Title: OCR Document
Author: Readiris
Last saved by: PC10
Company: I.R.I.S.

PARLIAMENT

Dr. MANIE VAN DYK - LP/MP

23 February 2010

Hon. Committee Members

TRANSNET SECOND DEFINED PENSION BENEFIT FUND (TSDBF)

(Summary of original submission dated 29 September 2009 as attached)

Note:

This summary relates to the following: Members of the TSDBF who only received a 2% increase in their annual pension as determined by legislation (Transnet Pension Fund of 1990). According to legislation the Board of Trustees of the TSDBF can amend this 2 % and if they fail to exercise such a decision then the parliament Committee of Public Enterprises may amend the 2% to a inflation related annual increase. This can be done by amending Rule 24 (Rule as a Schedule) of the Transnet Pension Fund Act (Act 62 of 1990) as amended in 1991 (52 of 1991); amended in 2000 (41 of 2000) and amended in 2007 (6 of 2007).

Summary

The TSDBF has largely been ignored by the Government and Transnet since 1991 to improve the lot of about 80 000 members of this Fund who have build Transnet over many years. The TSDBF is one of the largest pension funds in South A:fi:ica. The average pension received by the members is R2 833 per month, while some of the members receive as little as R219 per month, according to a reply to a Parliamentary question by the Minister.

The basic problem is that for the past two decades (since 1990) pensioners have received only a 2% annual increase in their pensions. The urgency in regard to adjusting the present statutory increase in pensions from only 2% per year, as determined by the Statutes of the TSDBF, as set out in the Schedule to the Transnet Pension Fund Amendment Act (Act 41 of 2000), to an inflation-related annual increase results from the following:

•	Over the course of time pensioners have become so impoverished that about 40% of the members receive less that the State's social pension of R940,00 per month (as in 2008). Payslips show how poor these pension payments are. It is estimated that about 2 500 members pass away every year while solutions are endlessly postponed. There were 100 959 members on 1 March 2000, but presently only 79 467 still belong to the Fund.

•	The members' medical benefits have also constantly been eroded since their retirement, and at present these members are covered only by inadequate medical schemes, or have no medical schemes at all.

•	The TSDBF members have no bargaining power and cannot call on any legitimate authority to plead their case.

The SA Transport Services became a public company, namely Transnet Ltd, by an Act of Parliament, on 1 April 1990. By 1990 the South African Railways and Harbours Pension Fund had also "disappeared". A new fund, namely the Transnet Pension Fund (TPF), was created for pensioners of the SA Transport Services and Transnet in terms of the Transnet Pension Funds Act of 1 October 1990 (Act 62 of 1990).

Prior to the creation of the company there were pensioners, namely the SA Transport Services pensioners (SATS pensioners), and subsequent to the creation of Transnet, there were "new pensioners" (Transnet pensioners), who retired after 1 April 1990.

The TPF showed an actuarial deficit of R17 180 600 000 (R17, 1 bn) on 31 March 1990 at the privatisation of Transnet, and only 22% of its liabilities was funded. This was divided into R8,8bn and R8,4bn for the SA Transport Services Pensioners and Transnet Pensioners respectively. The Managing Director of the TPF announced that Transnet's Board, the Board of Trustees of the pension fund, and the Fund's actuaries had decided to address the deficit in the following three ways.

•	That Transnet would pay over R10 394 000 000 (R10,3bn) to the Fund on 1 April 1990 in the form of T011Transnet Bonds (obligations).

•	That Transnet would increase the rate of its contribution to the Fund from 10% to 12,5%, and that this would be further increased to 15,5% in the 1993/94 financial year.

•	The rest of the deficit would be paid to the Fund in the form of lump sum payments from Transnet's profits over 10 years. However, this never happened, because by 9 May 1994 Transnet was no longer in any financial position to transfer such lump sums.

The R10,3bn in bonds were placed on the Fund's books at a rate of return of 16,5% per year, and were to have been discounted for cash in 2011. It never happened. The outstanding debt of R6 786 600 000 (R6,8bn) (the difference between Rl7,lbn and RI0,3bn) grew by 13% per year, and by 31 March 1992 this had already again created a deficit of R10, 472 400000 (R10,4bn) which was written off.

In order to bring under control this Fund deficit, the Board of Trustees of the Fund decided on 3 1 March 1993 to introduce certain savings which put a bigger burden on pensioner benifits

The reality is that Transnet struggled to show profits. Transnet's financial results for 1993 and 1994 showed that the company began to sustain large losses as a result of poor economic conditions..

In 1997 a Cabinet Committee approved the Government taking over Transnet's liabilities regarding the Transnet Pension Fund because the company would never escape from its fmancial problems as long as it had to fund the Pension Funds' actuarial deficits itself. The Department of Finance then launched an inquiry into Transnet's Pension Fund but nothing happened.

On 1 November 2000 the TPF Act was amended in order to split the TPF into three parts, namely:

a) Transnet - Retirement fund for Transnet employees who did not wish to become members of a Defined Benefit Funds.

b) Transnet Pension Fund: A defined benefit fund for employees who did not wish to become members of a defined contribution fund, and for workers who retired after 1 April 2000. On 3 September 2007 the Transnet Pension Fund Amendment Act (Act 6 of 2007) was adopted, which detennined that the Transnet Pension Fund would be transfonned into the Transnet Pension Fund for workers and pensioners.

c) Transnet's Second Defined Benefit Fund (TSDBF) for all members who retired prior to 1 November 2000.

All assets supporting the TSDBF were transferred to this Fund at this time. The TSDBF was therefore created by an Act of Parliament.

Rule 24, as an Appendix to the Transnet Pension Fund Amendment Act (Act 41 of 2000), made provision for a statutory annual increase of 2% in TSDBF pensions.

Transnet's hoary old excuse that the annual pension increase of 2% was a statutory restriction has little to do with the responsibility that should be borne by the State, Transnet, and the Trustees in regard to poor management of the Fund in the past.

On the contrary in September 2005 the Transnet Pension Fund Administrators Newsletter acknowledged the Fund's existing deficit and that it was Transnet's responsibility to manage the situation and to provide an appropriate solution..

But, Transnet's headache was to implement Transnet's turnaround strategy to change it from a non-profit organization into a profitable business. To achieve that, Transnet decided to reduce Transnet's exposure to the TSDBF and that a 2% increase in Pension will stay.

Transnet's old excuse that a 2% per cent annual increase in pensions is determined by statute, has little bearing on the responsibility for the poor management of the Funds in the past. The SAR&H Pension Fund

was the State's responsibility up to 1990, when it was changed into the Transnet Pension Fund by an Act of Parliament. In essence the State abrogated its responsibilities through this Act, leaving the TPF Trustees to make decisions in regard to an independent pension fund as prescribed by Transnet, with the condonation of the State.

PUBLIC RESPONSIBILITY TOWARDS THE FUND

The State and Transnet cannot distance themselves from the Fund.

a) Transnet

•	Transnet Managing Director, Saki Macozoma, said the following in 1998: "Pensioners will receive a 7,5% increase in 1999 over and above the 2% increase in their pensions." This never happened.

•	Chris Wells, acting CEO of Transnet at present and former Chief Financial Officer, said the following in writing: "As ultimate guarantor to the TSDBF, Transnet acknowledges the existence of a deficit and its responsibility to manage that situation and to provide an appropriate solution. It is still in the process of addressing this Fund's existing deficit and all other related matters." This happened to fall on deaf ears all the time and nothing happened to increase pensions growth.

b) Government

•	On 27 February 2002 the Public Protector recommended that the TSDBF be registered in terms of the Pension Fund Act, but this seems to have been ignored by the government.

•	The former Minister of Transport, Mr Eli Louw, said the following on 12 July 1989: "In his address during the Opening of Parliament on 5 February 1988 the State President confirmed that the South African Transport Services would be placed on the road toward being managed and run like an ordinary business. Pensioners need not be worried about the creation of this company. The transport services will, as in the past, over and above the usual 2% pension increase, apply high increases in order to counter the effects of inflation." Nothing happened.

•	On 9 May 1994 the former Minister of Public Enterprises, Dawie de Villiers, said the following: In this regard it should be mentioned that the Government has accepted that it has a funding responsibility in regard to the Transport Services pensioners, and that ways should be found to address this funding. You will understand that the Government could not bind the Government of National Unity on this matter so, the TSDBF case was never on the agenda!

•	On 24 May 1994 Mr Eli Louw said: "We can but hope that the Government of National Unity will be able to help with further accommodation which will be to the benefit of members and pensioners." Nothing came out of this. One can therefore state that the former NP Government threw the pensioners to the wolves with a R17.1b deficit on the fund without ensuring that their benefits were negotiated with the Transitional Government.

•	On 1 November 1997 Mr Saki Macozoma, Managing Director of Transnet, said the following: "A Cabinet Committee approved that the Government would take over Transnet's obligations towards the Transnet Pension Fund because the company would never escape from its financial woes as long it has to finance the Fund's actuarial deficit itself.

•	On 21 July 2004 the former minister, Alec Erwin, reacted to a Parliamentary Question by noting that an annual increase for members of the TSDBF could be 70% of the consumer price index in terms of a new propposal, instead of 2%. This also came to nothing.

On 9 June 2004 Minister Trevor Manuel, the Minister of Finance, promised the Railways, Harbours and Airways Pensioners Association the following: "The TSDBF is regulated under the TSDBF Amendment Act and in terms of this Act the chief responsibility of the Pension Funds under the Act resides with the Minister for Public Enterprises. I, however, as the Minister of Finance, also have certain responsibilities in terms of the Act and have previously indicated I am willing to help in this matter. Government and Transnet are genuinely concerned about the financial wellbeing of TSDBF members and their benefits. Transnet and the Board of Trustees are already working on a plan to reduce the deficit of the Fund and to match the assets of the Fund. I would like to assure you that this matter is receiving Government's full attention. Your letter will be forwarded to Transnet and the Minister of Public Enterprises for a further response. "These promises of Manuel also came to nothing!

•	In August 2005 Transnet said that Ms Ramos is giving the Fund's problems her urgent attention and that Transnet is concerned about the financial wellbeing of pensioners! Nothing came of this either.

•	The Minister also pointed out in writing to Parliament that Transnet as guarantor to the TSDBF, is looking for a solution to the funding level of the Fund. On 10 October 2008 the DA submitted a presentation on relieving the plight of pensioners to Mr. Manuel for his consideration, and his office acknowledged receipt. This also came to nothing.

•	On 10 October 2008 the DA submitted a presentation for consideration to the former Minister of Public Enterprises, Ms Brigitte Mabandla was submitted who took over from Erwin in order to relieve the plight of pensioners. She replies 5 months later, only on 30 March 2009, as follows: "I have taken note of your proposals and will request Transnet to look at these with a view to exploring all the different options. I will revert back to you once Transnet has given me the required feedback. I trust that you will find the above in order." This, too, came to nothing.

•	On 29 September 2009 this presentation was submitted to the new Minister Barbara Hogan to consider amendment from the 2% fix increase in pensions per anum to an inflation related increase but there is also still no reply from her.

•	All these events therefore indicate that the pensioners hit a wall every time, despite many promises by Transnet and the Government. This process has remained uncompleted since 1989, and in 2010 it is still a problem for the TSDBF pensioners.

The only thing pensioners could do over the years was to write letters to Transnet, but the records show that members seldom or never received replies, and that their pleas have fallen on deaf ears.

The bargaining power of members of the TSDBF are limited, for the following reasons:

•	Pensioners cannot strike, as organized labor can.

•	They do not have a strong legitimate trade union alliance with the ruling ANC.

•	They do not have a former employer (Transnet) with sympathy for their position.

•	They were left with a loss of R 17,1 bn by the former NP Government.

•	The Government of National Unity never gave the matter its attention.

•	The Ministers charged with the matter after 1994 till April 2009 made only promises, but have not instituted any solutions. (This excludes the bonus consolation prize.)

•	The Board of Trustees made no attempt to amend the rules of the Fund that stipulates only a 2% per annum increase in pensions.

INADEQUATE MEDICAL BENEFITS FOR TSDBF PENSIONERS

Transmed administered the medical schemes for SATS and Transnet Pensioners. In Desember 2008 Transmed announced that it would have no funds by 2010 if the status quo were maintained. It would not be a solution to reduce benefits or increase contributions. At present Transnet is investigating options for transferring members to other funds with a Transnet subsidy, or to grant members a subsidy so that they can join a fund of their choice themselves, but these subsidies are limited so that members are almost without any medical aid.

Those who retired after 1 April 1990 (and members of the TSDBF) receive a subsidy of only R213 per month, and have a choice of medical plan according to the affordability of the member's pension. The financial position of these pensioners will only deteriorate further because pensions increase by only 2% per year, while medical cost inflation amounts to some 18% per year.

COMPARISSON BETWEEN THE TSDBF AND THE STATE PENSION FUND.

As regards the Public Service Pension Fund, the Rule states that the Board of Trustees has an obligation, to ensure annual pension increases of at least 75% of the average increase in the inflation rate for the previous

year. The Rules have been amended since 2006/2007 in order to increase public service pensions by 100% of the VPIX inflation figure annually.

TSDBF VERSUS OTHER PENSION FUNDS

Prior to the privatization of the SA Transport Services in 1990 to become Transnet, there was a strong feeling that the State should remain responsible for the pension fund. This never materialized. The TPF was created in terms of its own Act of Parliament, and can therefore not be registered with the Registrar of Pension Funds.

The TSDBF is a closed Fund, meaning there are no incoming members, and it is not governed by the Pension Fund Act but by the TPF Act. In terms of Section 2 of the Transnet Pension Fund Act the Fund is vested with its own legal personality which is destinct from that of Trans net or the Department. The affairs of the TSDBF are managed by the Trustees of the Fund, who ensure appropriate management of the Fund in accordance with the law and rules of the Fund.

THE PROBLEM

The TPF inherited a deficit of R17,1bn in 1990. The Fund showed a surplus of R2,7bn only in June 2009. Members and Transnet do not contribute to the Fund. The TSDBF therefore does not receive regular cash contributions, and the benefits are paid from a combination of erratic investment income and the sale of assets, of which the V &A Waterfront was one of the latest

Transnet's poor financial position and funding of the Fund has resulted in the funding level dropping from 103% in 2000 to 72,1% in 2003

Seen globally, the TSDBF's funding level may be presented as follows:

 2000 - 103%;
 2001 - 81,9%;
 2002 - 84,5%;
 2003 -72,1%;
 2004 - 81,4%;
 2005 - 74,8%;
 2006 - 86,5%;
 2007 - the Fund showed a surplus of R1,9bn, the funding level was 105,7% and the Fund had assets of about R22bn;
 2008- 111 %,
 2009-107%.

So although the funding level is above 100%, the problem is that it is not the funding level which determines considerations regarding annual pension increases but that this is determined by the Rules of the TSDBF as set out in the Schedule to the Transnet Pension Fund Amendment Act, and that the Rules have never been amended.

This state of affairs may be ascribed to the following:

•	The former Government replaced the SAR&H Pension Fund with the TPF by legislation, namely the Transnet Pension Fund Act of 1 October 1990, and linking it to Fund rules which prescribed an annual increase of 2%, and leaving this rule unchanged when the TSDBF was created after the division of the TPF in 2000.

In other words, a higher funding level alone will not solve the problem. It must be accompanied by a change to the Fund's rules so as to grant an inflation-related annual pension increase. In terms of Section 2 of the Transnet Pension Fund Act, the Fund is vested with its own legal personality which is distinct from Transnet or the Department. So:

Because of changes to the Rules are initiated by the Board of Trustees, the Department of Public Enterprises cannot therefore request Transnet Management to authorize the Trustees of the Fund to Amend the Rules.

A. Board of Trustees

•	Rule 24 (Rule as a Schedule) of the Transnet Pension Fund Act (Act 62 of 1990) as amended in 1991 (52 of 1991); 2000 (41 of 2000) and 2007 (6 of 2007) states:" The pension recieved by a pensioner shall be increased by 2% per year compounded.

•	Section 14 B(5)(6) of the Transnet Pension Fund Act (Act 62 of 1990) as amended by the Transnet Pension Fund Amendment Act (Act 41 of 2000), provides as follows:

- 14B(5): " The control and management of the TSDBF, the benefits due to pensioners and the beneficiaries shall be governed by the rules of the TSDBF set out in the Schedule to this Act."

- 14B(6)" The Rules set out in the Schedule may be amended by the board of trustees of the TSDBF with the approval of Transnet provided that an amendment that is likely to affect the financial condition of the TSDBF shall be of no force or effect unless it has also been approved by the Minister acting with the concurrence of the Minister of Finance."

•	In September 2007 a second amendment to Transnet Pension Fund Amendment Act  (Act 6 of2007) provides that the rules be amended as follows:

- "Rule 9 (1) of the Transnet Pension Fund Act provides that the Board of Trustees prescribe the manner in  which the awards of benefits shall be considered by the fund" In this way a Parliamentary amendment of the Act could be avoided.

So:

•	The starting point is therefore the Board of Trustees, which has allegedly taken a lax attitude over time.

•	The Trustees, who are allegedly only puppets of Transnet, should recommend that the Rules be changed in order to grant pensioners an inflation-related annual pension increase. According to Rule 3(5) of the Transnet Pension Fund Act, the Trustees can request Transnet to contribute to the Fund. Currently, Transnet comprises 66,66% of the Trustees and would have to be party to such request.

•	Rule 3(5) provides for Transnet to contribute to the Fund if the Trustees, after consultation with the actuaries, regard such a contribution to be necessary. But, it is, however, rumored that Transnet acts as "His Masters Voice" in regard to the Board of Trustees, as Transnet appoints four of the six members.

•	The Board of Trustees undertook as early as 30 May 2003 to amend the Fund's Rules, but nothing has come of this! The Minister confirmed this in writing to parliament on 12 November 2004. In August 2008, the Board of Trustees again undertook to pay an inflationlinked pension to members of the TSDBF according to Beeld of 23^rd February 2009 but did not implement it!

B Transnet

- Section 12 (2) of the Transnet Pension Fund Act reads as Follows: " Transnet guarantees the financial obligations of the TSDBF"

Transnet has allegedly repeatedly sidestepped these obligations. Pensions and benefits have been paid but the Act and its Schedules have been amended in order to limit their benefits to their detriment whenever Transnet's liabilities became to great in comparison to its assets. Futher more Transnet has allegedly also hidden behind the statutory 2% annual pension increase in order to limit its financial obligations towards the TSDBF to a minimum.

C Government

- The Government of South Africa confirmed that it guarantees the obligations of Transnet Ltd towards the Fund, as said above.

- In terms of Rule 19 (6)(b) as part of the Schedule to the Transnet Pension Fund Act, the Minister may, with the concurrence of the Minister of Finance, demand that the employer provide a guaratee in order to place the Fund in a financially sound position.

- However, the SA Transnet Services Succession in Title Act (Act 9 of 1989) provides, in Section 16, that the State guarantees all Transnet obligations, while Section 19 in turn guarantees all Transnet's financial instruments and effects. Since 1990 the State has never met this obligation in order timeously to rectify the Fund's deficits, which could have justified a change to the Fund's rules.

It is therefore recommended that A

1. The Board of Trustees who manage the affairs of the TSDBF according to legislation, should propose an amendment (on recommendation by the Minister of Public Enterprises as the chief responsibility of the Funds under the Act resides with the Minister according to legislation, with the approval of Transnet and the Minister of Finance), of the Fund's Rules as set out in the Schedule to the Transnet Pension Fund Amendment Act in order to institute inflation- related pension increases of 100% of the (VPIX) above the present rate of 2% for members of the TSDBF.

B

2. If the Board of Trustees does not amend the Fund's Rules in 2009, a parliamentary amendment (intervention) of the Act will be the alternative early in 2010, given the age of pensioners and the lengthy period of time of this problem. The Parliamentary Portfolio Committee for Public Enterprises or the Minister for Public Enterprises should then take the lead in respect of Parliamentary Amendments to the provisions of the Transnet Pension Fund Amendment Act, which prescribes the procedure for Amendments to the funds Rules in order to provide for changes to the provisions of the TSDBF Rules as a schedule to the Act to ensure the Rules provide for an inflation- related annual increase in pensions for members of the TSDBF amounting to 100% of the VPIX. The point of departure is the Parliamentary Portfolio Committee for Public Enterprises who approved the Committees Strategic Planning Document and Year Program on 10 September 2009. The relevant section of these documents read as follows:

"The Portfolio Committee on Public Enterprises will familiarise itself with the current status of the Transnet Pension Fund Act (Act 62 of 1990) and endeavour to amend sections of the Act which prescribe the procedures for amending the Fund's rules (included as a Schedule to the Act), in order to ensure that the rules must provide for an inflation-linked annual increase in pensions for members ofthe Transnet Second Defined Benefit Fund."

This undertaking was originally proposed by the Committee on Public Enterprises on the 4tb September 2009 and the minutes that certified the adoption of this undertaking as contained in the committee's 5 Year Programme and Strategic Plan was approved by the committee on the 13th October 2009

4. An inflation-linked pension increase of 75% of the VPIX is paid to pensioners and beneficiaries of the TSDBF backdated from 2000 until 2006 and 100% of the VPIX from 2007 as is the case with the Public Service Pension Fund. (This problem dates from 1991, even before the TSDBF was created in 2000).

5. The above increased backdated pensions are paid to pensioners and dependents of the TSDBF as soon as possible (2010).

Member of committee

Dr.S.M. van Dyk - MP