2018-11-18

Transnet owes pensioners about R100bn

While the case has careened through the courts, the number of pensioners has declined from 80,000 to 50,000.

Transnet pensioners have fought a decade-long battle to get their former employer to cough up an estimated R100 billion in benefits as a result of a 1989 promise made in the dying years of apartheid as Transnet assumed the legal responsibilities of SA National Transport Services.
This staggering sum of money is sufficient to sink the economy should Transnet lose the case, says Advocate Anton Alberts, chairperson of the Freedom Front Plus, which has campaigned on behalf of pensioners. “Transnet is holding the country to ransom. If they lose this case, SA is finished. We will straight away be downgraded to junk.”
Not that Transnet would have to pay out R100 billion in one go. But it would have to fork out several billion rands a year to top up the pension funds, putting additional strain on its already tattered balance sheet.
While the case has careened through the courts, the number of pensioners has declined from 80,000 to 50,000. According to some estimates, they are dying off at the rate of 300 to 400 a month. The question some pensioners are asking is whether there will be any pensioners alive to witness the successful conclusion of the case.
The case originates with a promise made by management in 1989 to top up the pension funds by 70% of the rate of inflation plus 2% each year, as was the case in the years prior. This promise was upheld until 2003 when all but the 2% annual payments were stopped. With inflation running at about 6%, this meant pensioners’ benefits were sliding back at the rate of about 4% a year. The pensioners’ lawyers, based on 2013 figures, claimed 80% of pensioners were receiving less than R4,000 a month.
“Some pensioners have nothing left at the end of the month after paying their medical bills. Now it seems that Transnet is reneging on its responsibility,” says one of the pensioners, Nicky Oelofse.

Transnet has fought the case every inch of the way, first by contesting the right of pensioners to be recognised as a class of claimants with substantially similar arguments. The case has been mired in technical argument and exceptions raised by Transnet, all of which were struck down in the Constitutional Court in April. The ConCourt case dealt mainly with exceptions raised by Transnet, rather than the merits of the pensioners’ claims.
Time running out
Pensioners saw this as a major victory and it looked for a time as if they were close to settling the case a few months ago, as Transnet itself reported to Parliament. But this turned out to be false. This means the case must go back to the High Court for argument. This is likely to happen next year, by which time a few more thousand Transnet pensioners will likely have died.
In a recent update to Transnet pensioners, Alberts said negotiations with Transnet over a settlement had failed, and the case would now proceed to court: “I will also speak with (public enterprises) minister Pravin Gordhan to ascertain why Transnet did not heed his instructions to settle the matter on an equitable basis. It is clear that something is seriously wrong with the board of directors. If Transnet loses the court case they will cause harm to the country’s economy to the point of being downgraded to junk status. Minister Gordhan knows the country can’t survive such an event. Clearly, the board of directors is not acting in your or the country’s interest.
“We will now also have to look at other methods to increase pressure on Transnet. Now more than ever we must not lose faith, but make the pressure on Transnet unbearable.”
Lawyers for the pensioners proposed a settlement they believed was affordable to Transnet and would not place the company or the economy at risk. This involved:
  • A base uplift of approximately 42% for all pensioners
  • Annual increases of 70% of the consumer price index (CPI); the percentage increased on a yearly basis subject to affordability
  • A once-off bonus of R20 000
  • Transnet funding the shortfall by way of a ‘top-up’ annually for about nine years
  • The rules of the funds being amended to address not only governance issues but also the vexed 2% rule.
Alberts says the counter-offer from Transnet was virtually a non-offer. The only points where the two offers matched were the yearly increase of 70% of inflation and bonus payments.
One of the sticking points was the pension funds’ offer to use an R4.5 billion actuarial surplus to top up the fund. “That’s crazy,” says Alberts. “That surplus belongs to the pensioners, not to Transnet, and now the company wants to make a gift of something that does not belong to it.”
With that, negotiations broke down and the lawyers are back in the saddle.
An actuarial valuation in 1989 found that the affected funds were underfunded by R17.6 billion. The then National Party government acknowledged that the debt would have to be paid, but failed to act on this.
SA has a terrible history of corporate raids on pension funds, often by grabbing actuarial surpluses through devious means. Transnet’s pensioners claim with some justification that they are the ones left with the bill for years of abysmal management and corruption at the company.
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2018-11-06

SA’s twisted history of pension fund plunder

Two recent cases should be cause for worry.

South Africa has a grimy history of companies raiding their pension funds, and the fear is that two recent court cases, which found in favour of the pension fund trustees, will do little to curb the practice.
The first case, involving two pensioners against the Tongaat Hulett Pension Fund, wound its way through the lower courts to the Supreme Court of Appeal (SCA), only to be defeated on what the vanquished pensioners regard as a poor understanding of the law by the judges. They were denied an opportunity for review at Constitutional Court (ConCourt).
The second case involved Rosemary Hunter, former deputy pension fund registrar at the Financial Services Board (now called the Financial Services Conduct Authority), against the FSB over its attempts to deregister funds that still had assets owing to former employees. She too lost her case in the ConCourt, principally on the basis that the court assumed the FSB had competent and responsible people running it, and had investigated a few funds (less than 20%) that had been deregistered as part of the FSB’s cancellations project.
Both cases ended up in defeat at the ConCourt, with no further avenues of legal redress available to the applicants. But the findings of the judges in favour of the pension fund trustees and regulator should be a cause for concern for employees, past and current, with claims to a share of actuarial surpluses or other assets sitting in pension funds of which they are members.
The Tongaat Hulett pensioners, in a recent missive to the 54 fellow pensioners that supported their legal fight, spell out several false or erroneous findings they believe were made by the judges who heard their case.
They claimed in their court papers that the trustees were able to deceive the courts by mislabelling R1.43 billion in contingency reserves as “excess assets”, a term not found in the Pension Funds Act. “Assets in contingency reserve accounts” – a term that is defined in the act – should be shared among the members when they are no longer needed to provide for contingent liabilities. It is at this point they become an actuarial surplus. The pensioners argued that by renaming these assets as something else, the trustees, who by law must balance the interests of employees and the company, were able to divert funds away from the members to the company.
The “excess assets” in the Tongaat case referred to the actuarial surplus plus reserves. The SCA was satisfied this was clear enough and “in order to ensure the continuing solvency of the fund, the employer had to carry the balance of the cost”. The decision to apportion these assets as it did was therefore reasonable, found the court. It was legal, said the court.
Letter of the law
But was it moral? Bruce Moor, one of the applicants in the case against the Tongaat Hulett Pension Fund, outlines what the loss of the case means in financial terms: of the R800 million “future actuarial surplus” in the fund at 2012 valuations, R107 million will go to the members and R693 million to the company. The pensioners had argued that a proper application of the intent of the law would probably have given them a 50:50 split, or R400 million. The actual fund rules allow for 80% of actuarial surpluses to go to members and 20% to the company, but by applying this to “excess assets”, the employer managed to grab three quarters of the actuarial surplus, says Moor.
The losers in this case must also pay legal costs of some R680 000 to the winners. The costs would have been about R500 000 higher had the pensioners’ lawyers not taken the last leg of the case on risk. In Rosemary Hunter’s case, she at least got off with no costs awarded against her, largely because she waged her fight in the public interest. However, she had to carry her own litigation costs, even though she did not stand to benefit financially from the court’s decision.
The prohibitive cost of fighting these cases against deep-pocketed adversaries will not be lost on others contemplating a similar legal challenge.
Before 2001, there was robust debate as to who owned surpluses accumulated in pension funds – the company or the beneficiaries. Many employers claimed these surpluses as their own, particularly in defined benefit or so-called balance of cost funds, since they could with some moral authority claim that they had carried all the risks. If the market went down, they still had to cover the fund’s liabilities. The law was sufficiently vague to encourage several employers to plunder their pension fund surplus assets without any legal sanction. Several billion rands worth of surpluses were snatched away from pensioners through this self-serving interpretation of the law.
Looting
In 2001 the law was changed to curb this looting by companies. The Pension Funds Act was amended to set rules for the allocation of surpluses. Where no fund rules on apportionment existed, it was up to the board to determine the split “taking into account the interests of all stakeholders in the funds”, with neither the employer nor the members having any right of veto on such decisions.
One way to get around this is to load the board with docile members, which is precisely what the Tongaat Hulett pensioners claim happened in their case, though this was refuted by the company (the SCA agreed, and found no proof of bias on the part of the pension fund board).
Another way to get around the law is to transfer members out of the fund at the lowest possible cost and then wind up the fund, grabbing whatever surpluses remain. This is also a way to circumvent the Pension Fund Act’s surplus allocation rules. This is what the Tongaat Hulett pensioners argued in their case. In Hunter’s case, the ‘grabbers’ were the fund administrators, who exploited the fact that the funds did not have trustees. The FSB was willing to give the administrators the power to decide what to do with the remaining assets, even if this was not necessarily in the interests of the members or beneficiaries.
The ConCourt’s decision to dismiss the appeal of the pensioners is disquieting in many respects. Cora Hoexter, a law professor at Wits University, writing in the Constitutional Court Review about Mark Shuttleworth’s attempts to challenge the R250 million in ‘fees’ deducted by the National Revenue Fund for transferring R2.5 billion of his wealth abroad, notes that only the wealthy are likely to lose sleep over the ConCourt’s decision to support this outrageous exit charge.
The Shuttleworth case was about the merits of exchange controls. In Shuttleworth’s case, the ConCourt “tolerated constitutional breaches that it had not hesitated to strike down in other contexts”, writes Hoexter. A billionaire emigrant was not the sort of applicant likely to elicit empathy from the court.
Pensioners and fund beneficiaries in these two cases may feel the same lack of love from the courts.
– Brought to you by Moneyweb
https://www.moneyweb.co.za/news/south-africa/sas-twisted-history-of-pension-fund-plunder/

2018-11-01

Alexander Forbes feels fallout of ‘missing’ pension billions

When the Financial Services Board cancelled dormant retirement funds, it transferred beneficiaries’ money into ‘unclaimed benefit funds’. However, beneficiaries say it’s not unclaimed but unpaid




As Alexander Forbes accepted six boxes of documents from representatives of the Unpaid Benefits Campaign (UBC) last month, Douglas Maila shouted: "I have saved enough to retire peacefully. But now I will turn in my grave because I will die in poverty."
Maila is one of millions of beneficiaries — former retirement fund contributors or the dependants of deceased contributors — who have been struggling to get the money they saved for retirement through their working lives.
Between 2007 and 2013, the Financial Services Board (now the Financial Sector Conduct Authority, or FSCA) cancelled dormant retirement funds, transferring beneficiaries’ money — estimated by the FSCA to be R42bn and affecting 4-million beneficiaries — into "unclaimed benefit funds" administered by, among others, Alexander Forbes.

Maila and other members of the UBC dispute the "unclaimed" tag; they suggest these funds are simply "unpaid". So in mid-October, the campaign went to present the "untraceable" beneficiaries of "unclaimed" benefits to Alexander Forbes. The UBC gave the company 14 working days — a fortnight that ends tomorrow — to report on how far it has come in paying beneficiaries and reinstating cancelled funds.
The company promised to give a comprehensive report-back by tomorrow.
As the UBC and Alexander Forbes signed the memorandum, Maila said: "Please, people, change the way you are working. Bring our money before we die. I cannot rest in peace because you are holding my money."
And while ululations broke out when Alexander Forbes accepted the six boxes of claim forms and supporting documentation, not everyone shared the optimism.
After more than a decade of seeing such events take place, Bricks Mokolo, a paralegal at the Orange Farm Human Rights Advice Centre, remains sceptical. "These companies don’t give out the money in numbers. They pay one person, you get optimistic, and then they keep quiet for [a] long [time]."
Mokolo, a former member of the cancelled Cape Gate and Mittal Steel provident funds, says he has been doing this work for 17 years. "We’ve been trying to speak to these companies, reaching out to the media to say we are there. When they came up with this notion of ‘unclaimed benefits’, we said: ‘Who is not claiming?’ Because we’ve been looking for our money. How can they keep our money under unclaimed benefits? It means that they are blaming us, saying we are not claiming."
Mokolo says claimants are "sick and tired of presenting memorandums that get thrown in dustbins". He says workers have even had to do the legwork in tracing who administers their benefits. They found the codes for their funds, and sought advice from the human rights advice office about what documents would be required to complete their applications.
"So we’ve brought everything with us. We are here to help them to speed up the release of the money. But then they [administrators] use little techniques: they tell you that they want a letter of authority, knowing very well that some people don’t even have assets. The only assets they have is the money that is sitting with [the administrators]," Mokolo says, explaining the stumbling blocks claimants often face. He says the biggest concern is that the money is earning returns while sitting with administrators, but benefits due to workers are slowly being depleted by administration and other fees.
One of the country’s benefits administrators, Fairheads Benefit Services, says getting money returned to the rightful owners is a huge problem.
Fairheads administers some unclaimed benefit funds it took over from Sygnia.
David Hurford, director of consulting and marketing at Fairheads, says the administrators and investment managers tasked with finding "missing" members often have no incentive to do so. "In fact, because they charge fees based on a percentage of assets, there is a disincentive to finding the members and paying out their benefits," he says.
Hurford suggests that a centralised administrator, with no links to companies administering the funds, could be less conflicted. If it could provide the tracing service in a "retail sense", through government agencies or other proper commercial arrangements, it could reach more people than retirement fund administrators do, as they generally deal with members through their employers.
Until such matters are resolved, the waiting will continue for groups like the UBC. While its protest at Alexander Forbes was attended only by former workers from the Vaal region, it is trying to pool resources with other outfits — including KwaZulu-Natal shack-dwellers movement Abahlali baseMjondolo, for example — to ensure greater representation when it next demonstrates about unpaid benefits.

https://www.businesslive.co.za/fm/features/2018-11-01-alexander-forbes-feels--fallout-of-missing-pension-billions/