Pension Funds Second Amendment Bill: formal consideration

Meeting report

FINANCE PORTFOLIO COMMITTEE
21 September 2001
PENSION FUNDS SECOND AMENDMENT BILL: FORMAL CONSIDERATION

Chairperson: Ms Hogan

Documents Handed Out
Pension Funds Second Amendment Bill [B41-2001] or at http://www.treasury.gov.za
Pension Funds Second Amendment Bill [Final draft] (awaited)

SUMMARY
The final draft was presented to the Committee. The drafters pointed out the major changes and indicated that the other changes were merely technical amendments and were not a change in policy. The Committee adopted the Bill in its final draft form.

MINUTES
Mr Andrew (FSB) had discussions with various people and it was decided that they should not refer to the termination of the fund but rather the liquidation of the fund because the term termination was used when all the assets have already been distributed. Throughout the Bill this change has been carried out.

In Clause 14A(2)(b) dealing with minimum benefits there has been an amendment that effectively takes a way the window period for a fund that if there has been a conversion or if the fund has been liquidated. Because there is no window period the minimum benefits will apply at the commencement date.

The minimum pension increases for pensioners has been amended as follows:

In terms of 14B(3)(a) & (b) the board must establish a policy with regard to the pension increases. The policy must take into account the CPI or some other measure of price inflation as well as the frequency of pension increases must be set, provided that an increase is considered every year.

Ms Hogan commented that this was a good clause.

Clause 14B(4)(a) further provides that the fund must at least increase the pension upto what they can afford. If what the fund can afford is more than the policy they have formulated they must give what they can afford. This amount will not be lower than the members accumulated benefit in the fund. If the fund can afford to give the full CPI increase they must do so. If they can afford to give more than the CPI increase they are not obliged to give more.

Clause 15A(3) allows an employer to continue with a contribution holiday after the commencement date but the value of the contribution holiday must be added to the actuarial surplus to be apportioned at the apportionment date.

Clause 15B(3) obliges the board to appoint a person to represent the interests of the former members of a fund. This person will represent the former members in the development of the scheme. Other duties will be to identify former members and communicate proposals to them.

Ms Hogan said that this clause is a welcome addition because in the DB funds the former members are not represented and this affords them protection.

Clause 15B(4) regulates the advertising for potential claimants. The change that has been included is that there is a provision that provides a fund with the option of being exempt from having to advertise nationally if it can satisfy the registrar that limited advertisement will be adequate. Mr Andrew (FSB) said that it might be possible that fund knows exactly where claimant is so it would be an unnecessary and costly exercise to force them to advertise nationally.

After all the increases have been carried out then the remaining surplus must be apportioned by taking into account the financial history of the fund. COSATU felt that taking into account the financial history was important because when the apportionment is done they need to know who contributed to the surplus to apportion it properly. This amendment is in clause 15B(5)(c).

Clause 15B(5)(a) provides that a debt owed by the employer must be paid within an agreed time and the registrar must be notified of the debt and the terms of the repayment.

In the previous draft the drafters overlooked to include a qualification of a regulation dealing with surplus improperly used. They do not want employers to have to pay back money that was part of a properly negotiated utilisation of surplus. Clause 15B(6) now covers this. As long as the exercise was clear and comprehensive then it was fine. The members and the trade unions had to have made an informed choice.

Clauses 15D and 15E deals with the utilisation of the surplus for the benefit of the members and the employers respectively. These clauses now takes into account previous discussion and states that the employer appointed members does not have a vote in what happens to the surplus apportioned to the members. Accordingly the member elected representatives do not have a vote in how the surplus apportioned to the employer must be used.

Clause 15I(1)(c) provides that if a fund is liquidated the remaining surplus in the employer surplus account will only be paid to the employer if the employer has not been liquidated prior to the commencement of the liquidation of the fund. If the employer has been liquidated the clause provides what will happen to the funds in the employer surplus account.

The only change in the clause dealing with the specialist tribunal is that that there is an option to have a member of the tribunal with no experience in pension fund financing to be part of the tribunal. The rationale is that the board might want a person who is known to have good judgment. The requirement that a lawyer and an actuary serve on the tribunal is still in tact but now at least two of the three must have the necessary pension experience.

Mr Andrew (FSB) noted that these were all the major changes; the others were drafting changes.

Dr. De La Rey had two points to add. She confirmed that the State Law Advisor had certified the final draft. The State Law Advisor pointed out the previous long subparagraphs that the members agreed had to be broken up be clearer and said that it had to be changed back because it can only be broken up if it refers to separate things.

Ms Hogan said it was fine.

All the members and the drafters agreed that in the future something had to be done to make the reading of the long subparagraphs easier. The long paragraphs it what contributed to the difficulties in understanding the Bill.

The second point was that the State Law Advisor also said that they could not say that the decision of the tribunal is final and binding. The inclusion of the word final made it unconstitutional because it excludes all possibility of review. Dr. De La Rey confirmed that even if they deleted the word 'final' the merits would still be binding and finalised.

Ms Hogan asked if there were any more comments by the members or by the drafters. However, there were no further comments.

The Chair read out the Motion of Desirability and all members present agreed to adopt the Bill.

Ms Hogan concluded by saying that having considered the Pension Funds Second Amendment Bill B41 - 2001 the Committee presents a redraft of the Bill.

The meeting was closed.