Municipal Councilors Pension Fund; Disaster Management Amendment Bill: deliberations, with Minister

Meeting report

The Chairperson welcomed Members of the Committee and everyone present. After taking apologies, he outlined the agenda of the meeting and officially opened the meeting. Ms P Xaba-Ntshaba (ANC) and Mr G Mpumza (ANC) supported the adoption of the agenda.  

The Chairperson, therefore, welcomed the delegation from the Municipal Councillors Pension Fund (MCPF) and handed over to Mr Juanito Martin Damons, who is one of the two appointed curators of the MCPF, to brief the Committee. After introducing his team, Mr Damons handed over to one of his legal team members, Mr Mukovhe Ravhura, to present.  

Municipal Councillors Pension Fund

Starting with the background, Mr Ravhura reminded the Committee that some of the members started as councillors in local authorities when the Fund was established in 1988 to assist councillors in the country. He added that councillors participate while municipalities act as employers with the Fund serving as a saving plan for serving councillors so that when they go to retirement, they can have money to sustain themselves.

Of interest is that the Fund was placed under curatorship through a court order because of non-compliance with legislation and regulation including fruitless investments made which were found not to be in the best interest of the members of the Fund. Since then, the Fund has been under the control and management of the curators although ordinarily, the Fund belongs to and is run by the Fund members with each province nominating one trustee. Another one is nominated from the International Programmes and Partnerships Cluster at the South African Local Government Association (SALGA), and two other independent trustees. However, the curators have since stepped into the position of these trustees.

Mr Mavhura pointed out to the Committee that in the past, the Fund has been self-administered. However, the curators have ensured that issues of governance are in order including the establishment of proper accounting systems within the Fund, governance, legal communication, administration, audit, risk committee, death benefits, and the establishment of an investment committee. He assured the Committee that all the governance structures established by the curators are properly working thus allowing the Fund to be able to carry out its mandate. He added that before the 2021 elections, the Fund had a membership of 5 286 members which is above 50% of the councillors in the country, with the Fund’s assets sitting at R2.6 billion

He indicated that one of the issues that led the Fund to be under curatorship was what the MCPF calls the ISAGO Investment wherein the then Board of Trustees of the Fund purchased vacant land in Matlosana in the North West which was not transferred to the accounting books of the Fund. Therefore, this meant that the Fund spent money but did not receive value as the said property was never transferred to the Fund’s name. Therefore, when the Fund came under curatorship, the curators instituted legal proceedings against ISAGO and ultimately recovered R120 Million (exclusive of value added tax) which has been invested in an interest-bearing account for the benefit of members. He further indicated that because of the exit of some members due to the recent local government elections, members are now paid out inclusive of the recovery investment.

Further, Mr Ravhura indicated that when the curators investigated the affairs of the Fund, they discovered certain irregularities in the way the ISAGO deal was entered. Therefore, the case was submitted to the Hawks for further investigation which remains an active investigation. He reported that the latest progress on the case was that some persons were called in by the Hawks to provide statements.

Another point of interest he raised was an issue involving a law firm called MSMM Inc. which at the time served as the advisory of the Fund. The curators however reviewed the money paid to the law firm and concluded that the funds were exorbitant. Therefore, a complaint was filed with the Accounting Authority for Lawyers, which was then called the Law Society, now called the Legal Practice Council, about the fees. However, there were delays in having the said fees assessed by the Legal Practice Council and there was communication from the Council that the Fund should first pay a security of R1 million before the fees could be assessed. A request to reduce the security fees to R390 000 was submitted and the Fund is still of the view that the security fees were also exorbitant. Moreover, there are concerns on whether to proceed with the fee assessment as there is a possibility that there may not be successful recovery. Thus, before deciding on whether to pay the requested security, a legal opinion was sought on the prospects of recovery. The legal opinion received cautioned the curators from proceeding with the fees assessment process as the security amount was high and further that the Fund had a free agreement between itself and MSMM Inc.

Mr Ravhura informed the Committee of the Bulk Exit Project whereby members who have not been re-elected are paid out. He noted that as of 28 February 2022, there was a total exit of 3 431 members with 2 631 claim forms received of which 335 of the forms were not fully completed with the required supporting documents, while 2 296 of the claim forms inclusive of claims paid and those awaiting payments were correctly completed with 2 025 already paid and 271 claims still in the process of payment.

He indicated that there have been measures put in place to improve the situation of the MCPF. Firstly, regarding investments, he noted that the investment strategy was reviewed. The Fund is compliant with Regulation 28; it has also diversified the assets by appointing additional Asset/Equity managers which are Mergence, Prescient, Investec, and Sanlam with the Fund showing positive returns on average for the last six months. Secondly, he noted that the audit on the annual financial statements for the periods ending 30 June 2017, 2018, 2019, 2020, and 2021 which were submitted to the Financial Sector Conduct Authority (FSCA) was completed on time. In terms of the Fund’s requirement to have a statutory valuation as of 30 June 2021, whose report confirmed the financial soundness of the Fund, he added that it is in engagement with the actuaries to finalise a final three-year statutory valuation report for the period that ended 30 June 2021. Concerning member benefits, he said that they have ensured a timeous issuing of benefits statements to Fund members. He further highlighted that the funeral benefit has been improved from R20 000 to R40 000 at no cost to the Fund members. This includes the reactivation of the housing facility benefit which had previously been withdrawn because of noncompliance.

He further indicated that the curatorship ensured that there was active member communication which includes member engagement sessions and meetings across the country. Some of the communication measures include member newsletters, MCPF e-services, the MCPF mobile app, benefits statements, SMS notifications, website, and social media platforms. Concerning the payment of benefits, he indicated that they continue to pay members’ benefits on time thus successfully reducing the backlog on the resolution of death claims with only 56 currently outstanding claims. He alluded that this includes ensuring a robust tracking mechanism of members to ensure the payments of their benefits.

He noted to the Committee some of the challenges that are faced by the curators which include non-compliant municipalities concerning s13A of the Pension Funds Act which talks about the payment of member contributions towards the Fund. This is because there have been cases where deductions were made on the accounts of members while the Fund did not receive such contributions on behalf of the member. Further challenges include the unfavorable property market concerning the disposal of the office park, and the collection of arrear rentals from the Fund’s properties leased out with some of the tenants not paying.

Mr Damons assured the Committee that they do not intend to have the Fund under curatorship forever. He indicated that when they were appointed by the court to curate the Fund, they made an undertaking to the FSCA to finish the project within the period of at least four years at most. However, because of challenges brought by the COVID-19 pandemic, they decided that when they finished the bulk exit process, they will engage the interested parties to map out a way forward in terms of getting the MCPF out of curatorship.

Discussion

Ms H Mkhaliphi (EFF) thanked the Chairperson and the presenters. She indicated the seriousness of the matter and indicated that one of the reasons former councillors struggled to get their payment benefits from the Fund was because of corruption.  She wanted to get clarity about the background and history aspect of the presentation as originally; there was a defined benefit fund which has since been converted into a defined contribution fund. She, therefore, wanted to know why that was so. In terms of the selection of those who serve on the board of trustees, she wanted to know how the election process was done. She further asked about the specific regulations, legislations, and fruitless investments among others that were deemed non-compliant thus the reason for the curatorship. She also wanted more clarity on the worth of the land in the ISAGO case including how the councillors were being paid from the R120 million recovery made from the land that was sold. In terms of the issues referred to the Hawks, she wanted to know the specific individuals who were seized with the matter and the reasons for the delays mentioned. She asked for the breakdown per province and municipality of the payments completed by the Fund as of 28 February 2022.

Mr I Groenewald (FF+) thanked the presenters of the MCPF. He wanted to know the value of the land. He also asked for the reasons the Board which included members of SALGA was not held responsible and accountable for what happened in the Fund.

Mr A Matumba (EFF) indicated that he was of the view that the report from the MCPF was not full therefore insisted that a full and comprehensive report be made available to the Committee. He highlighted that it was not clear how the Fund was helping the councillors whose forms were misplaced this includes outstanding payments from councillors who exited last year. He further added that the presenters provided the address of the MCPF offices. However, when calling, there is no one available to respond to issues. He highlighted that in his view, there was no communication between the Fund, human resources and councillors as shown by the number of outstanding payments. He asked how much the Fund has, and if it would be able to make full payments if all councillors were to resign? Further, he indicated that SALGA proposed that the Fund be merged with the Political Office-Bearers Pension Fund and how far they were in making that move. He also wanted to know how much was being paid for the curatorship compared to when the Fund was managed by the members. He requested that the MCPF write a detailed report on these matters.

Ms E Spies (DA) wanted to find out if the curators were being reimbursed for their service and if so, what the reimbursement was. For the non-compliant municipalities, she asked what action to collect the arrears was being implemented. She further wanted to know what the mentioned housing benefits included. She added that she was not convinced that the Fund’s membership represented most of the municipalities thus adding in terms of the effectiveness of the member communication mechanisms introduced especially their social media and websites which she said were outdated.

Mr K Ceza (EFF) wanted to know how many of the councillors in the country were outside of the Fund and if the Fund was compulsory for councillors. He further wanted to know what actions have been taken to compel councillors to join the Fund and how much would be contributed by the Council. He asked what the interest of the recovery that was done was, including the preventive measures that have been put in place to respond to corruption when a new board is eventually appointed. He also asked what it meant that the Fund was self-administered including how that compared to one that is not.

Mr G Mpumza (ANC) welcomed the presentation by the curators. He asked what remedial actions the curatorship was bringing in on non-compliant municipalities who are in arrears. He also highlighted that the Fund was supposed to be under curatorship for a period of four years; therefore, he wanted to know what the current curatorship timeline was to suspend the administration of the Fund and bring it back to the board of trustees. He further said that the presenters indicated that the asset of the Fund was R2.6 Billion, thus he wanted to know the ratio it was growing at.

Mr M Mabika (DA) wanted to know further about the accessibility of the Fund as the membership does not represent all the municipalities in the country and what they were doing to ensure that councillors joined the Fund. He further asked for a membership breakdown per province and municipality. He was concerned that the Fund was not marketed enough as most councillors are unaware of the Fund and its roles therefore, he asked how they are making sure that the Fund is known by councillors.

Responses

Before taking responses, the Chairperson asked Gen (Adv/Dr) Godfrey Lebeya, National Head of the Hawks, to possibly provide an overview from their perspective. He requested a later invitation or written response as the details of what was expected to be presented during the invitation were unclear. This was supported by the Chairperson, Mr Groenewald, Ms H Mkhaliphi, and Mr Ceza.

In response to the Committee, Mr Damons highlighted that it was not their intention to make the impression that they were not taking these issues seriously. He added that the specific details asked for by the Committee were available as the Fund is required to report to the FSCA on a bi-monthly basis including reporting to the court yearly on the progress of the curatorship.

In terms of the background and reasons the Fund was changed to a defined contribution Fund, Mr Elias Msiza, Principal Officer of the Fund, indicated that this was because municipalities are independent and autonomous bodies thus what they receive from National Treasury varies hence some municipalities are self-sufficient and some are not. Therefore, a defined benefit means that if a member or a councilllor exited the Fund, the municipality which is the employer, would be liable to payout the member until a member is deceased and this was found to be unsustainable for the Fund. However, with the defined contribution, a member receives at the end of the term what they have contributed to the Fund plus the returns received.

In terms of the selection of the members of the Board, he indicated that yearly, the provinces convene a provincial members assembly whereby they discuss issues about that province. After the five-year tenure of the Board has ended, there are elections in each province where all the municipalities convene to nominate a provincial representative.  

Concerning the properties, he confirmed the recovery of R120 million, but the amount paid in 2015 when the 12 properties were bought was R120 million excluding VAT and the amount which ended up being paid was R137 million or so. The curators could only recover the capital amount of R120 million which excluded VAT.

He indicated that the breakdown per province of the bulk exit will be made available in the report that will be later submitted to the Committee.

For the members who have not submitted their forms, he indicated that he was unsure of the reasons other members had not submitted. However, he indicated that they hypothesise that some members are not in a hurry to get the benefits of the Fund to possibly earn an interest. He outlined that most of the applications had been paid out.

He confirmed that the Fund was in a sound financial position based on interim statutory valuation thus assuring that if there were any claims, the Fund would be able to make those payments.

Concerning the issue raised on arrears, he indicated that this issue is related to the issue they had raised that some municipalities are non-compliant with regards to the payments of contributions. He added that they have engaged with the municipalities on the issue. For the interest of the Committee, he pointed out that the R89 million was mainly a historical matter dating back to around 2008 and the curators were dealing with these matters decisively so.

He added that the Pension Fund itself is compulsory although there are municipalities that are not compliant.

He responded that the interest is compounded on an annual basis and despite the challenges of COVID-19 the Fund returned a positive 5.7% last year. He explained to the Committee that a self-administered fund is one whose processes and systems manage their operations without the services of third parties. He assured the Committee that various lessons had indeed been learnt and some things would be improved to ensure better management of the fund.

In terms of remedial action, he reiterated that there are ongoing litigation processes underway including sending letters of demand to non-compliant municipalities.

He indicated that in terms of accessibility of the Fund, they have various member engagement sessions monthly including engaging municipalities. He added that in as much as it was expected for members to join the Fund, it was not a forced act thus councillors could choose not to join.

Mr Damons reiterated that councillors who make claims are paid what they are entitled to in terms of the contribution including the recoveries made. This is determined by the actuaries who work out how much each councillor should get.

He indicated that since the curatorship in 2017, they have not changed what the Fund charges members which has remained at 6% per month which is used for the Fund’s operations as it has approximately 19 employees and there are curatorship fees, as well as other operational expenses. He indicated that when they were appointed, they had a unique situation, and the hourly tariffs of the senior attorneys which were at that time R3 500 per hour were capped to R2 000 per hour. He assured the Committee that despite seniority, they were not allowed to charge more than R2 000 per hour. Further, he indicated that in addition to the hourly cap, they also have a monthly fee cap of R450 000 for both their offices with their monthly bills sent to the FSCA monthly.

He indicated that the reasonable time to exit and hand over to either a reputable administrator or a newly formed board would be the middle of next year, at the latest. He requested that they be given time to provide a detailed report in the future.

Follow-up questions

Mr Ceza outlined that they were not satisfied with the responses of the curators hence the need for follow-ups. He disagreed that being part of the Fund was compulsory as the Pension Benefits for Councilors of Local Authorities Amendment Act 16 of 1991 S3 made it harder for municipalities to compel councillors to be part of the Fund. Therefore, he wanted to know on what grounds was the claim compulsory. He further asked for evidence to support that some councillors were not in a hurry to make claims from their pensions.

Ms Mkhaliphi requested the Chairperson for another time to listen to a detailed presentation of the curatorship so that they have comprehensive answers for the Committee.

Mr Matumba argued that a detailed report cannot cover the realities faced by councilors as there is no relationship between the Fund and the councillors. He added that there was no evidence to support the claim that there are councillors who are not in a hurry to claim their pension.

Ms Spies pointed out that there was no response on what the housing benefit entailed. She also asked for clarity on the charges per month.

Mr M Mabika (DA) raised the issue about statements that were sent to municipalities as that was unnecessary as these should be sent to the individual members of the Fund.

The Chairperson agreed that a detailed report was required at a later stage.

Responses

On the issue of sending the statements to municipalities, Mr Msiza responded that since their appointment they have tried to constitute an email database, but they have had difficulties as some councillors do not have email addresses. However, they have tried to send SMSs instead to let councillors know that they should collect their statements at the municipality’s office. However, they are aware and are working on this.

He indicated that the next report will be clearer on the preventative measures that would be proposed to prevent possible corruption from the incoming Board.

The Chairperson closed the item and moved on to the deliberation on the Disaster Management Bill [B2-2021].

Deliberations on the Disaster Management Bill [B2-2021]

The Chairperson deduced from the people whom he had spoken to on the desirability of the motion, that this was an opportunity to clear out any misunderstandings before voting on the issue. He then handed over to Minister of Cooperative Governance and Traditional Affairs, Dr Nkosazana Dlamini-Zuma, who indicated that although the Department is for accountability and oversight, it did not see that the motion was desirable. She added that due to the variability of disasters which tend to require a multidisciplinary response, it is therefore important to have multi-faceted oversight measures.

COGTA input

Dr Mmaphaka Tau, Deputy Director-General: National Disaster Management Centre, outlined the provisions of the Constitution from the three branches of government including national Parliament’s duty to serve as an oversight body of the Executive. He indicated that the Department recognises that oversight is a constitutionally-mandated function that includes formal and informal watchful and strategic structured scrutiny.

He added that the Department’s position on accountability was that disaster management is everybody’s responsibility with the Department of COGTA through the National Disaster Management Centre having a role in its coordination. Therefore, there is an individual sector responsibility and collective responsibility which are accountable to Parliament and the National Assembly in administering the Disaster Management Act of 2002 and not solely the Minister.  

In terms of oversight, he indicated that Parliament has the constitutional obligation to establish and maintain oversight over the Executive through various means. Therefore, it can exercise this responsibility despite the amendment to the Disaster Management Act of 2002. He pointed out that legislation should not be the first line of approach to strengthening oversight of the Executive, but Parliament and the Constitution should be.

On the issue of desirability, he indicated that certain issues needed to be first considered to inform the decision on whether the proposed amendments are adequate to respond to the identified issue. This includes the undesirability of frequent non-essential amendment of legislation, the proposed measures in the amendments may not be adequate in terms of the broader review that may be required, and whether a broad review was conducted to inform the amendments.

He affirmed that the Department maintains its view that in the case of a state of disaster, the Minister, Premier, and Council are empowered by sections 27, 41, and 55 of the Disaster Management Act of 2002 to make regulations. Therefore, the proposed amendments will significantly hamper the efficiency of acting when needed expeditiously to advance the objectives listed under Section 27 of the Act. He further emphasised that the existing three-month initial validity period of a State of Disaster enables the Executive and the administration to focus its attention on the immediate relief and rehabilitation efforts.

Discussion

The Chairperson handed over to Dr P Groenewald (FF+ and sponsor of the Bill) who indicated that there was a general agreement that the Amendment Bill was about accountability and oversight. He emphasised that all the role players in governance should be accountable. He added that the Department’s argument that the Bill should not be amended was incorrect. He further pointed out some of the overlapping similarities between the State of Emergency and the State of National Disaster which therefore make it important that the regulations are scrutinised and be approved by Parliament.

He appealed to the Committee that it take this matter and further investigation on the real oversight powers of the motion before deciding on the desirability of the Bill.

Mr C Brink (DA) thanked the Chairperson. He indicated that takeshe is not opposed to the idea of seeking further information in response to the presentation. He added that the law-making function in the country belongs to Parliament, but the Disaster Management Act and the Declaration of the State of Disaster make an exception on the law-making competency of Parliament by granting the Department, Minister, and her delegates the power to issue regulations in place of what should be governed by Parliament made law which is problematic for accountability and oversight measures. He indicated that the Committee should consider what the Bill will do to limit the agility of government to respond to a disaster, indicating that it will not prevent the Minister to declare the State of Disaster but will require her to seek the permission of Parliament if she intends to extend it. Therefore, he indicated that the Bill is desirable.

Mr Ceza expressed that he was concerned that the nation has not been consulted about the Bill thus he did not support the amendment.

Mr Matumba outlined that due to the separation of powers, Parliament must not attempt to do the work of the Executive. He insisted that it was not true that there is no accountability and oversight as there are mechanisms that exist for those in the Executive. Therefore, he indicated that he does not support the Amendment Bill.

Ms D Direko (ANC) indicated that she did not think that it was desirable to support the Amendment Bill as the issues of oversight and accountability are already covered by the Constitution. She recommended that the status quo be maintained although some improvements based on the lessons from the COVID-19 pandemic could be considered to enhance the management of disaster in the country.

Mr Mpumza thanked the Chairperson and shared that what the Amendment Bill seeks to achieve runs contrary to the provisions of the Constitution. He added that there is no compelling reason that makes the desirability of the amendment arise as Parliament has oversight and accountability mechanisms that should not be overridden.

The Chairperson allowed the Committee to vote on the desirability of the Amendment bill.

Ms Mkhaliphi and Ms Direko and their party members indicated that they did to support the Amendment Bill.

Mr Brink, Mr Groenewald, and Ms Spies voted that they consider the Amendment Bill desirable. The conclusion was that the majority did not find the Amendment Bill desirable.

The Chairperson thanked all Members and adjourned the meeting.