Pension Funds Amendment Bill: public hearings

Meeting report

The Chairperson welcomed National Treasury, COSATU and ASISA to the meeting.

COSATU submission
Mr Matthew Parks, COSATU Parliamentary Coordinator. said COSATU welcomed the Pension Fund Amendment Bill as it is a critical component of Two Pot Pension Reform proposals that will allow workers access to their savings without having to resign or cash out their entire pension fund and that immediate relief will be available when the system comes into effect. They are product of extensive engagements between COSATU and Treasury over a package of reforms to provide relief to millions of struggling workers, to fix existing legal challenges and boost savings. COSATU welcome the amendments made in the National Assembly to ensure the Bill meets its intended objectives and beneficiaries, namely, to ensure all pension and provident funds are included in the reforms. It is important that the Bill is passed in the Sixth Parliament because failure to do so would be a catastrophe that would see millions of workers left behind.

COSATU had engaged extensively with Treasury and Parliament on Two Pot Reforms since 2020 and was pleased with the progress and significant consensus achieved to date. It strongly supports the 1 September 2024 implementation target date. It is critical this date be adhered to at all costs because workers cannot afford any further delays.Failure to retain this critical target date would see many struggling workers choosing to resign and cash out their entire savings due to desperation, a situation that must be avoided.

ASISA submission
Ms Adri Messerschmidt, Senior Policy Advisor: ASISA, said ASISA members support the introduction of the two-pot system. They believe that it will ultimately have a fundamental, positive impact on the capital available to fund members on retirement. The two-pot system is to be introduced on 1 September 2024.

ASISA members had various concerns with the Bill as introduced but these were substantially resolved by the Standing Committee on Finance in the National Assembly. National Treasury, in its Response Document presented to the Standing Committee on Finance on 19 March 2024, set out their rationale for proposing certain changes which were to be incorporated in the B version of the Bill that is currently before this Committee. ASISA had picked up that some of these changes were omitted, undoubtedly in error, as well as some cross-referencing and numbering errors in the B-Bill.

Ms Messerschmidt said that Treasury had indicated that the Bill as introduced would be amended to ensure a clear understanding that section 37D deductions (to be made against a pension fund for amounts due by members such as for housing loans and divorce awards) must be made across all three components – savings, retirement, and vested components. This clarification would be achieved by changing the terminology used in the Bill to indicate that the deductions must be made against the “member’s individual account” or “minimum individual reserve”, which terms will incorporate all three components.This was done in most instances, but in some sections, the change still needs to be done to ensure consistency across the Bill.

When the required amendments to the Pension Funds Act have been approved by Parliament and signed into law, pension funds must submit amendments to their fund rules to the FSCA so that expectations of fund members can be met on 1 September 2024. The law requires that the FSCA can only register rule amendments when the amendments to the Pension Funds Act have been signed into law. It is therefore hoped that corrections to the Bill can be made through this committee and that the Bill can then proceed to be signed and gazetted so that this essential work can commence. The two-pot system proposals introduce a fundamental change to the retirement system in South Africa. ASISA wishes to emphasize that its members are committed to meeting the 1 September implementation date and are working diligently towards achieving that.

National Treasury’s response
Ms Alvinah Thela, Director: Economic Policy, National Treasury presented Treasury’s response to the written and oral public comments on the Bill. One of the requests from civil society groups was that National Treasury and the South African Revenue Service (SARS) should start engagements on matters related to access to the retirement component in instances of retrenchments, dismissals, and resignations, including affordable home and educational loans by members from their pension funds for implementation on 1 March 2025.

National Treasury noted the suggestion and said it was willing to start discussions on potential options to allow fund members access to the retirement component in instances of severe financial distress. However, the discussions were unlikely to be concluded by November 2024 to come into effect in March 2025. Tax changes follow a process that requires changes to first be included in Annexure C of the Budget Review after approval, then included in the Tax Laws for public consultation and legislative processing by Parliament.

On the request for clarity on the taxation of pension fund pay-outs as members are already required to pay tax while working, National Treasury said retirement savings are based on an Exempt-Exempt Taxed (EET) model, meaning that both the contributions to the retirement fund and the returns (growth on investment) are exempt from tax, whereas retirement benefits are subject to tax upon withdrawal. Members are therefore not taxed when contributing to their fund and on the growth of their retirement contributions. Upon withdrawal, special tax rates beneficial to retirement fund members apply on retirement.

On the treatment of the retirement component in cases of divorce proceedings and that confirmation should be provided on whether the ex-spouse would be entitled to a lump sum of their ex-partner’s retirement, National Treasury said in terms of the PFA Bill (inclusive of the public sector laws) read with the Income Tax Act/RLAB, funds should allocate all permissible deductions proportionally across all components that a member has. The PFA Bill (inclusive of amendments to public sector laws) does not change the status quo on the way amounts deducted to settle divorce orders should be paid to a non-member spouse. Meaning that the request/election will be made by the non-member spouse if the amount to be deducted must be paid directly to the non-member spouse (cash lump sum subject to tax) or if it must be transferred to a fund on the non-member spouse’s behalf.

In response to the Chairperson asking if the Minister's letter noted in the ASISA submission dealt with the mistakes in the Bill, Ms Thela confirmed this. The changes would be included in the final version of the Bill as they were currently in a separate annexure.

COSATU response
Mr Parks asked if the cleaning up of the Bill could be done as soon as possible within the remaining period of Parliament.

ASISA response
Ms Messershmidt accepted the National Treasury responses. ASISA would be happy if the technical amendments could be made if that would not delay the passing of the Bill that should be passed as soon as possible.

Discussion
The Chairperson indicated that the technical changes would be made as quickly as possible and they would not delay the process any further.

Mr D Ryder (DA, Gauteng) noted that COSATU was keen to have the Bill passed because it would help many people who are in need, but the implementation date was a concern. One of ASISA’s members, Old Mutual, was in the news recently expressing itself on this. It was disappointing that Old Mutual had not brought its concern to Parliament. He felt that ASISA did not do justice to the argument that the September implementation date would be impractical. He asked ASISA to clarify that point. Did ASISA engage with the FSCA and was it proactive in guiding people on the processes that would need to be followed?

On deductions for housing loans, National Treasury said the loans against funds by employers versus loans against the pension funds managers were two different things, and the National Credit Regulator (NCR) implications were noted. It is not up to Treasury to decide if an entity should apply for an NCR licence. Were employers allowed to apply for NCR licences before? Would the implementation of the Bill change the conditions of employment in some way? There were several amounts of money that were mentioned in the Act, were these amounts included in the annual review of the Rates and Monetary Amounts Amendment Act?

Ms D Mahlangu (ANC, Mpumalanga) was also concerned about Old Mutual and its involvement in the Bill. People had complained on social media that they did not receive the beneficiary pay-outs after their family members who were Old Mutual fund members passed on and this was concerning. This needed to be explained to the people in simple terms. Are the tax consultants that assist beneficiaries ASISA members? It seemed that the insurance companies have a relationship with the consultants, and the consultants benefit from those relationships, which puts the beneficiaries at a disadvantage.

The Chairperson asked if there was an implementation plan that was mutually agreed to by National Treasury, the industry and other stakeholders. Were the things that the stakeholders felt the Committee should put in its report that would bind the process as a provision in the law? Technical drafting glitches by National Treasury were becoming the norm and this was unacceptable. Did the technical glitches and cross-referencing corrections need to go back to the National Assembly for approval?

Adv Frank Jenkins, Parliamentary Legal Advisor, said that the typographical changes could be administratively effected, but substantive errors would need to be proposed amendments that must go to the National Assembly to approve those.

The Chairperson suggested that the Committee meet on Thursday 18 April at 14:00 to vote on the Bill. He did not think the changes need to be delayed any further because the Seventh Parliament will have new members in both the National Assembly and the NCOP. Therefore, unless the changes will hold back the 1st September process, then the changes should be effected and the National Assembly process should continue.

The Chairperson said that the Committee Report should reiterate its concern about tax and the need for educational work because there is a lot of misunderstanding about the process.

National Treasury’s response
Mr Chris Axelson, Chief Director: Economic Tax Analysis, National Treasury said the monetary threshold for annuities (R165 000) is looked at periodically and is not changed every year. Whether beneficiaries receive anything after the death of a family member depends on the type of annuities they paid for. If they purchase a life annuity, that means the person will receive payment until they pass away, but the beneficiaries do not receive anything after. A living annuity ensures that individuals could take two and a half to 17.5% every year, and anything that remains when they pass away is passed on to their beneficiaries.

National Treasury met with the FSCA and SARS previously regarding the implementation plan and SARS had also been working with the industry to ensure that as soon as the implementation date nears, they will be ready to process the applications as soon as they happen. National Treasury is also trying to work on a communication plan to ensure that it spreads the message through social media and to do more media workshops on the policy to ensure that people are informed.

Ms Empie van Schoor, Treasury Chief Director: Legislation, agreed with Adv Jenkins that the typographical changes could easily be done administratively and supported that they should be done as soon as possible rather than later.

Ms Thela said that the current Pension Funds Act does not empower the employers to provide loans and pledge those against a member’s pension benefits. The Act only allows loans or guarantees to lenders against the pension benefit or for housing or immovable property loans. The aim of the Bill is not to meddle with conditions of employment and if there is an arrangement between an employer and employees, that should not be brought into the Pension Funds Act if the Act does not empower or allow such provisions.

ASISA response
Ms Messershmidt explained that Old Mutual is an ASISA member and ASISA is representing Old Mutual, other insurers and collective investment schemes. There was a general anxiety among ASISA members about implementing a fundamental change to the retirement fund system in South Africa within a short space of time. The anxiety was that there was no final legislation with which to do that. Every business with their different business models had implementation plans and they were working in the faith that the legislation will be passed as soon as possible so that they can make the changes to their systems legally.

ASISA members had already started with communication campaigns to their fund members to explain what the two-pot system is about and how it will work. ASISA has engaged with the FSCA on the readiness of ASISA members to implement rule amendments as soon as the Pension Funds Act is changed, and had assured FSCA that they would increase their resources to be able to process fund rule amendments before the implementation date. ASISA had also engaged SARS on the practicality of tax directives where these will be required. SARS had already issued its technical documents and ASISA had commented on and engaged SARS on these to ensure the process runs smoothly.

She said there was not enough time afforded by the Committee to explain in sufficient detail the administrative complexities in implementing the new system. ASISA had made extensive submissions to the Standing Committee on Finance before the implementation date was changed, and ASISA members accepted that they could work until 1st September. But 1st September 2024 is on a Sunday, meaning the entire system must be changed to create four bots, which is a substantive administrative system change.

On 31 August, there must be calculations on the seeding capital and the split between the finance and retirement component and how those calculations will go on, and then providing access to those finance components and administrative processes, completion of forms, approvals, as well as checks and balances to ensure no fraud can be perpetrated through the process. All those systems must be switched on at 1 September and before then, fund members need to know what will be available to them for withdrawal. ASISA members are committed to meeting the implementation date, but the anxiety is that they are doing all of these items based on draft legislation.

COSATU response
Mr Parks replied that they would be wary of going down the route of employer loans, and the law does not provide for that. COSATU would be keen to discuss home loans and educational loans as they are good forms of debt because they are investments. In principle, there were good discussions between COSATU, NEDLAC and the Financial and Fiscal Commission (FFC) on the Bill, but it must be tidied up some more because there is a lot of work that must be done over a short period. COSATU had already started dong educational work by briefing workers about the Bill. It will be important for the Committee to provide a report to the Seventh Parliament on the Bill so that the implementation process becomes smoother.

The Chairperson asked ASISA and COSATU each to send a paragraph to the Committee on what they think would be a good implementation programme to guide the incoming NCOP and National Assembly of the Seventh Parliament to ensure that the Bill is implemented.

Clause by clause deliberations
Ms Nomalizo Bulisile, Treasury Director: Financial Sector and Legislation, went through the Bill clause by clause, explaining the substantive changes made to the Act.

The Chairperson asked if National Treasury had engaged with the relevant departments to cross-reference and see if the information they included in the Bill was correct.

Ms Bulisile replied that was correct.

Mr Ryder said he did not see an amendment to the definition for “the authority” and assumed that there was an amendment made for the inclusion of the FSCA.

Ms Bulisile replied that the Pension Funds Amendment Bill deletes all references to "Registrar of Pension Funds" and "registrar" and replaces it with "Financial Sector Conduct Authority" and "Authority".

The Chairperson said the Committee should include in its report that while it supports the Bill and the Two Pot Pension Reforms, it is concerned about the constrained time assigned to processing the Bill given its gravity and scope.

Ms Bulisile continued going through the Bill clause by clause.

The Chairperson thanked National Treasury for the extensive work it had done on the Bill and commended it. He repeated that Parliament should refrain from putting Committees through such tedious processes in such a short time. He thanked COSATU and ASISA for their submissions and engagement in the meeting. The Committee would meet on 17 April at 10:00 and on 18 April at 14:00.

Mr S Du Toit (FF+, North West) asked that the Committee be mindful of the General Intelligence Laws Amendment Bill (GILAB) meetings that were also taking place to ensure there was no double booking of Members.

The Chairperson asked the Committee Secretary to look into meeting dates and that Mr Du Toit send his programme so that the Committee could accommodate him.

The meeting was adjourned.