical. She appreciated interventions by PIC at the level of local government. It had to be done for all municipalities in distress. Municipalities had to have the capacity to pay back the money through grants from government. There were challenges related to water services, and intervention was needed. She asked if PIC was opening itself up to risks by investing in electricity and renewable energy.
Mr B Topham (DA) commended PIC for being the first entity to exceed its target with black females. The most important part of asset management was returns. The PIC was the primary investment carrier for the government pension fund. Any shortfall could hit the fiscus. The investor had to exceed the actuarial requirements of the pension fund, in order for the State not to pick up the bill. An 8.04% return was shown for GEPF, but on page 56 returns of 21.8% are indicated. Average fees were extremely low compared to other players in the market. He asked how returns were calculated, and what made up the benchmark. There was fluctuation, with different benchmarks for different portfolios. A benchmark return of 7.56% for a major pension fund in a country with a 6% inflation rate was not enough to refund obligations in the long term. It might be that returns cited were after inflation, which would be more understandable. He asked for clarification.
Mr A Lees (DA) congratulated the PIC CEO and the Deputy Minister. Mr Topham had dealt with GEPF negative contributions. He would have thought that it would be positive. He asked if there were even more pensioners nowadays, or whether they were getting older. Mr Topham had referred to investment returns. He saw a conflict of interest. The shareholder gave PIC the mandate to include developmental investments which might not yield the required returns. There was a responsibility to ensure sustainability. It was said that GEPF was not erring, it was government. However, he was worried as a taxpayer, even though he was not a member of the GEPF. He asked how the conflict of interest and negative contributions were to be dealt with. The mandate from the clients was presumably different from those of the shareholder. He asked, to general laughter, if all the graduates could be expected to graduate in the current year.
Mr Maynier congratulated the Deputy Minister and the CEO on the disclosure of unlisted investments in Isibaya. It was a courageous step forward. It created an opportunity to scrutinise the investments. It could be a disincentive for Rand seekers who wanted to raid PIC. He asked if all investments were disclosed, and whether the total investment was R44.6 billion. He hoped that none of the investments related to Gupta owned companies.
Mr Shivambu referred to the proposed revised organisational structure. He proposed that it be broken down into four portfolios. PIC was the biggest asset manager on the continent, as well as a private equity firm. It had to be broken down into components, each under a responsible individual. The Annual Report mentioned shareholder activity. He asked if PIC and GEPF representatives were deployed to the listed companies. There had to people who could guard against wrong practices of tax avoidance. It was a reality in companies like Lonmin, and in the gold mining sector, in which PIC invested. There had to be internal capacity to check on this. It would have an impact on what was received later as dividends. It was stated that R50 billion was granted for black funding managers. He asked how much was granted to non-blacks. It had to be agreed as a matter of principle that 60% of all subcontracted asset managers had to be black. They represented the people who gave the money. Nothing was said about the R70 billion the Deputy Minister announced during the budget vote. He asked about the R70 billion as it related to developmental projects, agriculture and agro processing. He asked about plans for the R70 billion. It was part of the economic participation of the previously disadvantaged. PIC assets had to be given to black people without apology in terms of how it had to be handled. The disposal of 25% of parity had to apply to all investments. It was a much more physical way of facilitating black participation. The National Empowerment Fund (NEF) was given R1 billion for black participation. It was inadequate. He had raised policy intervention in a previous meeting. The pension fund in South Africa had R4 trillion. The Parliamentary Budget Office (PBO) had stated that R73 billion was needed for fee-free education. If a levy of 2.5% could be instituted for all pension funds, there would be R100 billion. It could be ring-fenced for higher education.
There would be benefits to pensioners who would not have to pay between R50 000 and R150 000 annually for their children’s education. There would have to be mobilisation of the unions, who would have to agree. The PIC ought not to be penalised for investment in unlisted companies. The situation with regard to beneficiaries of loans and private equity had to be more representative of SA demographics. If not, it would reflect what was done before 1994. The unlisted component had to be increased to 5%, to begin to facilitate black participation in the economy. The PIC did not need to be apologetic and there was not to be criminalisation. If the pattern defined in the previous 22 years was to be continued, it would perpetuate racial supremacy in the control of the economy. Control was maintained through legal means. The colonial dispensation beheaded black people to take away their land. The primary mandate of PIC had to be to assist black participation in the economy. There was no need to be apologetic. The majority of the money in the country belonged to black people.
The Chairperson said that he agreed with Mr Shivambu against criminalisation. The PIC and the Deputy Minister had done what had to be done in terms of the Constitution. It was not a matter of acting courageously. One did one’s job by acting in accordance with Parliament. After all the bluster and histrionics and pre-released media statements, nothing but good work had been done. He wished to congratulate the Deputy Minister and PIC, not for being courageous, as Mr Maynier had termed it, but for being unapologetic, as Mr Shivambu advised. He did not know about the 5% for unlisted companies, but it was advisable to do more. Government, the unions, civil society and Parliament all had roles to play. The PIC had a highly important role to play. There was a social explosion looming. The students were but one minor symptom of the problem confronting government. He wished to congratulate the Deputy Minister and PIC. All parties wanted to get credit. He jested that he would claim credit for rain in KZN. The ANC in fact wanted the same as the DA. The ANC had put the issue on the table in November 2015, although the ANC style was different. The ANC did not rush around. The DA would claim that it was on account of them, but the ANC was about to get in also. He wished to congratulate the Deputy Minister and PIC, for having done what it was required to do anyway. All sorts of conspiracies were being alluded to. The Communist Party was being funded, and he, Yunus Carrim, was affected in some way.
The Chairperson continued that there was as yet no deracialisation of the economy. It had been said repeatedly that an African bourgeois manufacturing class had to be created. Such a class could not be created out of nothing. But ordinary Africans also had to be empowered. He was impressed by the financial highlights shown on slide 30. Revenue was 6% higher, and costs 3% lower. Total assets were up from R1.6 billion to R2.1 billion. There was no fruitless and wasteful or irregular expenditure. 77% of total spending was allocated to companies with BEE Levels 1 to 4.
Mr Mcebisi Jonas, Finance Deputy Minister, replied that legal opinion was consulted, as well as the GEPF, and a number of companies were written to. It was an important step forward. It would henceforth be standard practice to declare on an annual basis on all the investments made. There was a debate about the tensions between the developmental mandate and the mandate to ensure benefits for members. The PIC had to attend to investments made and the mandate given, it had to drive transformation and development and also had to ensure balance and high sensitivity to what members required. Some were saying that PIC was not doing enough, and others were saying that it was doing too much. A more comprehensive discussion on free education was needed. There had to be a broad discussion about what choices had to be made as a country. Free education had to be defined, and a road map had to be drawn to work towards it. Discussion had to focus on such a road map. Students had done well to bring government into the discussion. The PIC invested in health and education within its mandate. There had to be a broader discussion on how to improve the health infrastructure. The Department of Health had to be spoken to. There had to be a discussion with Education about how PIC could invest in it.
The Chairperson noted that Treasury would have to respond about the suggested 2.5% levy, but asked if PIC was capable of a tentative response.
The Deputy Minister replied that he could not pronounce on the 2.5% outside of a comprehensive discussion. Ultimately the debate would be about the kind of trade-offs that could be made. There had to be multiple stakeholder and party engagement to define a road map.
The CEO asked the PIC CFO to speak on the PIC BEE scorecard.
Ms More replied that specific sections of the BEE scorecard were targeted. It was asked how many women and disabled persons were in positions of ownership and management control. The last review done was about asset managers. The requirement was for 51% to be black, but over and above that women and the disabled had to be in ownership and management control. The PIC had created its own scorecard. Different spaces were looked at, and if there was a shortfall, the BEE scorecard was adapted. Asset managers were being advanced, with respect to how much they spent and how their skills were advanced. Where the value chain was low, the area was strengthened.
Dr Matjila asked the CFO to comment on the BEE scorecard as it related to service providers. The PIC had its own scorecard. The question was what was done with the money earned from clients to change the BEE scorecard to make it impactful.
Ms More replied that the issue was how to advance and pool funds from asset managers to improve the BEE scorecard. The PIC was being effective in improving the corporate BEE scorecard.
Dr Matjila said that some questions would be responded to later.
Mr Shivambu said fee-free and free education should not be conflated. It was not only a question of money. There were contractual issues around who would be admitted, and how long students could be kept in the system. If PIC and GEPF were to displace their finances and let go of 2.5% of their assets it would serve a noble cause. There could be legal implications. But it was up to Parliament to make laws that were responsive to social demands.
Ms Mahlangu commented that there had to be a commitment to a remedial plan for dealing with the Auditor-General’s findings.
The Chairperson proposed a deadline of two weeks.
Ms More answered Ms Mahlangu that the last column she had referred to was not the Auditor-General’s comments. It was in fact an explanation by PIC management. There were no findings on performance information, only on disclosure. The PIC frequently met with the Auditor-General office and workshopped with it. The PIC wanted to improve governance. Fruitless and wasteful expenditure had dropped to zero.
Ms Mahlangu said that the matter could be considered closed but she was still uncertain.
Ms More replied that workshopping was a process. The PIC could come back after the workshop and report on what was agreed upon with the Auditor-General.
The Chairperson proposed that the PIC report on progress during the first week of February 2017.
Mr Topham asked what protocols were used for the description of market value. It could be possible that adjustments for underperforming investors were not made quickly enough. He was pleased about investment in municipalities. He asked about investment criteria to be applied to municipalities. Municipalities were unable to roll out projects due to two issues. There was the problem of inability to raise borrowings, or that borrowings that were raised were extremely high. There was an opportunity for PIC to get a higher rate of return. Criteria had to be put out to local government.
Mr Lees asked to be given just a feel about reasons for negative contributions. He asked if it was due to people withdrawing from the fund too early.
Mr Buthelezi asked about potential for precipitating the crisis related to Futuregrowth.
Mr N Kwankwa (UDM) remarked on fee-free and free education that a core perspective first had to be developed. Funding models could be discussed thereafter. Different stakeholders would have different proposals. He agreed with Mr Shivambu that the NEF was expected to perform miracles with R1 billion for black advancement. He had sat in the Small Business Development Portfolio Committee the week before. It was expected of that department to perform miracles with R3 billion. The PIC was in an important position to help development. He welcomed the transparency and efforts to coordinate priority sectors and various strategies. The R50 billion Mr Shivambu asked about was a critical issue. The PIC had to inform about the amount granted to non-blacks, to give the Committee a sense of proportion. It was advisable to check pension funds at regional levels in Africa. He asked if PIC checked the value of pension funds. He asked about steps taken to direct investment to key sectors. It was a critical role for PIC. He asked if that was being done. The PIC had to drive investments, but it also had to police it to see that developmental mandates were carried out. His party was not in favour of restructuring SOEs, for ideological reasons. But his party was of the opinion that some SOEs were not strategic. His party had asked after the budget speech why assets could not be used to kick-start SMEs. They had to be assisted to play into that role.
Mr Abel Sithole, GEPF Principal Executive Officer, noted that there was a question asked of PIC which was a GEPF question. Page 19 of the PIC presentation reflected a net contribution rate. There was a reduction in the net cash flow that went into PIC. Pages 15 and 16 of the GPAA briefing dealt with resignations. The number of public servants leaving was a problem for the GEPF. The net contribution was affected by the large numbers of resignations. It was not because more pensions were being paid. It was inevitable that the number would grow as the fund matured. There was an outflow increase but that was not the cause of the situation. The GPAA would expand on this during its presentation.
Dr Matjila said that the question about returns was an important one. He had stated that funds were in good shape, despite low economic growth. There was no need for government to put in money. Ties with Futuregrowth were severed when the portfolio was restructured, in 2003/04. Agrifund was the only joint manager in the unlisted space. PIC money was not managed except for the partnership in Agrifund. Before the question of R50 billion could be attended to, it had to be mentioned that there was a requirement of a minimum of 26% BEE shareholding. A programme for black managers was introduced in 2008. Each year two or three managers were taken onto the platform. They were taken from developmental managers. There was to be a stronger BEE bias. PIC was moving into the BEE space. In the end it would be more than 70%.
Mr Fidelis Madayo, PIC Executive Head: Listed Investments, added that the GEPF and UIF were putting out R109 billion to extend managers. R62 billion went to BEE managers. Money was allocated to 16 managers. It included established BEE managers and incubating others. Money for incubation would be allocated in the new year. The UIF placed R6.2 billion in the hands of established BEE managers.
Mr Sithole noted that most of the money was managed by PIC in house. Most bonds were not managed by asset managers, but by PIC. A big proportion of assets was not managed by GEPF and others but by PIC in house.
Mr Shivambu remarked that he was aware of internal and external distinctions. But the question remained about the R50 billion reportedly granted to black fund managers. Mr Madayo had mentioned R62 billion. He asked which figure was the true one. There had to be agreement in principle that external money managed by blacks had to reflect the demographics of the country.
Dr Matjila said that figures would be provided.
The Chairperson noted that the Committee had to get its Committee Reports adopted and published. Member’s responses had to be in by Friday 10 am. As no-one had submitted recommendations by 12h00 on the day before, there would be an amorphous and general report.
Dr Matjila noted that a document on unlisted investments was circulated amongst Members. It dealt with all clients managed.
Mr Shivambu asked about the R70 billion that the Deputy Minister announced during the budget vote.
Dr Matjila replied that PIC was still moving into the implementation phase.
The Chairperson noted that the Committee had to go to Beit Bridge in the first few days of December. It still had to deal with the sugar tax. It would not do to have big ideas hanging in the air.
Mr Lees told the Deputy Minister that a fantastic report was received from SAA. When asked about subsidiary finances, SAA replied that it was consolidated, but it was not submitted.
The Chairperson said that he had not yet looked at the replies. He only received it in the early hours of Saturday morning. The executive had to be held to account. He would deal with the matter together with the secretary. His job was to persecute on behalf of Mr Lees if he had to. On the whole the Committee was impressed with PIC, although it did not have the technical capacity to form a true assessment. On the whole PIC had done well on the day. He liked the fact that that the whole PIC team was brought in.
Government Employees Pension Fund (GEPF) on its Annual Report
Mr Abel Sithole, Principal Executive Officer, said the GEPF was currently the largest pension fund in Africa. Government and labour were the sponsors. It was a juristic entity, separate from government, and was governed by a board of trustees. The GEPF was the custodian of a significant portion of the wealth of public servants. Its mission was to ensure the sustainability of the Fund; to provide for effective delivery of benefits; and to empower beneficiaries through effective communication. Strategic objectives were to improve benefits administration; member and beneficiary communication and education; investment monitoring; risk management architecture, and stakeholder relations. Priorities until March 2017 included strategic asset allocation; review of the PIC mandate; pension increases, financial literacy; value added benefits, and a complaints handling mechanism.
Mr Shivambu referred to board representation. It was very important to play in the listed companies. The Farlam Commission found beyond doubt that Lonmin was involved in tax avoidance. Dividends were declared, and PIC was being robbed as one of the investors there. Board representation was related to interests. There had to be a monitoring mechanism for profit shifting. He asked about the current amount and degree of monitoring. He referred to the 2.5% levy on all pension funds that he proposed for fee-free education purposes. He asked that the GEPF pronounce on the financial implications of that, and how it could affect the pension fund itself. He asked that it be done in writing. There had to be movement into the discourse on the consolidation of all pension funds. There were 250 000 employees at local government level. There were many different pension funds. There had to be movement towards consolidation, either into the GEPF or a separate local government pension fund. SALGA tried to do that but did not succeed. Pension funds could play an important role to achieve developmental objectives and economic transformation. The GEPF could use its internal capacity to determine how many pension funds there were at local government level. It could give a breakdown in terms of the implications of consolidation, what the value was, and how consolidation could be achieved through proper legislative means.
The Chairperson remarked that local government was complex. The issue had to be addressed by SALGA and CoGTA.
Ms Kekana noted that Dr M Khoza, a Committee Member, had remarked on how fragmented the pension fund situation was. Even public office bearers and councillors had their own pension funds. It had to be put on the table. The GEPF could initiate discussion and take the issue further. She referred to the funding of higher education. She was glad that the GEPF had taken up the issue of improving communication with beneficiaries. There was improvement of service delivery in terms of communication and education. Most public servants had challenges with indebtedness. Some had children at university. She was not sure if the NSFAS funded children of public servants. Dialogue had to be initiated, with beneficiaries engaged about some of the interventions. The Committee had emphasised financial training and education in the previous year. She was glad that the GEPF was elaborate about reaching out. There was an issue confronting the GEPF. She had two or three cases where people had assumed that when they turned sixty, they would be registered. But people stayed for three or four months without communication from GEPF or salary. She advised that the focus not only be on those who drew prematurely. She proposed that those who were due to exit the system at the right age should be prepared for what would happen beyond that time. People who had 20 or 30 years left to live had to be taught how to behave in order to not become a social grant person. There had to be education on how to behave with money. SA home loans could not enable public servants to afford housing in some of the smaller towns.
Mr Topham asked for a demographic breakdown of fund members. It had to be known what percentage of the fund was made up by whom. The 2.5% levy proposed could be helpful, if it was transformational.
Mr Sithole answered about governance of companies, with regard to the seconding of board members. It was a tricky and dangerous situation. Once people became board members of entities, they were not there to represent interests, but where one came from could have a particular impact. There were instances where people were deployed to represent shareholders. GEPF was a significant shareholder, and focused on the area of governance in entities. Investment was through the ESG programme. Dr Matjila had dealt with governance in the PIC presentation. GEPF made sure that entities it invested in were governed properly. A Member referred to the deployment of people to serve on the boards. It was beneficial but tricky because one became part of the process. One could exert influence, but one could be co-opted, and would become part of decisions taken in that process, if overruled. It was an important function but could be detrimental if people were not serving the best interests of those represented.
Mr Sithole replied about the proposed 2.5% levy on pension funds. The GEPF was a pension fund, and the assets belonged to members. They had to agree, and decide about whether it affected their benefits. Consolidation of funds was being looked at by the Financial Services Board. It was a challenge for the GEPF. There was a proliferation of pension funds in South Africa. A challenge to the Committee was whether the government should be viewed as a guarantor in case of shortfall. Consolidation was not to be at the expense of GEPF members. GPEF was an entity of a specific kind, if one opened it up to others, one could expose oneself to technicalities one might not want to face. He would leave it up to the Chairperson to decide whether SALGA was to lead consolidation. The issue of office bearers would be pursued. The GEPF had not been asked to deal with that, but would deal with it through other processes.
On finance literacy, Mr Sithole said that there had to be engagement wider than the GEPF. It was not unique to the GEPF. It was a nationwide problem. Members wanted to access their pensions. Other entities interested in that aspect of consumer behaviour had to be dealt with. If people had problems with other aspects of their lives, other entities had to be engaged with.
Mr Shivambu advised that a study be done on the attitude of members to the 2.5% levy, also in the Government Pension Administration Agency. It had to be seen if the 2.5% would affect benefits.
Government Pensions Administration Agency (GPAA) on its Annual Report
Mr Krishen Sukdev, CEO, GPAA, said that 21 of 23 performance indicators were achieved (91%). The two indicators unachieved were:
- The requirement to pay 80% of pension claims within 45 days. GPAA achieved 77% and was close to meeting the target. One of the issues relating to the missed target, was that GPAA had seen a considerable increase in the number of claims over the last couple of years and GPAA simply did not have the infrastructure to pay out 80 000 claims as opposed to the average of 65 000.
- GPAA also failed to achieve the number of internal audits which was set at 48, we achieved 38. GPAA did appoint the Chief Audit Executive to stabilise these areas.
The 21 indicators which had been achieved by GPAA illustrated an increase in performance from 70% in 2015 to 91% in 2016.
Mr Jay Morar, General Manager: Government Employee Pension Fund, GPAA, presented the following achievements by GPAA in annual performance:
- Client Satisfaction: Achieved: 97%; Target: 80%
- Accurate payment of benefits: Achieved: 100%; Target: 80%
- Compliance to Customer SLA: Achieved: 89%; Target: 90%
- Benefits paid within 45 days: Achieved: 77%; Target: 80%
Mr Morar stated that in the previous financial year, benefits were paid within 60 days but that GPAA has attempted to reduce it from 60 days to 45 days. However, the target was missed by 3%.
Mr Morar stated further that the total benefits paid for the 2016 financial year was R78 billion. The contributions received by the GEPF was R60 billion. Therefore, there was a short fall of R18 billion. This trend occurred in 2014/15 and 2015/16 as the volume of the claims increased while the volume of the contributions had decreased.
Mr Morar drew attention to paid resignations. The number of resignations in the last financial year was similar to 2014/15, in which 36 000 resignations were received, an increase of 59%. For 2016/17, the average number of resignations so far averaged at 18 000. The GPAA expects to see the same resignation trends for the exit claims of the GPEF. There is also a deficit in the funding claims, because although there has been an incremental increase in the contributions, the amount of claims paid will still be as high as 2015/16 and therefore, there will be a decrease in cash balances.
Mr Morar addressed previous questions raised by the Committee relating to the actions that the GPAA and the GEPF were taking, in relation to rumours and pension reforms. GPAA and GEPF have engaged on numerous activities to inform state employees on the National Treasury reform process. These included:
- Sending FAQs (frequently asked questions) to GEPF members;
- Articles in print media as well as posters;
- Informing members and pensioners via outreach programmes such as road shows, pre-retirement workshops and human resources forums with employer departments.
- Use of community radio stations;
- Working together with National Treasury when required and requested.
Mr Morar emphasised that the GPAA has tried as much as possible to engage with the membership of the GEPF, in terms of giving members an understanding of what the pension reform process is. They have partnered with union workshops to inform these unions as to what the reform process is about as well.
Mr Morar addressed the Committee’s previous concerns relating to research that had to be done into the reasons for resignations. He indicated that this was noted and an independent surveyor was appointed who engaged in desktop research through telephonic and in person interview processes with those persons who had resigned. The results were as follows:
- Age 35-49: 51.6% resigned due to financial problems;
- Age 19-34: 50% resigned due to bad working conditions;
- Age 19-34: 48% resigned due to no promotion;
- Age 55-60: 41.2% resigned because they were tired of working;
- Age 55-60: 37.9% resigned due to medical reasons;
- Age 19-60: 15% resigned due to the new retirement reform scare;
- Age 19-60: 84% had no regret and was cashing their pension.
Mr Morar stated that some of the individuals may have cited multiple reasons as to why they have resigned. Thus, there is no particular reason linked to why people were resigning from the GEPF. Also, the GPEF invited the University of Witwatersrand to do work for the GEPF through its actuarial society. Some research information has been provided and again, it shows that there is no particular reason as to why people are resigning from the GEPF.
Mr Morar addressed unclaimed benefits. The year-end balance at 31 March 2016 for unclaimed benefits was R653 million which was made up of transfers paid into the unclaimed benefits account and then, payments made out of the account, and interests charged onto the unclaimed benefits. Since GPAA and the GPEF have understood the problem, they have established a dedicated team to deal with unclaimed benefits. Use has been made of the Office of the Premier more effectively in dealing with this matter. Thus far, the Offices of the Premiers of Limpopo, Eastern Cape, Free State and North West have been engaged. These offices are being used to intervene in the management of unpaid benefits. GPAA and the GEPF have also compiled a Presidential task team that is assisting with the tracking and tracing of membership through the efforts of the Financial Services Board and the Deputy Minister. The GEPF and GPAA have been engaging with other national departments, such as Health, Correctional Services, Education and SAPS, as the majority of the GEPF membership is pulled from these departments. GEPF has also considered the fact that some of their members may be in prison. Correctional Services has been approached to determine membership so that these members can receive their benefits.
Mr Morar noted that a database was being worked on between the GEPF, SARS, the South African Social Security Agency (SASSA) and other government institutions. SARS and SASSA have provided the GEPF with a fair amount of information and contact details for members to deal with unclaimed benefits. He emphasized the substantial progress made in dealing with unclaimed benefits.
Mr Morar drew attention to the spotlight on the July 2016 Public Service Commission Report (Assessment of management of service terminations and pension pay-outs in the Public Service) which was presented to Parliament and the Committee. The areas of concern were identified and meetings have been held with the Public Service Commissioners who have dealt with the findings and the report. Various initiatives have been designed to deal with these areas of concern. Initiatives included:
- Improved feedback from employer departments on what is required from the GEPF and used to improve the existing systems that are in place;
- Many departments are using e-channel, which is an electronic website through which claims are submitted. Some employer departments may have encountered problems when submitting claims through our e-channels and the GPEF is therefore listening through road shows and engagements as to what system improvements can be made for seamless claims;
- Engaging with national departments, particularly SAPS, on how to deal with the claims that have had challenges.
- GPAA now has a complaints mechanism in place within which complaints can now be escalated and dealt with effectively;
- GPAA has met with the Director General of DPSA to deal with employer related findings.
- GPAA has dedicated internal departments to deal with challenges which national and other departments are facing.
Ms Kedibone Madiehe, General Manager: Customer Relations Management, GPAA, addressed the issues of client and employer management. In terms of the targets that had been set, the following was achieved:
- SLA Compliance: Achieved: 81%; Target 80%
- Branch visits: 482 908
- Calls Answered by Call Centre: 707 814
- Employer Department Visits: 13271
- Client satisfaction: Achieved 97%; Target 80%
Ms Madiehe noted that in relation to the branch visits, all the symbols marked in yellow, indicated the main branches while the blue symbols indicated the satellite branches of GPAA. GPAA has realised that each province has a main office and a satellite branch with the exception of Western Cape, Mpumalanga and Northern Cape. There is an anticipation of increase in branches as a new system is in place to ensure that there is a balanced membership engagement in each province. Increase in branch visits can also be linked to the number of resignations which the GPEF has seen in the previous financial year as members are mainly inquiring about benefit statements, progress of payments, and cases lying with their employer departments.
Ms Madiehe stated that the call centre’s performance was 64% of the service level agreement (SLA). This is one indicator not achieved for the financial year. However, there has been progress, and the GPAA has looked into a number of initiatives for 2016/17. First Quarter shows that there has been an improvement to 69% and in the Second Quarter an improvement to 82% which is in line with the SLA targets and GPEF. GPAA has offered a number of solutions to improve the call centre experience. GPAA has attempted to robustly recruit graduates to intern. This has improved the SLA timescale. GPAA has engaged in robust discussions to determine how to absorb graduates into the GPAA, as the one-year experience and training GPAA has provided are skills GPAA does not necessarily want to lose.
Ms Madiehe noted that GPAA has approximately 478 employer departments. And these are serviced by client liaison officers (CLOs) on a daily basis. 13 271 department visits provided the GPAA with the level of comfort that the representations in terms of education, resignations and retirements are dealt with from a CLO perspective and that GPAA is also tracking the backlog cases within the organization. CLOs are therefore, critical in ensuring that the GPAA expedites the payment process.
Ms Madiehe stated that the client satisfaction target has been exceeded. These are similar to the net promoter scores in the branch offices. GPAA always encourages clients to provide feedback on improvement areas. For the financial year under review, 97% was recorded for the regional offices. What was not included in the presentation were the satisfaction levels in call centres. Members rated GPAA 91% in relation to the financial year improvements on turnaround times and the average speed of answers being recorded.
Ms Madiehe noted that pre-retirement workshops amount to 513. These workshops target members between the ages of 55-60. The workshop focuses on understanding the retirement process. Members are encouraged to bring their forms, before their exit. This has led to an increase in too early to pay benefits as retirement forms are sent prior to the member’s exit date, which has been successful as too early to pay benefits has increased over the years. Member awareness sessions have increased to 2 769 and these are conducted through fun talk, media interviews, and HR forums which are targeted at the employer departments. GPAA is also budgeting for two road shows per year. There have been 127 134 mobile office visits and 706 mobile site visits. Areas beyond the 50km radius from the main office have been targeted. This has been a success. Over 95% of these mobile office visits have been in rural areas.
Mr Mongezi Mngqibisa, General Manager: National Treasury Programme, GPAA, presented the National Treasury funds’ performance. These are funds which are non-contributory to the members and are paid directly from the fiscus. Four key performance areas were measured:
- Client Satisfaction: Achieved 91%; Target 80%
- Accurate payment of benefits: Achieved 100%; Target: 80%
- Compliance to Customer SLA: Achieved: 97%; Target: 97%
- Benefits paid within 45 days: Achieved: 91%; Target 80%.
Mr Mngqibisa presented membership retirement movement. Post-retirement medical subsidies are increasing quite dramatically. Since the increase last year of 28.5% and subsequent increases of the next few years which are linked to medical inflation plus 1, they are processing 350 000 new applications. Persons who were not accessing their funds are now, doing so. National Treasury has also seen a decline in a number of other funds because of members’ natural attrition. National Treasury paid a total of R3.9 billion versus the R3.7 billion from the fiscus.
Mr Mngqibisa mentioned that there are various stakeholders which have been engaged in the payment of pensioned funds. These included: Military Veterans: Cape Town, Durban and Kimberley; GEMS: Government Medical Aid Scheme; and Department of Military Veterans.
Mr Phumzile Mda, Acting Chief Financial Officer, GPAA, presented on the financial well-being of the GPAA with emphasis on the financial income statement and the Auditor General report. The GPAA recovers 97% of its costs from GPEF. The 3% difference is recovered from the National Treasury. The total cost of GPAA in 2015/16 has not increased that much, but in fact, decreased. There is about a 7% increase on the compensation of employees. There is an increase on capital expenditure on modernization but a decrease in the spending on goods and services as a result of cost management implemented by GPAA.
Over the past five years, GPAA has always obtained an unqualified audit report from the Auditor General. The audit findings were:
- Audit Findings: 2016: 24 audit findings; 2015 28 audit finds – there has been a decrease;
- Matters of non-compliance: 2016: 3; 2015: 3 – results have been the same. The problem of non-compliance arose in the supply chain;
- Irregular expenditure: 2016; 9.84 million; 2015: 46.94 million – this has decreased tremendously because of the interventions GPAA has introduced over the last year.
Wasteful Expenditure: 2016: Zero; 2015: 399 000
- Audit Findings resolved: 2016: 15 have already been resolved using interventions offered by GPAA; 2015: 28 were resolved.
On human resource management, said GPAA has 1 102 staff members, of which 81% African; 5% Coloured; Indian 2.5% and White 11.5%. Training interventions in GPAA have been categorized in terms of gender. The number of male and female employees combined is 1 135 of which 429 (38%) are males and 706 (62%) are females. This is in line with ensuring that GPAA trains more females, preparing females for management level positions. 106 training interventions have taken place which range from soft skills to technical skills so as to enable employees to be competitive.
Mr Morar spoke about the modernization of the client experience. The objectives from 2015-2018 are to reduce the turnaround time from 60 days to 30 days. This was completed. The goal is to create a paperless environment through submission of pension documents on an e-channel. The aim was to facilitate self-service and automate payments so as to ensure as little human interaction as possible. Modernization rests on four pillars. There are 1.8 million pension members with 278 employer pay point departments with whom the GPAA interacts. There is the stakeholder and management reporting system which includes enterprise data management, which ensures the correct payment of benefits. This works with client communication and e-channel management and includes pension management and benefit payment automation. Resting on top of this is the enterprise content management which deals with the forms.
Mr Sukdev spoke to governance and current initiatives in place. The GPAA exercises regular oversight to ensure service delivery and compliance. Government structures have been reviewed and reinforced and monitored. The accounting officer conducts performance dialogues to address gaps. The impact of intervention has reduced irregular expenditure from R27 million in 2015 to R7.6 million in 2016. To comply with legislation, strong improvement in controls has been implemented over the last financial year. An investigation of all prior transgressions has been conducted and there has been only one incident of criminal charges being pressed. Remedial action in all cases is underway and there has been an increase in training on supply chain matters. A culture of compliance has been supported in the GPAA. An advisory board has been appointed to support management and progress on audit findings which is submitted to the Minister’s Office. The majority of the irregular expenditure is historical.
Mr Sukdev summarised the key initiatives of the GPAA for 2016/17. These include:
- Client focused communicated to members via email;
- Self-service functionality;
- Improved turnaround time of claims payment via automation;
- Simplified claims submission by employer departments;
- Improved client experience via call centre;
- Generation Y and Z initiatives, disability and women empowerment.
Ms D Mahlangu (ANC) inquired into the bonus which had been paid to a senior official. The official had not signed a performance contract, but had already received a bonus. Who is he? How was this payment done? It appears to be irregular expenditure. She was concern about lack of compliance which she interpreted as a problem of leadership in GPAA. What actions were taken by GPAA to address the non-compliance? For sound oversight over GPAA, a quarterly report must be published to assist in oversight. She emphasized that lessons had to be learnt from prior mistakes, not only by meeting here, but quarterly reports will show that the GPAA is learning and if it is adhering to recommendations made by the Committee.
Ms Mahlangu said she was happy that GPAA had taken into account the Committee’s previous recommendation to increase communication with citizens. What guides GPAA for a 45 day turnaround as opposed to the government’s 30 days? Slide 15 on paid resignation trends is very confusing. It requires improvement so that the Committee can exercise oversight properly. Mpumalanga is important to me, because I have personally conducted research in this area and there were three areas in the homeland system where people who fell through the cracks. Some clients may be in jail but their beneficiaries are alive. GPAA also needs the help of unions and bargaining councils. Also, the number of injury-on-duty pensioners – this system is being abused. People give up their claims because employer management is abusing the system and perhaps employees do not know their rights. A strategy to address this is necessary and the GPAA is encouraged to give quarterly reports, especially on fruitless expenditure.
Mr S Buthelezi (ANC) asked about military veteran pensioners and the departments as a stakeholder.
Dr M Khosa (ANC) commended Ms Mahlangu on her elaboration on consequence management. This is important because you are dispensing and managing funds on behalf of the GEPF and on behalf of so many people. You cannot have systems in place, yet have so much wasteful expenditure. It was recommended that the GPAA look at the training academy in South African Reserve Bank (SARB) and use their model of training. There is more emphasis on the training of women. She cautioned that you must not target only women. You must realize that wasteful expenditure is coming also from men who are not properly trained, although we understand the humbleness behind the idea. The amount of people resigning is unprecedented. Are you not over-compensating on post-retirement subsidies?
Mr F Shivambu (EFF) stated that the proclamation which established the GPAA states that the GPAA is only accountable to the Minister, which means that there is no real power of administration. Accountability only to the Minister is inappropriate when GPAA manages a lot of money. We should take a view to amend the founding legislation of the GPAA, as there are no clear functions. Perhaps, the GPAA can be dealt with if we have better internal controls. He did not understand the presentation on why people are resigning. It is very confusing. You should have summarized the information to determine the major reasons for resigning. Also, what are the numbers of people who come back after they have resigned?
Mr A Lees (DA) stated that he is battling to get a picture on the statistics of the number of people resigning and reasons for which resignations are tendered. An age range of 19-60 is a huge range of people. For the statistics on wasteful expenditure, is there a breakdown as to why?
Mr Sukdev noted that to determine the difference between the figure in the Annual Report and the GPAA presentation requires investigation. He asked for 48 hours to revert to the Committee with an answer in writing as the statistics should be the same. He accepted the proposal for quarterly reports and will provide the Committee with quarterly reports and remedial action taken on audit findings. To consequence manage, GPAA has called on the assistance of lawyers in the formulation of consequences on behalf of the GPAA. GPAA is happy to give further details on wasteful expenditure in writing. On the turnaround timescale, the law allows a 30 day timescale. GPAA continues to become more stringent in targets due to client demands.
The Chairperson commented that the regulations prescribe a turnaround timescale of 60 days. Thus, GPAA seems to be doing better than the target. We should push for a 30 day turnaround time.
Mr Morar replied about the statistics on resignations, saying multiple reasons had been given which were clustered together, and maybe a new investigation should be rendered.
Mr Shivambu requested that the survey conducted into resignations be provided to the Committee.
The Chairperson interjected about the pertinent concerns the Committee always raises on the raw deal people receive in KwaZulu Natal and other rural areas. Let us take it forward and get something done.
Mr Mda replied about the bonus given to a senior official. The R35 000 paid to the senior official was to a Chief Financial Officer and was based on an agreement between management and the employee. Signing of the performance agreement took place after May 2016.
Ms Mahlangu stated that Mr Mda’s response shows that the GPAA does not see any irregularity in the payment that was made.
Mr Sukdev requested permission to conduct research into the paying of the bonus to the official.
The Chairperson wanted to know when the GPAA was appointing a permanent CFO.
Mr Sukdev responded that the GPAA was awaiting the response from the Minister as to the interviewing of the shortlisted candidates.
Mr Shivambu emphasized that the founding document of the GPAA was not constitutional.
The Chairperson stated that the GPAA may not be able to reply on the constitutionality of the founding document, but could probably answer as to why the system was structured in the way that it was.
Mr Sukdev replied that in 2010 the GPAA was separated from the GPEF and is accountable to the executive, and is legislatively compliant.
The Chairperson said Mr Shivambu had raised a different issue but time did not permit this to be dealt with.
Mr Sukdev commented that GPAA would be happy to look at the SARB training programme.
The Chairperson asked for a meeting the next day as a slot had opened up. The subcommittee had met twice.
Mr D Maynier (DA) noted that neither his colleague nor he would be available on the following day.
The Chairperson replied that Parliament kept changing schedules. People had to suggest alternatives. The Committee did not have enough time. It would have to sit until 16h00 for several days. The House Chairperson had agreed that given its load, the Committee could be excused from the House.
Mr Shivambu said that the Parliamentary Budget Office had to present on a higher education funding model.
The Chairperson replied that it was agreed the week before that this was a big issue. He was asked by the Commission on Higher Education to address them on what Parliament was doing. Although it was a fiscal framework issue it was primarily an appropriations issue. Ms Kekana, the former Higher Education Portfolio Committee Chairperson had agreed to speak. The PBO notified the Committee of a meeting taking place today but it was too late, PIC could not be postponed. The PBO could make the same presentation to the Committee tomorrow.
The meeting was adjourned.
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