Pension Fund Amendment Bill [B11-2007]: deliberations & voting

FINANCE PORTFOLIO COMMITTEE COMMITTEE
6 June 2007
PENSION FUND AMENDMENT BILL: DELIBERATIONS & VOTING

Chairperson: Mr N Nene (ANC)

Documents handed out:
National Treasury response to submissions
National Treasury Proposed Amendments
Cape Bar Council submission
National Treasury Response to Engineering and Metal Industries Provident Funds submission
Pension Funds Amendment Bill [B11-2007]
Pension Funds Amendment Bill [B11A-2007]
Pension Funds Amendment Bill [B11B-2007] as voted on by this Committee
Transitional Diamond Export Levy provisions: Appendix III

Audio Recording of the Meeting Part1 and Part2

SUMMARY
Treasury discussed the submissions from the Cape Bar Council and the Engineering and Metal Industries Provident Fund and their response to these. Treasury then briefed the Committee on the proposed amendments resulting from the public hearings and written submissions. The Committee unanimously approved the Bill with these proposed amendments.

The Committee gave approval for Treasury to place a transitional provision dealing with the Diamond Export Levy Bill into the Taxation Laws Amendment Bill. This measure was to circumvent problems which would be faced if the Diamond Export Levy Bill was not enacted by 1 July 2007.

MINUTES
National Treasury response to Cape Bar Council submission
Ms Jo-Ann Ferreira (Chief Director: Public Entities Governance Unit) gave Treasury’s view on the submission by the Cape Bar Council. The Bar did not support the proposed amendment of Section 30 P. The Bar indicated that the section has consistently been interpreted by the Courts as conferring a right of appeal against the decision of the Pension Funds Adjudicator. The Bar said that this might create confusion as the section was previously interpreted as giving a full appeal. Treasury proposed that the courts be given the discretion to allowed new evidence or to indicate that no new evidence may be presented against an appeal. Ms Ferreira said that if the courts have the discretion it would strengthen the Pension Funds Adjudicator and be in the public interest.

Ms Ferreira responded to the Bar's comments on Section 30Y of the Bill which proposed that regulations regarding the processes of the Pension Fund Adjudicator be published for public comment. She said that Treasury did not include the public comment provision but will propose an amendment which will allow for parliamentary scrutiny.

The Bar also raised concerns regarding the Registrar’s ability to impose administrative penalties. They argued that it would take away peoples right to a fair trial by imposing penalties through an administrative process as opposed to a criminal trial before the court. Ms Ferreira said that Treasury disagreed with this view. She said that administrative penalties were a well respected tool internationally and in a number of other regulatory environments in South Africa. There would also be a right to appeal to the Appeal Board of the Financial Services Board (FSB). Mr Patric Mozolizi Mtshaulana (Senior Council) confirmed that administrative penalties were an acceptable way of enforcing the law in most democratic countries.

Treasury response to the Engineering and Metal Industries Provident Fund submission
Mr Jurgen Boyd (Deputy Executive Officer: Pensions) explained that this Fund had asked what the effect would be on surplus apportionment if the Bill was accepted in its current format. They indicated that they went through surplus apportionment already. Treasury's response was that the amendments should not affect surplus provided that the proper process was followed.

Mr Boyd said that the Fund also proposed an amendment clause which was not supported by Treasury. He said that it seemed as if the Fund was looking for an escape clause with regards to their approach for surplus apportionment. He said that surplus apportionment should only be conducted in terms of the Act and the Amendment Act which was open and transparent, and open to the oversight of the Regulator.

Discussion
Mr S Marais (DA) raised concerns about the Cape Bar Council’s input which was rejected by Treasury. He was worried about future costs and the outcome of court cases. He asked if Treasury and the Bar could come to an understanding of the realities of the Bill.

Mr Jonathan Dixon (Chief Director: Financial Sector Policy Unit) said that Treasury strongly disagreed with the Cape Bar’s concerns regarding administrative penalties. He said that the Portfolio Committee had previously approved administrative penalties in the Security Services Act.

Mr S Asiya (ANC) said that the vulnerable should be protected by the amendments.

Ms Ferreira replied that the aim of the amendments was to protect the vulnerable.

Mr K Moloto (ANC) said that the Portfolio Committee should consider legal opinion and reflect on issues which needed to be presented by Treasury in simple English for deliberations.

National Treasury proposed amendments
Ms Ferreira gave a presentation on Treasury’s proposed amendments as a result of the public submissions (see document). Amendments were made to Clauses 1, 2, 8, 10, 11, 19, 27, 28, 29.

Clause 1
Ms Ferreira said that Treasury reworded the sentence on page 3 of the introduced bill, in line 47, to better reflect the intention of the Amendment Bill. The following were to be omitted: “which has not been disallowed by the registrar or amended in accordance with the requirements of the registrar.” Treasury proposed that it be substituted with:” which has been amended in accordance with the requirements of the Registrar, or which has not been disallowed by the Registrar”.

The second amendment was on page 3, from line 59, to omit “and the contribution payable by members”.

The third amendment was on page 4, in line 39. They proposed to omit “illegitimate child” and to substitute it with “child born out of wedlock”.

The fourth amendment on page 5, line 51, proposed to omit the definition of “non-member spouse” and to substitute it with: “non- member spouse” means, in relation to a member of a fund, a person who is no longer the spouse of that member due to the dissolution or confirmation of the dissolution of the relationship by court order and to whom the court ordering or confirming the dissolution of the relationship has granted a share of the member’s pension interest in the fund.”

Mr Asiya asked if the amendments would accommodate customary law where when divorcing, you did not go through a court. He said that especially in rural areas it would be difficult to involve courts.

Ms Ferreira replied that in the definition of 'spouse' they referred to the Civil Union Act and the recognition of Customary Marriages Act. In terms of customary marriages one should approach the Magistrate Court even if elders had confirmed that a marriage was dissolved. The magistrate would then issue an order with regards to pensions. Treasury would look into this issue and come back to the Portfolio Committee.

The fifth amendment on page 6, line 15, omitted “duties” and substituted “obligations”.

Clause 2
Treasury proposed the insertion on page 6, after line 56, of: “(b) Despite any other provision of this Act, the first statutory actuarial valuation of a fund registered in accordance with paragraph (a) must be undertaken at the end of the first financial year following registration or such other date approved by the registrar.”

Clause 8
Mr Jonathan Dixon (Chief Director: Financial Sector Policy Unit) explained this amendment which dealt with the payment of trail fees on transfers. He said that the conclusion reached had been that the Life Offices Association of South Africa (LOA) submission overstated the risk of transfers given financial incentives. However there would still be a risk. This issue would cease to be an issue in the long term, but during the transition period it might be problematic. The Financial Advisory and Intermediary Services Act (FAIS) Act did provide a sound legislative framework to deal with this issue. There were certain gaps in the enforcement of FAIS and that Treasury would come back to the Committee to propose ways to strengthen the FAIS Act.

Mr Dixon said that there was provision made for a direct fee from the client to the advisor. In terms of Treasury’s recommendation it would become clearer that the client was paying for advice. Costs would not be hidden but transparent.

Mr Dixon said that Treasury had broadened the prohibition on the payment of trial fees where commission has already been taken.

Ms Ferreira said that the 8^th amendment on page 10, line 28, proposed to omit: “and at least 75% of those members agreed to a proposed transaction contemplated in that subsection” and to substitute it with “of a proposed transaction”. The change was proposed to address practical considerations.

Mr Jonathan Dixon (Chief Director: Financial Sector Policy Unit) focused on the amendment of Clause 8 which dealt with the payment of trail fees on transfers. He said that the conclusion reached had been that the Life Offices Association of South Africa (LOA) submission overstated the risk of transfers given financial incentives. However there would still be a risk. This issue would cease to be an issue in the long term, but during the transition period it might be problematic. The Financial Advisory and Intermediary Services Act (FAIS) Act did provide a sound legislative framework to deal with this issue. There were certain gaps in the enforcement of FAIS and that Treasury would come back to the Committee to propose ways to strengthen the FAIS Act.

Mr Dixon said that there was provision made for a direct fee from the client to the advisor. In terms of Treasury’s recommendation it would become clearer that the client was paying for advice. Costs would not be hidden but transparent.

Mr Dixon said that Treasury had broadened the prohibition on the payment of trial fees where commission has already been taken.

Clause 10
On page 12, in line 28, Treasury proposed to omit:” that the member joined the fund” and to substitute:” of payment of a contribution”. Ms Ferreira said that this indicated that calculation would happen from the payment of the contribution and not from the date that the member joined.

In the 10^th amendment on page 13, in line 27:” with fund return” be inserted after:” accumulating”. She said that this was to ensure at what rate accumulations had to be done.

Clause 11
Ms Ferreira referred to Treasury’s 11^th amendment on page 17, from line 22, which proposed to omit the definition of “employer” and to substitute it with a clarification of the legal position of the employer.

Treasury also proposed that on page 18, in line 22 of the Amendment Bill, after “principles” to insert “prescribed”. Ms Ferreira said that this would make clear that the Registrar would indicate what the principles would be.

Clause 19
Ms Ferreira referred to Treasury’s 13^th amendment on page 22, from line 42, which proposed to omit: “or an employer who participates in a fund”. She indicated that this would clarify with whom a complaint should be lodged with.

Treasury also proposed on page 25 line 31, in the administrative penalty section, that the following: “paid the penalty or commence review procedures” be replaced with “lodge an appeal in accordance with Section 26 of the Financial Services Board Act. She said this proposal aimed to make it clear that there was a full appeal to the appeal board and subsequently an appeal to the court for a review. She indicated that this reflects some of the proposals of the Cape Bar Council.

Clause 27
Ms Ferreira proposed that on page 25, in line 44, to omit:” one or more dependants” and to substitute it with:” the spouse or child of the member”. The aim of this was to clarify.

Mr Moloto and Mr Mguni said that dependants required benefits in some cases and they were not sure if this change was going to change this situation.

Mr Y Bhamjee (ANC) stressed the need for Treasury to engage the Portfolio Committee in discussion regarding these and other issues.

Mr Dixon said that Cabinet had approved the original Bill where it indicated that a spouse or child was a member. Following comment from the State Law Advisor it was changed to one or more dependants. The change did originate from the Financial Services Board or Treasury but was based on a concern raised by the Institute of Retirement Funds that said that death benefits would not be regarded as pensions. Mr Dixon said that there were two types of funds. There was a general fund which paid out a lump sum in any way that the member wanted and also a fund solely for death benefits for spouses and children.

Ms Koleka Beja (Legal Advisor) indicated that this issue referred only to those specific funds which dealt with spouses and children and not to each and every fund.

Clause 28
Ms Ferreira said that Treasury proposed on page 26, in lines 38 and 41, to omit: “or other person”.

Clause 29
Ms Ferreira referred to the proposed amendment on page 27, from line 8, which provided for nil returns. Treasury proposed that there should be an obligation to submit even if there was a nil return.

Treasury also proposed that on page 27, after line 19 the following be included:
“ Regulations
40C. Before regulations in terms of this Act are promulgated, the Minister must publish the draft regulations in the Government Gazette for public comment and submit the regulations to Parliament, while it is in session, for parliamentary scrutiny at least one month before their promulgation."

Mr Bhamjee asked for clarification on Treasury's usage of the word "scrutiny".

Ms Ferreira relied that "scrutiny" referred to a similar process that the Portfolio Committee had been going through with the Pension Fund Amendment Bill.

Mr Moloto said that there was a concern that at times the executive would release regulations which could contradict the legislation. Regulations should be brought before Parliament to ensure consistency.

Clause 26

On page 25, from line 31, to omit ‘‘commence review proceedings’’ and to substitute ‘‘lodge an appeal in accordance with section 26 of the Financial Service Board Act, 1990 (Act No. 97 of 1990)’’.

Ms Ferreira indicated that the page 26 and page 28 dealt with how divorce court orders would be dealt with in future. She said it might be problematic as there could be a number of unintended consequences. Some submission raised a concern about what would happen to court orders dealt with before the enactment of legislation. Treasury proposed that they could possible accommodate that by saying that the date of the accruing of the pension benefit was the date of the commencement of legislation.

Mr Dixon stated that it would be a provision which might result in significant financial implications, and complexities may arise from providing fund returns to a non member spouse. The general concern was that it may be a significant amendment as it was something that was not included in the circulation for public comment. At the moment the amendment is a last minute amendment in which there has not been any consultation or investigation, therefore the amendment should be withdrawn at the present time.

Retrospectivity
Ms Ferreira said that Treasury wanted to make legislation retrospective despite a number of concerns which had been raised during the public hearings.

Mr Patric Mozolizi Mtshaulana (Senior Council) indicated that the retrospectivity amendments aimed to address uncertainty. He said that Parliament can safely make laws retrospective to ensure that the vulnerable be protected. Mr Ntuthuzelo Vanara (Legal Advisor) also confirmed that retrospectivity could be safely included in the amendments.

Mr Moloto asked if a case related to the prevention of organised crime also fell under the scope of retrospectivity and whether it was upheld by the court.

Ms Beja replied that in the case referred to by Mr Moloto, there was uncertainty. The courts had three tests for retrospectivity. Firstly they asked if any rights had been taken away. Secondly the courts asked if legislation increased liability and thirdly whether the legislation attached new legal consequences to past conduct. She said that one only needed to be careful when retrospectivity applied to criminal law.

Mr Moloto asked if retrospectivity also applied to land disposition. Mr Mtshaulana said that given the transformation agenda in South Africa, if one did not have power of retrospectivity it would be difficult to address certain issues.

Mr Marais again raised his concern that retrospectivity might still result in financial costs.

Voting on Pensions Fund Amendment Bill
The Chairperson read the motion of desirability for the Bill and the Committee agreed to approve the Bill including the proposed amendments.

Diamond Export Levy Bill proposal
Prof Keith Engel (Chief Director: Tax Policy) said that due to consultation with other government departments and processes, the Diamond Export Levy Bill might come into effect later than anticipated. Treasury was told on 5 June 2007 that if the new Diamond Export Levy Bill did not come into effect as of 1 July 2007, the old law would apply a levy across the board without any exemption to big, medium and small businesses. Industry would then face a massive charge until the new law came into effect.

Prof Engel proposed to put a transitional measure into the Taxation Laws Amendment Bill to solve this problem. This would enable the old law to continue to apply until the new law came into effect. This type of measure had been applied in the past to deal with transitional issues.

The Portfolio Committee gave Treasury the authority to proceed as indicated by Prof Engel.

The meeting was adjourned.