Special Pensions Amendment Bill [B29-2008]: Briefing & Financial Services Laws General Amendment Bill [b21-2008]: adoption

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Finance Standing Committee

03 June 2008
Chairperson: Mr N Nene (ANC)
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Meeting Summary

The Minister of Finance briefed the Committee on the Special Pensions Amendment Bill.  The Bill reduced the qualifying age as at 1 December 1996 from 35 to 30, made further provisions for the rights of surviving spouses and orphans to the benefits of deceased pensioners, made provision for the right to funeral benefits of pensioners and surviving spouses and orphans and amended Schedule 3 of the Act to allow for the migration of pensioners between different age categories.  The total cost of implementation of the Bill was expected to amount to R3.7 billion.

Members asked questions about the cost of implementation of the Bill, whether provision was made in the budget for the additional special pension pay-outs, the number of expected additional applicants for special pensions, the back-dating of benefits, the administration of the special pensions, if previously rejected applications would be re-considered, the disqualification of applicants with criminal records and the payment of benefits to dependents of deceased pensioners.

The Chief Director: Legislation, National Treasury, briefed the Committee on the amendments to the Financial Services Laws General Amendment Bill.  The Bill included amendments to the Pension Funds Act, the Friendly Societies Act, the Financial Services Board Act, the National Payment Systems Act, the Financial Institutions (Protection of Funds) Act, the Financial Advisory and Intermediary Services Act, the Co-operative Banks Act, the Long-term Insurance Act, the Short-term Insurance Act, the Collective Investment Schemes Control Act and the Securities Services Act.

Members, delegates from National Treasury, the Parliamentary Law Adviser and the State Law Advisers debated the possibility of double jeopardy if the enforcement committee was allowed to impose administrative sanctions in addition to criminal sanctions.  It was agreed to delete subsection (4) of section 6D under clause 42 of the Bill and leave the issue to be decided by the judiciary.

The clauses to the Bill were agreed to, with amendments.  The Bill was adopted by the Committee.

Meeting report

Briefing on the Special Pensions Amendment Bill
Mr Trevor Manuel, Minister of Finance, briefed the Committee on the proposed amendments to the Special Pensions Act, 1996 (see attached document).

Mr Manuel explained the background and objective of the Bill.  The most significant amendments were to reduce the qualifying age from 35 to 30 as at 1 December 1996, to make further provisions for the rights to surviving spouses or orphans pensions, to make provision for funeral benefits and to make provision for the migration of pensioners from lower to higher pensions as they reach the age thresholds specified in the schedules.  The amendments made provision for the effective administration of the Act and included a number of technical amendments.

The total cost of implementation of the Bill was calculated to be R3.7 billion.

Discussion
Dr D George (DA) asked if backdating will be allowed and if it was included in the calculations.

Mr S Marais (DA) asked for confirmation that the total cost amounted to R3.7 billion and if provision was made in the budget for that amount.

Mr N Singh (IFP) asked if the cost of the amendments of R3.7 billion was in addition to the amounts that were already being paid out.  He asked how many beneficiaries were currently receiving benefits.  He asked what challenges were experienced in the administration of the pensions.

Ms P Daniels (ANC, Member of the Portfolio Committee on Defence) asked if lump sum payments made in error were being paid back.  She said that in certain cases, pension payouts continued after the death of the member and were being claimed back from the surviving spouse even though the spouse did not receive the money.

Mr M Johnson (ANC) asked for clarity on the reduction of the qualifying age from 35 to 30.  He understood that the cut-off date for applications was 1 December 2010.  He said that a number of queries were received after the road shows to introduce the special pensions from persons who were in the same age category as Mr Mandela.

Ms N Mokoto (ANC) asked how applications that were previously rejected would be handled.  She asked if new applicants will receive a lump sum in addition to monthly pensions.  She asked if applicants will be refunded the cost of submitting their applications if the application was rejected.  She asked if persons previously disqualified as orphans would now be re-admitted.

Ms Daniels asked if the amendments will affect those persons who had joined the South African National Defence Force (SANDF) and who had to repay the special pensions paid out to them.

Mr Singh asked if applicants were categorised by political party and if so, how many pensioners were there from each of the political parties.

Mr Andrew Donaldson (Deputy Director-General: Public Finance, National Treasury) replied that the cost of R3.7 billion was an estimate, based on the current value of payments.  The cost of implementation was in addition to the R2.1 billion that was paid out so far in special pensions.  He said that there was a backlog in the processing of applications that were received.  The budget for the current year was adequate but he expected that the budgets for the Medium Term Expenditure Framework (MTEF) for future years would have to be adjusted.  He confirmed that persons applying for non-statutory forces pensions had to forgo their special pensions and were required to refund any special pension received after the date of receiving the non-statutory forces pension.

Mr Manuel explained that a person who joined the non-statutory forces did not contribute to a pension fund.  That person started to contribute to a pension fund when the non-statutory forces were integrated into the SANDF.  Such a person would be at a disadvantage compared to one who had joined the SANDF at the same age and would be eligible for a lesser amount of pension benefits.  The special pensions were non-contributory and were intended to close this gap and avoid the payment of two pensions.  He said that there were some problems with communication and with the administrative implementation of the program.

Mr Mongezi Mngqibisa (General Manager: Program 8, National Treasury) said that surviving spouses will receive an annuity in addition to a lump sum pay-out.  Applications received earlier will also be considered.

The Chairperson asked if people will have to re-apply for the special pensions.

Mr Mngqibisa replied that it will be necessary to communicate with affected people to explain the Act to them.

Mr Manuel said that legal certainty was necessary to provide for ease of administration.  Applications were received from people who did not qualify for the special pensions for reasons other than their not having reached the qualifying age of 35.  Applicants could not prove that they belonged to any organisation and applications were rejected because there was a lack of verification from political organisations as required by the Act.  The requirement that applicants were detained or banned for a minimum of five years was also applicable.

Mr Manuel said the cut-off date for applications was set for 2010 to allow sufficient time for public education.  He explained that the big steps between the age categories were undesirable and the amendments dealing with the migration between the age categories would enhance the administration of the pensions.

Ms Jo-Ann Ferreira (Chief Director: Legislation, National Treasury) confirmed that pension pay-outs will commence from the date of application.  The only retrospective payments will be in the case of the earlier qualifying age of 30.  She explained that persons who were age 30 to 35 as at 1 December 1996 will be invited to apply for special pensions.  She said that any applications previously received but rejected on the basis of age younger than 35 will be re-processed in accordance with the provisions contained in the Bill.

Mr Stadi Mngomezulu (Chief Financial Officer, National Treasury) said that the structure of the Department was in the process of being reassessed to ensure that there was adequate administrative capacity to process the expected increase in applications.  He said that a special investigation unit was being formed to check the benefit entitlements against the database of recipients of the special pensions.

Ms Marion Mbina Mthembu (Chief Director: Administration Services, National Treasury) said that it was expected that the deadline for applications will be communicated to the public.  She gave the assurance that the Department will be adequately resourced to deal with both the expected influx of applications and the existing backlog.

Mr Manuel explained that the first board was constituted by the Portfolio Committee on Finance.  Two subsequent boards were appointed.  He said that the role of administration was to ensure that the file of an applicant was complete, contained all the necessary documents and was ready for adjudication by the board.  The board’s decision on whether or not to grant a special pension was based on whether the applicant met the criteria or not.  The applicant had the right to appeal if the application was rejected.  The decision to grant the pension was made in accordance with the terms of reference by the board and can not be influenced by the political affiliation of the administrator.

Mr Marais asked for what period the R3.7 billion was payable.  He wanted to know what provision was made for the payment of special pensions in the current and following years’ budgets.

Ms Daniels said that the language used in advertisements and when communicating with the public was important.  People were being exploited because they did not understand what the special pension benefits were.  She asked how the benefits for the younger applicants will be implemented.  She asked if benefits were payable to ex-partners and spouses if the pensioner had another spouse at the time of his death.  She asked for clarity on the disqualification of persons who were arrested for crimes, were either convicted or cleared but had spent long periods in jail awaiting trial.

Mr Singh asked how many beneficiaries were currently receiving special pensions.  He asked how many applications were received and how many were still outstanding.  He asked how many more applicants were expected to apply for special pensions.  He said that applicants had to provide details of the political organisation to which they belonged on the application form.

Mr Johnson asked why the cut-off date of 1 December was chosen rather than a date at the beginning of the financial year or the effective date of the legislation.  He asked if consideration would be given to those persons who were excluded from receiving special pensions.  He referred to clause 2 (6) and (7) of the Bill and asked if a distinction was drawn between major and minor crimes when the special pension was withdrawn on conviction of a crime.

Dr George understood that the total cost of R3.7 billion was an estimate as it can not be determined how many applications would be received.  He wanted to know if benefits will be backdated to 1995 or to 2001 and whether applicants will receive lump sum payouts.

Mr Mngqibisa advised that approximately 44000 applications were received.  14391 were approved, 14093 were declined, the backlog was 9000 and 6325 late applications were received.

Mr Donaldson explained that the estimated costs included actuarial calculations of mortality and morbidity.  It was not known how many applications would be received but an assumption of 5000 was made.  He pointed out that R1.4 billion of the total of R3.7 billion was for the payment of special pensions to the 30 to 34 year old age group.

Mr Manuel said that many applications were submitted even though the applicant had no valid basis for his claim.  It was an administrative function to reject unsubstantiated applications before referring them to the board.  He acknowledged that there were instances where intermediaries were prosecuted for fraudulent activities.  He said that political organisations had a defined relationship with their supporters and needed to ensure that communication took place through their established networks.  He said that the matter of spouses and partners were largely administrative issues.  He mentioned recent changes to the Pension Funds Act with regard to the rights of divorced spouses.

Ms Ferreira replied that the cut-off date of December was chosen to be consistent with the cut-off dates for the earlier amendments to the Act.

Mr Manuel recalled that the original date was determined by the Portfolio Committee on Finance.

Ms Ferreira explained that the Bill attempted to address the income security for the 30 to 35 age group.  She explained that if both partners in a relationship qualified for a pension in their own right, the surviving spouse did not qualify for benefits on the death of the other pensioner.  On the death of a pensioner, the benefits payable to the surviving beneficiaries were calculated and may include both lump sum and monthly payments.  She explained that a timeframe was applicable for crimes committed by applicants.  The crimes specified were listed in Schedule 1 to the Criminal Procedure Act.  She undertook to provide the Committee with a list of the relevant crimes.

Mr Donaldson replied that the 2008 budget made provision for R330 million to be paid out in special pensions, increasing to R348 million in 2009.  An indication of the number of applications was necessary before the year-by-year estimates can be calculated.  He expected the amounts involved to be substantial and estimated an additional amount of R200 million per annum.

Ms Mthembu said that theft may be either major or minor but was considered to be a serious crime and was listed in Schedule 1 to the Criminal Procedure Act.

Mr Fihla (ANC, Member of Portfolio Committee on Defence) said that offices had been set up in various areas to deal with special pensions.  He suggested that the dominant organisation in a particular area was identified.  He said that in some areas, opportunists took control over special pensions and this resulted in fraudulent claims.  He suggested that offices were staffed proportionately and were controlled by Pretoria.  He said that many applicants missed the previous cut-off date.  He asked if applicants had to re-apply for special pensions.  He said that information provided earlier could be out of date and that it can be expected that there would be many queries.  He asked if there were sufficient resources to deal with the increased workload.

Dr George said that his question on back-payments was not answered.  He asked if the calculations used to determine the benefits and costs would be made available to the Committee.

Mr Singh remarked that implementation of the amendments depended on the availability of resources.  He noted that a total cost of R3.7 billion was estimated in the presentation by National Treasury but the amount anticipated in the objects of the Bill was R6.86 billion.

Ms Daniels asked what would happen if a person missed the qualifying age by a few months.

The Chairperson explained that it can be expected that a person could miss the qualifying date by a single day.

Mr Manuel conceded that difficulties were experienced with the management of the offices.  Personnel were expected to be politically neutral.  He understood the fears that applicants from a different political party to the one dominant in a particular area would not be treated fairly.  Administration of the pensions must be seen to be fair and correct.  The board’s decision on whether to accept or reject an application must be based on whether the applicant qualified or not.  The principle of fairness must be applied to the conduct of personnel in the offices.  He qualified for the special pension but did not apply because he believed it should be paid to persons in need.  The legislation made provision for a qualifying age and cannot be open to all.  He said that the assumption was made that persons underwent a period of detention and were prevented from contributing to a pension fund.  It was also assumed that after 1994, persons could work and contribute to a pension fund.

The Chairperson asked if consideration was given to persons who committed a crime because of hardship.

Ms Ferreira replied that persons found guilty of committing serious crimes were excluded from benefiting from the special pensions.  A commission was currently considering crimes committed as a result of circumstances of hardship.  It was difficult to draw the distinction in the Bill.

Mr Donaldson undertook to investigate the difference in the costs quoted in the presentation and in the Bill and reply to the Committee in due course.

Mr Marais asked if provision was made for the additional costs in the MTEF budget.

Mr Donaldson replied that the estimated costs were not in the MTEF budget.

Ms Ferreira explained that retrospective benefits applied to persons in the 30 – 35 age group and were backdated to 1 April 2001.  All other benefits were effective from the date of application.  The migration of pensioners to higher age groups was effective from the date of the age change.


Financial Services Laws General Amendment Bill: deliberations
Ms Jo-Ann Ferreira (Chief Director: Legislation, National Treasury) briefed the Committee on the detailed amendments to the Bill (see attached document).

The proposed amendments to clauses 1- 4, 8, 10, 12 - 14, 22, 25, 27, 28, 32, 35, 38, 40, 42, 44 -  48 and 50 and 56 were presented.  Clauses 15 and 62 were rejected.  New clauses were proposed to amend sections 13B and 37 of the Pension Funds Act, section 11 of the Financial Advisory and Intermediary Services Act and section 1 of the Collective Investment Schemes Control Act.

Discussion
Mr Baron Furstenburg (Director: Financial Markets, National Treasury) explained the background to clause 8 of the Bill.  The amendment to section 14 of the Pension Funds Act resulted on the need to clarify the fees allowed when members of underwritten retirement annuities transferred their benefits to a non-underwritten retirement annuity fund.  The Life Offices Association (LOA) claimed that there was an inherent risk in such transfers and claimed that it was in the best interests of the consumer if a fee was charged on the transfer of benefits.  The amendment made provision for companies to levy a trail fee as a percentage of the assets transferred provided that the fee was negotiated with the client on an annual basis, fully disclosed and accepted by him.

Dr George said that significant fees were recovered during the first two years of retirement annuity policies.  If the policy was transferred to another retirement annuity fund after two years, a trail fee was payable thereafter.  He asked if people understood trail fees.  The experience was that people tended to leave the retirement annuity in the fund but the fee continued to be deducted with no further benefit to the client.  He suggested that the fee should fall away after one year unless the client accepted the renewed fee in writing.

Mr B Mnguni (ANC) said that the fees eroded the value of the retirement annuity.

Mr Furstenburg replied that the amendments stated that the fee must be negotiated and agreed to by the client.  It would be illegal to renew a fee in subsequent years if the fee was not re-negotiated and agreed to by the client.  He said that provision can me made for the clients acceptance of the fee to be in writing.

The Chairperson suggested that the amendments specified that acceptance of the fee by the client must be in writing.

Mr Furstenburg agreed.  He said that acceptance needed to be on an annual basis to avoid clients agreeing to fees that were charged for ever.

Ms Mokoto requested clarity on clause 14 of the Bill.  Provision was made for deductions from pension benefits for divorce, maintenance and other valid court orders.  She asked what happened if there was a divorce order and a maintenance order at the same time.

Ms Ferreira explained that maintenance orders took precedence over divorce orders.

Mr Furstenburg explained that provision was made for withdrawals from both pension and preservation funds in the case of divorce orders.

Dr George understood that preservation funds allowed a member to make one withdrawal.  He asked if the deduction for a divorce order was in addition to the single allowed withdrawal.

Mr Furstenburg replied in the negative.

Ms Ferreira referred to clause 42 of the Bill (see page 16 of attached document).  The clause amended the Financial Institutions (Protection of Funds) Act by inserting section 6D (determination by enforcement committee).  She explained that the State Law Advisers said that double jeopardy would arise if the enforcement committee was allowed to impose both administrative sanctions and criminal sanctions for the same set of facts.  The Parliamentary Law Adviser disagreed.  National Treasury proposed that the provision in subsection (4) that prevented the enforcement committee from applying administrative sanctions when criminal proceedings were instituted was deleted.  The issue of double jeopardy would be left in the judicial domain and it was left up to the respondent to argue double jeopardy.

Ms Koleka Beja (Parliamentary Legal Adviser) explained that double jeopardy applied when a person was convicted or acquitted for an offence and later charged with the same offence again.  She said that an offence attracting administrative sanctions would be different from an offence attracting criminal prosecution.  Respondents had the right of recourse to the courts if they were dissatisfied with the administrative sanctions imposed by the FSB.

Ms Xoliswa Mdludlu (State Law Adviser, Office of the State Law Advisor) said that double jeopardy arose if the same set of facts resulted in both criminal and administrative sanctions.  If the clause was removed, it would be in violation of section 35 (3) (m) of the Constitution.

Mr Johnson understood that there may be different offences under the same set of facts.  He felt that the FSB should be allowed to impose administrative sanctions for one offence and institute criminal proceedings if appropriate for another offence by the respondent.

The Chairperson asked why the phrase ‘same set of facts’ were used instead of ‘same offence’.  He asked what the repercussions would be if subsection (4) was not deleted from the Bill.

Mr Jurgen Boyd (Deputy Executive Officer, Financial Services Board) explained that transgressions and violations of the law uncovered by the FSB were referred to the enforcement committee.

Ms Fazlin Omar (State Law Adviser, Office of the State Law Advisor) suggested that the phrase ‘charged’ was replaced with ‘convicted or acquitted’ in the subsection.

Ms Ferreira said that any administrative sanctions would have to be postponed until the respondent was either acquitted or convicted of the criminal offence.  She said there may be cases where it was necessary to apply both administrative and criminal sanctions.  She suggested that the Committee did not attempt to legislate for a legal principle before it was tested in court.

The Chairperson and Dr George agreed that subsection (4) was removed.

The Committee adopted the clauses of the Bill, with amendments.

Adoption of Bill
The Chairperson read the motion of desirability and the Committee’s report on the Bill.

The Bill was adopted by the Committee.  Mr Johnson seconded the motion to adopt.

The meeting was adjourned.

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