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FINANCE PORTFOLIO COMMITTEE
28 May 2003
PENSIONS FOR MEMBERS OF NON-STATUTORY FORCES: BRIEFING; SPECIAL PENSIONS AMENDMENT BILL: ADOPTION
Chairperson: Ms B A Hogan (ANC)
Documents handed out:
Proposed Dispensation for Recognition of Pensionable Service for NSF Members
Treasury briefing: Proposed Amendments to Special Pensions Act (No 69 of 1996)
Special Pension Administration Bill B35-2002
The Committee was briefed on the proposed dispensation for the recognition of pensionable service for Non-Statutory Forces (NSF) members. The Bill seeks to qualify members of the NSF for pensions that had served for many years before joining the SANDF. The Bill also caters for NSF members that opted for demobilisation and are currently serving in the public service. The Committee had raised several concerns when they were originally briefed on the dispensation that Cabinet had approved and that was negotiated in the Public Service Co-ordinating Bargaining Council (PSCBC). This briefing intended to answer those concerns.
In conclusion, the Chair noted that the Committee would be hesitant to pass the Government Employees Pensions Law Amendment Bill until it is briefed on apparent further developments regarding the bargain agreement in the PSCBC.
The Committee passed the Special Pension Amendment Bill which would allow National Treasury to continue with its work while the review of the Government Pension Administration Bill is awaited. It omitted Clause 4 and 8(5) of the Bill which will be revisited in another bill.
The Chair introduced the team from National Treasury accompanied by Mr G. Bernard, an actuary from Alexander Forbes, Brig-Gen. A de Wet (Director Human Resource and Planning, DOD) head of the Department of Defence (DOD) delegation, Mr. T Magwaza (CEO of Special Pensions Administration) and his assistant Mr L Macjerry, and two state law advisors, Adv. H Sangoni and Adv. H Smuts.
She explained that the DOD/Treasury delegation would like to brief the Committee on the various potential scenarios regarding the Government Employees Pension Law Amendment Bill. She welcomed this gesture noting that it important to appraise members on issues pertaining to this complex Bill.
Government Employees Pensions Law Amendment Bill: Proposed dispensation for recognition of pensionable service for NSF members
Mr. Bernard began by stating that the overall purpose of the Bill was to recognise the many years of service Non-Statutory Forces (NSF) members had provided prior to joining the SANDF, in order to give them a better retirement package.
The presentation (see document) provided 5 different scenarios of how these years of service could be included in the defined benefit plan. The scenarios differ in the proportion they recognise member service by their four categories of years of service (A, B, C, D). The presentation focused on Scenarios 1 and 5 as Cabinet and the Bargaining Council had approved Scenario 5 whereas Scenario 1 represents provision for recognition to all members (100% compensation). The financial implications of each scenario were presented. The total cost to the employer was calculated by multiplying the years of service by 7.5% employee contribution and then by the salary of the employee. In a defined benefit plan there is a set contribution level for the members and the employee would then make up the difference.
The presentation outlined the concerns raised by the Portfolio Committee at the meeting of 27 January 2003 regarding Scenario 5. With respect to the projections required for broader dispensations, which is the fourth concern of the portfolio committee, they did not have any data on the other dispensations that might be included. Therefore they assumed the numbers to be 3000, 6000 and 9000 for their projections.
Table 1 lists the variations of Scenario 1 and 5, changing the number of members recognised and then altering the percentage of employee contribution.
Table 2 compares the NSF member benefits to that of an SANDF member. The Table compares two hypothetical members of the same age, one member joined the SANDF and the other first joined the NSF, then in 1994, joined the SANDF. The two continued until retirement at the same salary. The figures indicate the percentage of the later compared to the former. Members do have a choice as to whether they pay their contributions. If they chose to pay, then they would receive their full percentage (for example, Scenario 5 for members with less that 10 years = full 33.3%). If not, the service recognised would be reduced in proportion to the amount they did not pay, therefore they can partially pay.
The Chair noted that an implication of this is that a member with more than 30 years service who chooses not to contribute would have only 69% of the equivalent SANDF member. Mr Bernard then referred to the graph of Scenario 5. The graph demonstrates that a Category A member, if there was no dispensation would still end up with approx. 90% (of SANDF pension), because they have so many more years of service to go. A category B member would receive 60%. Whereas category C&D members who are really close to retirement do not have time to accrue a future pension and would receive only approx. 15% of an equivalent SANDF member. He also noted that it would cost a total of R766 million to get from bottom line of the graph to the top (no dispensation to full dispensation), the state's contribution being 501 million in the 7.5% scenario. He the described the graph of Scenario 1, noting that it could achieve full parity and would cost R1 247 million to do the same, with a state contribution of R284 million. The Chair sought clarity on whether the different scenarios show the cost that would be born by the other party where the government makes its contribution. Mr. Bernard responded that there was only an 8% difference between group A and B, if they contributed, but a larger disparity created for all groups, if the members decided not to contribute. Mr. T Magwaza (CEO of Special Pensions Administration) and his assistant Mr L Macjerry presented the Powerpoint presentation on this Bill (see document). The Chair explained that the Pensions Administration Bill had undergone a review that was due to be presented to Cabinet. The Special Pensions Amendment Bill before them was a minor amending Bill to align it with the Government Employees Pension Law. The purpose was both to align this Bill and bring in emergency technical amendments that would allow for the Special Pensions Administration to continue with their work on the overall Bill.
Should full service history of former NSF members be recognised, without any expected employee contribution, the state would be responsible for the full cost. He explained that this measure would ensure that former NSF and SANDF members are at full parity. He continued that the other scenario is that should the proportionate recognition of service be applied, full parity can only be achieved for former NSF members with more than 20 year of service.
Mr Bernard explained that in all scenarios where a member contribution is expected and where members elect not to contribute, this would result in a disparity with SANDF members that increases as the expected member contribution rate picks up. He pointed out that the impact of the NSF members not making full or partial own contribution increases the disparity, as the member grows older. He noted that a level percentage of between 60% and 70% would result in a cost to the employer similar to that under a scenario with employee contribution is 7.5%. He added that a level percentage of approximately 74% would be needed to ensure that all members received at least the same level of service recognition as would be the case where an employee chose not to contribute.
Mr Bernard replied in the affirmative noting that the rate of contribution would be different under each presented scenario.
Ms Taljaard (DA) wanted to know why the possible additional numbers were difficult to determine. Why was it difficult to quantify how many people the Bill envisages would benefit from the scheme - noting that this would make a difference right across the two scenarios.
Mr Bernard said that the DOD had undertaken an extensive exercise to try and uncover who these people were and to get information on them noting that this is why there is the accurate figure of 21 000. However the DOD had no data on how many would qualify from the SAPS or the NIA and that these sectors have not assisted in providing the relevant data on such people.
The Chair inquired about members who were part of the NSF and who then joined Departments other than the NIA or police force.
Brig. Gen. de Wet replied in the affirmative noting that all those who were in the non-statutory forces qualify irrespective of their current station in life.
The Chair pointed out that there were non-statutory force members who, for example, joined the Department of Education, where they already had a pension buy-back dispensation and they had taken advantage of this, would they then qualify for this plan.
Ms Verkuli (Special Pensions Administration) replied that they would not be able to buy back all of their service, so they would be able to buy-back the NSF service as well.
The Chair wanted to know what exactly such people were buying back.
Mr. Magwaza noted that a formula is used to determine buy-backs. The person in the above example can buy-back service through the Government Employees Pension Fund (GEPF). but the rate might be higher, therefore it would be advantageous for them to be catered for in this Bill.
Brig. Gen. de Wet took members back to the time of integration process where each non-statutory force member had basically two options at the time of the exercise. One was either to integrate with the regular forces or take a de-mobilisation grant. The figure for the latter now stands at 9 700. He pointed out that the Integration Bill has already been passed by Parliament and that the 9 700 members are potentially in various government departments and the private sector.
Col. H M Zobane (Senior Staff Officer: DOD) pointed out that all the former NSF members who joined the public service were provided for and that even in the definition provision is made for such an NSF member. Such a member is not necessarily part of the security forces but is in the public service and the legislation caters for them as potential beneficiaries.
The Chair said that what is coming out clearly is the fact that the 9 700 members who opted for demobilisation could still be in the public service.
Brig. Gen. de Wet confirmed this. He noted that the 21 000 people that were integrated are part of the Defence Force package. This group is part of the calculation which the Bill targets with the figure of R 501 million shown in Scenario 5 but the 9 700 demobilised people are not. And that is why varying figures of 3000, 6000 and 9000 are used.
Dr Koornhof (UDM) noted that there were certain members who served in the military on a contract basis such as the members of the Cape Corps. He wondered why this cadre of personnel is not included anywhere in the figures that have been presented to the Committee.
The Chair said that this issue had been previously discussed in the Committee but Dr Koornhof was not present then. She asked Brig. Gen. de Wet to bring Dr Koornhof on board regarding the matter.
Brig. Gen. de Wet explained that the cadre referred to is not included because they are not considered as part of the non-statutory forces.
Ms Taljaard observed that members' contribution is significantly high and that this aspect immediately raises the question of affordability.
The Chair clarified that it is not the matter of individual contribution but that more people would be in the net when the scheme is up and running.
Brig. Gen. de Wet confirmed that the Chair's remarks are correct and noted that members who joined the statutory forces pre-1990 would be included whilst those who joined after 1990 would not but that under the 100% scenario they would be included. He said that it is a matter of additional members noting that the younger members would be paying more since they would be able to put in more years of service.
Ms Joemat (ANC) wanted to know whether the 100% applies across the board or is dependent on the year of joining the statutory forces.
Mr Bernard replied that the 100% would apply across the board since those who served in the pre-1990 forces are considered to be on the same level as those who were serving in the statutory forces then. He explained that the reduction would only vary on the years of service.
The Chair stated that one of the principle concerns of the Committee was to ensure that there was a reasonable degree of equity between the SANDF and NSF members. Secondly, that there is a degree of equity between all SF members. Thirdly, that those members that are due to retire soon would not suffer as severe a disadvantage, and their needs above all be catered for. Equity and parity should be the guiding principle for the completion of this exercise. She noted that although scenario 5 appears to be addressing the later issue, it was not necessarily the case that it worked.
Brig. Gen. de Wet said that the DOD has always pushed for 100% parity but the question all along has been: from where do funds come as Treasury had given a ceiling beyond which they could not go. He however confirmed that the DOD is under a strict mandate to ensure as much parity as would be practical.
Mr Hanekom (ANC) sought clarity on the nature of parity the DOD was talking about.
The Chair explained that there were two types of parity namely: on the one hand provision is made for all members in the statutory forces to be dealt with equally and on the other hand that all members should be entitled to the same pension.
Mr Hanekom was of the view that if that be the two types of parity at issue then there is very clear understandable moral rationale to opt for Scenario Five rather than One where one who had just joined the SANDF in the 1990 and would be entitled to 100% benefit.
The Chair said that what is outstanding is the question of what a member would be allowed to buy back.
Mr Bernard replied that members have always had the option to purchase service on the standard terms noting that this option under GPEF rules is easier.
Ms Taljaard said that from the deliberations it is clear that the parity discussed about would indeed result in disparity and she asked members to focus on this.
Brig. Gen. de Wet clarified that the kind of parity alluded to here is that between the former non-statutory members of the SANDF and the statutory ones - noting that the DOD is keen to ensure parity as much as possible.
The Chair observed that what put a lid on the DOD's efforts to achieve parity is monetary limitations. Brig. Gen. de Wet concurred.
Ms Taljaard wanted to know who would fund the scheme.
Brig. Gen. de Wet replied that payment would be made from the pension fund where there is dual contribution.
The Chair said that she has been made to understand that the union has rejected the proposed formula and that they prefer equity across the board.
Brig. Gen. de Wet confirmed that indeed the unions have disputed the computation and that discussions around the issue are still on the table.
The Chair then pointed out that all these issues would have to be referred back to the Bargaining Council. She said that although Parliament is vested with the authority to override the input of the Council, the time was not right to set such a precedent noting that collective agreements are reached in good faith and it would be unfair to vary such an understanding.
The Chair pointed out that members would certainly need more information on the various scenarios before they can take position on the matter. She asked the Department to convey to the Minister the members' strong view on the issue of parity amongst the statutory and non-statutory members.
Special Pensions Amendment Bill: deliberations
She, however, noted that the Special Pension Amendment Bill that is before the Committee does not include amendments arising after the special pension dispensation review. She asked members to pass this Bill that would enable the Special Pension Administration to continue its work while awaiting the review Bill that would come to the Committee later.
The Chair noted that there had been a question as to whether Parliament was vested with the competence to alter a public bargain agreement but that this position was explained to the Committee at the earlier meeting. However it has been brought to her attention that a trade union within the SANDF has lodged an objection to the Cabinet-approved formula and there has been in-depth, urgent deliberations on the actual bargain agreement, which she pointed out was not within the terrain of the Committee. The Committee would be hesitant to pass the pension law until it is briefed on the development regarding the bargain agreement.
The Chair noted that an implication of this is that a member with more than 30 years service who chooses not to contribute would have only 69% of the equivalent SANDF member.
Mr Bernard then referred to the graph of Scenario 5. The graph demonstrates that a Category A member, if there was no dispensation would still end up with approx. 90% (of SANDF pension), because they have so many more years of service to go. A category B member would receive 60%. Whereas category C&D members who are really close to retirement do not have time to accrue a future pension and would receive only approx. 15% of an equivalent SANDF member. He also noted that it would cost a total of R766 million to get from bottom line of the graph to the top (no dispensation to full dispensation), the state's contribution being 501 million in the 7.5% scenario.
He the described the graph of Scenario 1, noting that it could achieve full parity and would cost R1 247 million to do the same, with a state contribution of R284 million.
The Chair sought clarity on whether the different scenarios show the cost that would be born by the other party where the government makes its contribution.
Mr. Bernard responded that there was only an 8% difference between group A and B, if they contributed, but a larger disparity created for all groups, if the members decided not to contribute.
Mr. T Magwaza (CEO of Special Pensions Administration) and his assistant Mr L Macjerry presented the Powerpoint presentation on this Bill (see document).
The Chair explained that the Pensions Administration Bill had undergone a review that was due to be presented to Cabinet. The Special Pensions Amendment Bill before them was a minor amending Bill to align it with the Government Employees Pension Law. The purpose was both to align this Bill and bring in emergency technical amendments that would allow for the Special Pensions Administration to continue with their work on the overall Bill.
The Chair asked what would "for reasons beyond the control of the applicant" constitute. Would simply not being aware of the dispensation be grounds for condonation?
Mr Macjerry confirmed that this scenario would be catered for, and added other circumstances included where the applicants where still in prison during the application period or in neighbouring states.
The Chair expressed concerns about United Democratic Front (UDF) members not being included within special pensions. Although they are covered, this has been obscured in the Bill. Would any misunderstandings arising from this be covered under Clause 1?
Mr Macjerry responded that if they are able to prove to the Board that they may qualify, but did not apply because at the time they thought that they were not covered, this clause would protect that person.
Mr Smuts (State Law Advisor), said that this was also to rectify the situation in Bill 55 (2002), which allowed the Board acting under section 8 of the Act to condone late applications. However, this section did not provide a mechanism for the review board to condonate the applications, and this section will rectify that.
Ms Taljaard warned against making the exceptions too loose, to guard against "the dog ate my application" scenarios.
Mr Smuts suggested that they add "if the Board is satisfied that, on good grounds shown, that the application could not be submitted" to 6(3) it would guard against this.
A member suggested that they have to solve the problem by initiating another round of communication targeting the people who did not apply because they did not know they were eligible.
Mr Magwaza noted that they had attempted to do this, as they had visited all the provinces and on a "door to door" basis tried to get all those eligible for condonation. He added that they were aware that there were people they had not reached and were attempting to use different forms of media in order to reach them.
The Chair proposed that the Committee pass the Special Pension Amendment Bill 2002 to enable the Department to carry on its work and flag the two clauses, that is 4 and 8(5), which would be revisited at the next round.
Ms Taljaard objected to the suggestion noting that her party would take a dim view of her if she were to vote before updating her principals for them to take a position on the Bill.
The Chair reminded Ms Taljaard that the Bill has been before the Committee for quite some time and that her objections had no foundation.
Ms Taljaard pointed out that in her view there was an intimate umbilical cord that linked the Special Pension Bill and the Government Employees Pension Law that could not be severed that easily.
The Chair concurred with Ms Taljaard that it would be better to pass the two Bills simultaneously but that it is impracticable to do so in this parliamentary session. She pointed out there is no harm in passing the sections that have been agreed upon to empower the civil servants to do their work.
Ms Taljaard insisted that she could take a position on the matter.
Special Pensions Amendment Bill: adoption
The Chair then sought the approval of the Committee to read the Motion of Desirability, which was granted, and the Special Pension Administration Bill B35-2002 was accordingly passed with the proposed amendments.