The bun fight between business and labour over who will get to share in the estimated R80 billion surplus which has built up in pension funds landed up in the halls of Parliament this week.
Parliament's finance portfolio committee heard submissions from a range of organisations on the Pension Funds Second Amendment Bill. Among other things, the Bill allows for the sharing out of actuarial surpluses and - for the first time - deals with minimum benefits for members. Importantly, the Bill aims to give former members of funds rights which they do not have under existing legislation.
The squabble over surpluses, which dates back to 1998, was taken to Nedlac, the joint business, labour and government negotiating body. But the parties failed to reach consensus on the issues after more than a year of negotiation.
Elias Masilela, the chief director of macro-economic policy at the National Treasury, told the committee that the government's view is that pension fund members, former members and employers should all participate in any use of a surplus, because they all contributed to the surplus.
The main reasons for surpluses include: People were not paid out their fair share when they transferred out of funds when, for example, they were retrenched or resigned; low pension increases; and employers paying in more than was necessary in case the fund's investments performed badly.
Masilela says the key objectives of the Bill are:
* To achieve minimum benefits in future;
* To top up the benefits of people who, in the past, transferred out of funds, converted from defined benefit to defined contribution funds, or who were retrenched; and
* To share out the remaining surplus.
The Bill has been designed to address only those funds which are currently in surplus, although the minimum benefits would apply to all funds in future.
Once past inequities had been addressed, members and employers would be allowed to share in the surplus. Members would get to share in a surplus by way of, for example, improved benefits or subsidised contributions.
Employers will be able to use any surplus allocated to them for, among other things, contribution holidays, selectively improving members' benefits - including post-retirement medical subsidies - and paying fund expenses.
In terms of the draft legislation, an employer will only be able to withdraw its portion of a surplus from a fund if the fund closes or to avoid significant retrenchments.
For fund members, Jeremy Andrew, the chief actuary of the Financial Services Board (FSB), says that the Bill stipulates:
* A minimum pension increase, which is at least linked to inflation, for those already drawing a pension, if the fund can afford it;
* A minimum payout, if you leave a fund when you resign, equal to your own contributions plus interest that is reasonable in relation to what the fund earned, as well as the share of your employer's contributions plus interest as provided in the fund's rules; and
* If your fund closes down, you are retrenched or transferred to another fund because your com-pany has been sold, or you convert from a defined benefit to a defined contribution fund, you should get at least an amount which satisfies your reasonable expectations calculated on a standard set of assumptions. These assumptions will be determined by a representative committee for all pension funds.
Potentially, everyone belonging a fund where at least 50 members or 10 percent of the membership transferred out or were retrenched could get to share in any current surplus. These funds will have to come up with a surplus apportionment scheme.
The regulations spell out how funds must prepare the apportionment scheme and stipulate that funds must seek out all former members to share in the surplus.
If there is sufficient surplus, the fund will have to top up amounts paid out to all former members to meet the minimum benefits stipulated in the Bill and will also have to top up current pensions.
How much the pensioners and former fund members will receive will depend on the size of the surplus and the financial history of the fund. The FSB has proposed formulae that funds must use.
Only funds currently in surplus and where significant transfers, conversions or retrenchments took place will have to come up with a surplus apportionment scheme.
However, if an employer "improperly" used a surplus in the past, this will be taken into account and if there is a deficit after the top up to former members and pensioners, the employer will owe a debt to the fund.
Three quarters of the board of trustees of a retirement fund will have to approve the surplus apportionment scheme and all interested parties will have an opportunity to object to plans to share the surplus.
The Association of Retired Persons and Pensioners, in its submission, said that while current pensions would be topped up to minimum levels before the surplus is shared out, pensioners will not be compensated for poor increases in the past.
John Murphy, the Pension Funds Adjudicator, generally supports the Bill, but has some misgivings. His main objection is to with-drawal benefits provided for in cases other than retrenchment.
He says the proposed legislation discriminates unfairly against fund members who withdraw from funds on grounds of ill-health, incapacity, resignation and misconduct. For example, a 50-year-old who resigns or is dismissed after 30 years of service on the grounds of incapacitation by, say, cancer or Aids, will receive one third of the benefit of a 40-year-old who is retrenched after 15 years' service.
Murphy is also worried about yet another dispute resolution body - a specialist tribunal - being created with jurisdiction over retirement matters.
What organised business says
Business South Africa (BSA) says that it does not support the Pension Funds Second Amendment Bill because BSA's approach differs in several fundamental respects from that of the Bill, including retrospectively creating new rights and duties.
BSA is concerned that the Bill in its current form will undermine confidence in doing business in South Africa and will have major consequences for capital markets in the country.
Issues raised by BSA include:
* Funds should not be required to make retrospective increases to benefits determined and paid out legitimately in the past;
* Employers should be given the right to repatriate their share of the surplus during the life of a fund;
* Employers should not be required to meet deficits, because neither the Board of trustees nor the employer would have been responsible for the investment decisions of a fund;
* The Bill requires the employer to add back to the surplus any past use of surplus used "improperly". BSA says past uses, such as increasing the benefits of senior executives and funding post retirement health care by means of additional pension funds, should not now be characterised as improper.
What the Bill should do, according to BSA, is allow the repatriation of the surplus to the employer and allow the State to use its fiscal powers to tax the distribution of the surplus. The income from this exercise should be used to the benefit of all previously disadvantaged persons.
What organised labour says
During its submission to the finance committee, the Congress of South African Trade Unions (Cosatu) criticised business for its "uncooperative attitude" and "foot-dragging" during the Nedlac negotiations.
Some of Cosatu's concerns, which it feels are not adequately addressed in the Bill, are that:
* A pension fund belongs to its members, and yet the Bill gives employers the same rights as members to benefit from surpluses that arose in the past, and might arise in the future.
* The Bill currently puts an inflation-related ceiling on what pensioners are entitled to. Cosatu says the Bill should provide an inflation-related minimum benefit.
* People who leave a fund before their retirement date must, regardless of the reason for leaving, receive a proportional share of the benefits they would have been entitled to had they remained in the fund until retirement;
* The Bill allows employers loopholes to evade their minimum benefit obligations by, for instance, closing down a fund; and
* The Bill only provides for former members to be compensated for their loss of benefits if there are still sufficient funds currently remaining in funds to do so. This means that employers who have already used assets that were left behind by members and former members do not have to pay out any benefits. Employers should make good any deficits over time.