Pension Funds Amendment Bill [B11-2007]: public hearings

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Finance Standing Committee

29 May 2007
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Meeting report

FINANCE PORTFOLIO COMMITTEE
30 May 2007

PENSION FUNDS AMENDMENT BILL: PUBLIC HEARINGS

Chairperson: Mr N Nene (ANC)

Documents handed out:
Business Unity South Africa (BUSA) and Chambers of Commerce and Industry South Africa (CHAMSA) submission
Business Unity South Africa submision
The Life Offices Association of South Africa (LOA) presentation
The Life Offices Association of South Africa (LOA) submission
The Furniture Bargaining Council
Joint LISPA and Association of Collective Investments submission
Shell submission

Convenor – Retirement Matters Committee by Arthur Els
Retirement Matters Committee of the Actuarial Society of South Africa submission

Institute of Retirement Fund PartA
Institute of Retirement Fund ParrtB
Shortcoming in the Pension Funds Amendment Bill B11-2007 submission by Dries Visagie
Employee Benefits Studio submission
South African Financial Services Intermediaries Association (SAFSIA) submission

 
nwabisa please add all the submissions see doc form


SUMMARY
Shell’s submission proposed the following four alternatives for consideration:
- Improper use to be not made retrospective (Section 15B(6)(b));
- If legislation was retrospective, amend Section 15B(6)(b)(i) so that the Bill would exclude any use of surplus which had been properly communicated and approved by the trustees;
- Removal of the requirement to pay interest on the initial amount of improper use;
- In a defined benefit fund, redress the power of distribution of future surplus so as to reduce the ongoing exposure to employers, which has the potential of discouraging defined benefit funds.

T
he Furniture Bargaining Council indicated that the amendments did not accommodate the needs of the Furniture Bargaining Council.

Association of Collective Investments [ACI] and Linked Investment Service Providers Association (LISPA) said that it was important to receive sound advice when people transferred between retirement annuities. Members needed ongoing advice when transferring from an underwritten retirement annuity to a non-underwritten retirement annuity.

Life Offices Association of South Africa (LOA) proposed that trail fees should not be allowed on transferred Retirement Annuity (RA) assets.


Business Unity South Africa (BUSA) and Chambers of Commerce and Industry South Africa (CHAMSA) said that retroactivity needed to be quantified and measured against potential benefits.

MINUTES

Shell South Africa
The Shell team consisted of Mr Monwabisi Fandeso (Country Chair: Shell South Africa), Ms Wanjiru Kirimu (Shell Pensions Investment Policy Advice) and Ms Joanna Legutko (Jacques Malan Actuaries).

Mr Fandeso said that the direct impact of the legislation on Shell would be significant. He proposed the following four alternatives for the consideration of the legislature:
- Improper use to be not made retrospective (Section 15B(6)(b));
- If legislation was retrospective, amend Section 15B(6)(b)(i) so that the Bill would exclude any use of surplus which had been properly communicated and approved by the trustees;
- Removal of the requirement to pay interest on the initial amount of improper use;
- In a defined benefit fund, redress the power of distribution of future surplus so as to reduce the ongoing exposure to employers, which has the potential of discouraging defined benefit funds.


Discussion
Mr S Asiya (ANC), Mr Y Bhamjee (ANC) and Mr Mbili (ANC) asked the Shell representatives to further elaborate on why improper use should not be made retrospective. Mr Asiya said that improperly used funds would also have gained interest somewhere. Mr Asiya wanted know to whom or where the interest would have gone to.

Mr Mbili asked for elaboration where it was indicated that a national increase in pensions reflated medical aid at R200 per month for those not on medical aid.

Mr Fandeso replied that members of the medical fund received benefits which members who were not on the medical aid did not receive. In order to compensate for this, an amount was made available to those who were not on the medical aid.

Mr Mbili asked what contribution have they attached to the education of the trustees given that trustees sometimes find themselves disempowered.

Mr Fandeso replied that education of trustees is very important for Shell. They provided training on
investments to the Investment Sub committee, training on relevant legislation, guidelines and training on the use of external advisors.

Mr K Moloto (ANC) said that the draft legislation had caused a deadlock in NEDLAC. Business and labour could not agree on that matter. Labour indicated that they wanted to take all surplus to themselves. Business did not appear in any of the hearings but requested a meeting in camera which was turned down. Mr Moloto appealed to business not to waste the Committee’s time. He asked why business still argued about retrospectivity when it had been dealt with previously.

Ms N Mokoto (ANC) asked how fair Shell’s proposals were. She said that it seems as if Shell wanted legislation drafted in a way that would favour them. She was not sure if it was fair to use Shell as a yardstick.

Mr B Mguni (ANC) said that in the Shell presentation it says that retrospectivity would block Black Economic Empowerment. He wanted to know how retrospectivity will affect BEE.

Mr Fandeso replied that retrospectivity creates uncertainty. He indicated that investors wanted certainty.

Mr N M Nene (ANC) wanted to know from Shell’s point of view what improper use was.


Mr Fandeso replied that improper use referred to when certain actions were not deemed appropriate in terms of conduct regarding the affairs of a fund. He understood the intention of the amendments but felt that there would be unintended effects. Their fund met with all the obligations set out and yet they found themselves in position where they would be penalised.

Mr Fandesa reiterated that they have a fund that was well managed in terms of what members were promised. The fund met all it obligations but given the current situation, they found themselves with liabilities.

Mr Asiya commented that the Shell representative did not put forth convincing arguments.

Furniture Bargaining Council
Mr Billy van Rensburg, accompanied by Mr W Janse van Rensburg.
Mr van Rensburg, indicated that the amendments did not accommodate the needs of the Furniture Bargaining Council which did have special needs. The Fund had been created 50 years previously and to suddenly have it taken away was unacceptable. There had been an outcry from employees.

The Fund was created to cater for low income workers and regulated in terms of the Labour Relations Act. Bargaining Councils are non-profit organisations. Mr van Rensburg proposed that a Steering Committee be formed to meet with all the Bargaining Councils and build something to make the Bargaining Councils work.

Mr van Rensburg said that employees had threatened the people who were responsible for the amendment.

Discussion
Mr Nene said that members in Bargaining Councils are not afforded equal protection compared to other fund members. He also said that there were approximately 1.5 million members within Bargaining Councils. He asked what percentage the Furniture Council was of that total.

Mr Maloto said that in terms of the Amendment Bill that the Registrar can exempt certain funds. He asked if the Furniture Bargaining Council cannot get exemption given that clause.

Mr Maloto also asked the representative of the Furniture Bargaining Council to furnish the committee with the rules of Furniture Bargaining Council. Mr van Rensburg said that he has the rules for protection of the fund available. He said the rules were set up for the protection of the members.

Mr Maloto indicated that he was very sympathetic to the needs of the Furniture Bargaining Council.

Mr Maloto said that he was not sure if the Registrar of Labour Relations has enough capacity to administer pension funds. Mr van Rensburg said that the Registrar has been there since the days of the Industrial Council. He indicated that, in his view, the Registrar has sufficient ability to protect members.

Mr S Asiya (ANC) asked for clarification as to why the Funiture Bargaining Council indicated that they were brought in at a very late stage. It was indicated that there was disagreement within the Bargaining Council. Mr Asiya wanted clarification regarding that.

Mr van Rensburg said that the amendments came very late to the knowledge of the Furniture Bargaining Council. The representative said the Funiture Bargaining Council followed a process of consultation with its members. He indicated that the amendments came to their attention six weeks before 20 April.
 
Mr Asiya wanted more information on the issue of the unclaimed benefits which were kept available. He asked where was the money going to, and what was the intention for that money.

Mr van Rensburg said that all unclaimed information was kept on their records. Unclaimed funds were paid back into the fund as a dividend which can be claimed at a later stage.

Mr Asiya asked the Furniture Bargaining Council representative if the issue under discussion was a labour issue or a pension issue. He wanted to know if there was a request to also exempt others.

Mr van Rensburg responded that the issue under discussion could become a labour issue if it was not steered correctly. The Provident Fund was an important issue during wage negotiations. The members of the Furniture Bargaining Council’s Provident Fund indicated that they might liquidate the fund.

Mr Asiya wanted clarification on the Furniture Bargaining Council claim that some of their members were not able to understand the consequences of the amendments.

Mr Asiya, Mr T Bonhomme (ANC: SCOPA) and Mr Bhamjee said that the threat of violence by the Furniture Bargaining Council was unacceptable.

Mr Bonhomme also indicated that the amendments were intended to protect the Provident Fund of the Furniture Bargaining Council. The submission of the Furniture Bargaining Council seemed to promote an ‘own affairs’ mentality.

Mr S Marais (DA) asked for further information on the Furniture Bargaining Council’s view that they were not properly consulted. He expressed empathy with the Furniture Bargaining Council’s concerns. He also asked how exemption allowed within the amendments would not address the concerns of the Furniture Bargaining Council.

With regards to exemption, Mr van Rensburg said that the Furniture Bargaining Council would have to apply for a total exemption. He indicated that it would be better to leave the situation as it is.

Mr Marais asked what the difference was between the Furniture Bargaining Council and other funds. He said that he would appreciate a more positive way of making proposals by the representative of the Furniture Bargaining Council.

Ms N Mokoto asked for clarification on the proposals. She wanted to know how much consultation had the Furniture Bargaining Council had with their members. Mr van Rensburg said that the issue was brought up at Council, which the executive took back to the rank and file. The issue came back to Council which made it clear that there should be an objection against the amendments.

Mr Bhamjee advised the Furniture Bargaining Council representative to itemise what clauses need to be included within the amendments and raise it with the Department.

Mr van Rensburg indicated that such an exercise would include a lot of detail.

In response to the questions Mr van Rensburg indicated that he was operating under a mandate from his constituency. He said that his members were upset but did not threaten the Portfolio Committee. The recourse his members had when they were unhappy had two legs. They could go to the Registrar of Labour Relations or the Unions they belong to. The Department of Labour would then issue the Furniture Bargaining Council with a requisite to explain what happened.

Mr van Rensburg said that if employee fell ill and stayed ill over and above the permitted sick leave, the employee can apply for assistance. After a process which was monitored by the Furniture Bargaining Council, the sick employee would get a portion of his Provident Fund to help him while he sick in bed.
 
Mr van Rensburg said that collateral for housing subsidies came from the Provident Fund. He did not know if the Pension Act would accommodate the aforementioned. The office of the Furniture Bargaining Council had no decision making powers. The members instructed the Furniture Bargaining Council on actions while the Furniture Bargaining Council only advised members.

Association of Collective Investments and
Linked Investment Service Providers Association
Mr J Schroeder, Mr R Doa and Mr J Terreblance represented ACI and LISPA.

Mr Schroeder said that there were different models for contractual savings which include traditional retirement annuities and new retirement annuities. Intermediaries were paid upfront by the product provider when they dealt with traditional retirement annuities, and with new retirement annuities, intermediaries were paid over time by investors.

Mr Schroeder said that it is important to receive sound advice when people transfer between retirement annuities. Members needed ongoing advice when transferring from an underwritten retirement annuity to a non-underwritten retirement annuity.

Discussion
Mr Mbili said that sometimes bad advice was given to members. He wanted to know what mechanism was out there to insure that good advice was being given to members. Mr Schroeder said that in the past there were a risk of bad advice but currently advisers were licensed and needed the right experience and background. He indicated that the FSB would clamp down on people who gave bad advice.

Mr Moloto said that according to the presentation there was a possibility when moving from one fund to another that there would be a surplus being left behind. He wanted more clarity on this issue. Mr Schroeder said that surplus was maybe not the right word to use. He explained the principle of the “smoothing of returns” which meant that when it is a good year, the insurer would hold something back to make up for years when the market was bad.

Ms Fubbs referred to the issue of interest made during a good year in terms of the “smoothing of returns” principle. She indicated that there were people, who left a fund during a time when money from the good years were not included in their benefit package. She wanted to know if there were not a way, that people, who left a fund during aforementioned time, would be able to receive benefits at a later stage. Mr Schroeder said that aforementioned situation affirms the need for good advice within the pension industry.

Life Offices Association of South Africa (LOA) submission
Mr Marais said that LOA proposed that trail fees should not be allowed on transferred Retirement Annuity (RA) assets. He said that trail fees would create a huge “perverse incentive” for advice in favour of transfer to non-underwritten RA funds.

Discussion
Mr Marais (DA) asked if a trail fee payable from a fund was similar to an administrative fee of other investments. Mr Marais (LOA) said that the trail fee can be negotiated but not the administrative fee. He also said many clients especially less sophisticated clients might not have enough protection.

Mr Marais said he got the impression that the LOA wanted to protect the existing RA book.
He also indicated that one was usually clinched into a specific product and that it is very expensive to transfer to a new fund. Mr Marais said that the focus should be on what would potentially ensure better expected returns for the investor. Mr Marais (LOA) conceded that they do have an interest to protect the book. He said that he foresaw that money would flow from and under written RA fund to a non under written RA funds. He said that this would not be in their client’s interests. An expected higher return has to be weighed up against the real costs of trail fees.

Ms Fubbs referred to the LOA’s presentation which stated that single premium commissions should be uncapped and trail fees only be allowed for new single premiums. She said that the client should be the focus.

Mr Marais (LOA) made a distinction between single premium business and recurring premium business. He said that on single premium business trial fees was a healthier way of paying the broker for continued advice.

Ms Fubbs also said that advice should be given throughout the life of a policy. The fee for advice should however be so small that it does not cripple the member.

Mr Marais said that commission used to be too high but that commission regulations were redrafted.

Business Unity South Africa and Chambers of Commerce and Industry South Africa
Advocate A Meiring made a presentation on behalf of the Business Unity South Africa (BUSA) and Chambers of Commerce and Industry South Africa (CHAMSA).

Advocate Meiring said that the retroactivity surplus legislation is a difficult piece of legislation to apply in practice although sound in principle. Business believed that the cost that retroactivity would entail, needed to be quantified and measured against potential benefits. A detailed cost benefit analysis would ensure that there would not be costly corrective action.

Advocate Meiring said that business supported transfers from one annuity fund to another. He also stated that payment of commission could potentially influence real freedom of choice and that full disclosure as envisaged by the Financial Advisory and Intermediary Services Act (FAIS) was paramount. He said that if Parliament was confident that the FAIS Act was effective, it would not be necessary to resort to ad hoc curtailments of particular fees or commissions which were duly disclosed. He pointed out that a level playing field between competing service providers was as important as full disclosure to potential consumers.

Discussion
Mr Mguni wanted more clarity on the practical difficulties envisaged with retroactivity.

Mr Asiya asked if issues of retroactivity was not resolved during consultation between Treasury and BUSA and CHAMSA. He asked what advice would Advocate Meiring give regarding this issue.

Mr Bonhomme asked what would count as an innovative and creative way of addressing the concerns of business regarding retroactivity without compromising the principles of the amendments.

Advocate Meiring said that he was not objecting to retroactivity per se. He said that if something as drastic as retroactivity were envisaged, it should have been subject to a cost benefit analysis. Advocate Mering said that retroactivity might create problems from a legal point of view.

Mr Marais (DA) said that he previously asked Treasury how sure are they the amendments can stand in a court of law.

Mr Johnson (ANC) asked how one would take forward the issues that business have with retroactivity.

Advocate Meiring said that business was in line with amendments. He said that there are aspects of the Bill which should have been subjected to regulatory impact assessment given the potential of future legislative challenges. He said that it would be important to have assurances from the State Law Advisors that these issues have been looked at.

The meeting was adjourned.

 

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