National Assembly debate on Bill on Provident Fund Retirement Reforms matter

15 March 2016

Yunus Carrim, Chairperson, Standing Committee on finance

The Revenue Laws Amendment Bill postpones the annuitisation of the retirement benefits of provident fund members for two years to open up space for productive negotiations between the government, trade unions, industry and other parties to deal with retirement reforms in a wholistic way, including as part of a long overdue reform of social security.

The requirement for provident fund members to annuitise two-thirds of their savings on retirement was passed in law in 2013 and constantly deferred for consultation with those trade unions and other parties who opposed it. Crudely put, you can see annuitisation in this context as simply receiving two-thirds of your savings in monthly sums after you retire rather than your whole saving in a lump sum. In November last year our Committee again had to consider the matter.

National Treasury reported that it had consulted trade unions and other parties in NEDLAC and outside it, and that almost all parties had agreed to its latest provisions on annuitisation except COSATU (Congress of South African Trade Unions). COSATU did not agree that there was adequate consultation.

The Committee therefore noted in its Report to Parliament on the Bill on 25 November 2015: "Besides SCOF`s (Standing Committee on Finance) engagement with stakeholders and the public, National Treasury reported to the Committee that they also engaged with stakeholders before and after the Bill was introduced to Parliament. In the case of the retirement reform amendments, these consultations, according to National Treasury, have been taking place since 2012, including through NEDLAC, even though finally there was no agreement in NEDLAC on the tax harmonization and annuitisation amendments. SCOF is unable to tell about the quality and depth of these negotiations, but that there have been negotiations is clear to the Committee."

The Committee decided to go ahead with the Bill following further concessions by National Treasury, including that provident fund members need not annuitise if they had saved less than R247 500 up from a previous ceiling of R75 000.

However, following the President`s promulgation of the Bill into an Act, COSATU, NUMSA (National Union of Metalworkers of South Africa), AMCU (Association of Mineworkers and Construction Union) and NUPSAW (National Union of Public Service and Allied Workers) protested vehemently, and government opened up new negotiations on the annuitisation issue. The current Bill was brought to us on 25 February this year.

In response to sweeping and inaccurate statements in the media about the failure of Parliament to consult with stakeholders and the public on the processing of the earlier Bill in October and November 2015, the Committee issued a Statement at the beginning of the public hearings on 3 March this year. This can be found attached to the Report on the current Bill in the ATC on 11 March. The Statement explained that the Committee did even more than was required by Parliament`s rules and conventions to ensure public participation.

The Statement noted that in our 25 November 2015 Report to Parliament we said:

"The SCOF (Standing Committee on Finance) requested stakeholders and the public to comment on the latest amendments. Written submissions were received and a public hearing was held on 10 November 2015.

The majority of stakeholders supported the amendments. The Chairperson of the Committee also facilitated further engagements outside the formal sittings of SCOF with stakeholders who did not agree with the amendments and National Treasury."

We also noted on our 25 November Report that:

The Committee did in fact have public hearings, did in fact get a report from National Treasury on the NEDLAC process, did in fact say that we cannot judge the quality of the NEDLAC discussions, and did in fact over a further two weeks foster negotiations with parties opposed to annuitisation.

Perhaps the Committee could have done more to ensure public consultation last November, but, unfortunately, not much more.

However, we said in our 3 March Statement, that we would do everything we can to foster consensus on the latest amendments.

And that`s exactly what we did!

Basically, National Treasury wanted a two year deferment of the annuitisation provisions and COSATU, NUMSA, AMCU and NUPSAW wanted the annuitisation provisions removed altogether. The industry said that the postponement would have adverse consquences for them for several reasons, including that they had invested in new systems that were meant to come into effect on 1 March this year. However, its key representatives said they`d settle with the two-year deferment, if they had to.

FEDHUSA (Federation of Unions of South Africa) and NACTU (National Council of Trade Unions) had last year said they supported the annuitisation provisions and didn`t take part in the parliamentary process this year.

Unions opposed to annuitisation pointed to the over-indebtedness of workers that pushed them to take their savings in a lump sum; the lower life expectancy of low income workers compared to other income strata; annuitisation could prevent workers from bequeathing to their beneficiaries effectively; and the need to finalise the Social Security Reform Paper before annuitisation is dealt with.

After consultations within and outside the Committee, we proposed a compromise between mere deferment and complete removal of the annuitisation provisions. The following aspects of a compromise approach were proposed:

  1. The Social Security Reform Paper should be tabled for discussion in NEDLAC within 3 months of the promulgation of this Bill. Issues for consideration should include an appropriate package of government social security measures; and retirement fund reforms.
  2. National Treasury must engage with parties outside NEDLAC including trade unions, stakeholders in the industry and other interested parties.
  3. All parties need to acknowledge the severe over-indebtedness of sections of the population and the pressures on them to use their retirement savings for immediate needs rather than for their retirement.
  4. While recognising the challenges of over-indebtedness, the need for people, including workers, to save for their retirement be accepted by all parties, but the forms of these savings, including some form of annuitisation, be negotiated.
  5. National Treasury should not use the 2-year deferment as a "stalling period" to simply implement the current provisions in the Bill without effective consultation.
  6. National Treasury takes into account, among other concerns of trade unions, the lower life expectancy of low income workers compared to other social strata; and that some annuitisation options could prevent workers from bequeathing to their beneficiaries effectively.
  7. Parties opposed to the current annuitisation proposals of National Treasury commit to actively participating in the negotiations.
  8. Should annuitisation be scrapped altogether, workers will lose their tax deductions provided in the Bill.
  9. While recognising the challenges of over-indebtedness, all parties will communicate with pension fund members that the proposed changes affecting provident fund members do not change their situation, and they don`t have to resign from their jobs for fear that they will be adversely affected by these proposals.
  10. National Treasury must report on progress on negotiations to the committee every quarter. The Committee will, as necessary, invite interested parties to National Treasury briefings on these progress reports.
  11. The Minister of Finance must submit written reports six monthly to Parliament regarding progress on the consultations at NEDLAC. The Minister must submit the first report before 15 December 2016 and the second by 15 June 2017.

It was also stressed that retirement funding reform must take into account that the design of annuitisation by provident funds should not undermine practices in the rest of the retirement industry, particularly for pension funds and retirement annuities. The scope for taking advantage of the differences in tax and annuitisation benefits by transferring funds from pension funds and retirement annuities to provident funds has to be reduced.

It would be particularly difficult because the Bill is a money Bill in terms of section 77 of the Constitution, which can only be amended in terms of a complex and time-consuming process set out in the Money Bills Amendment Procedure and Related Matters Act which is provided for in the Constitution and was introduced by parliament, and not the executive.

Following engagements with lawyers and officials it was agreed to amend the Bill to require National Treasury to defer the annuitisation provisions to allow for negotiations with interested parties, including through NEDLAC, and for the Minister to report to parliament on this by 31 August 2017.

The Committee complied with sections 8(5) and 11(3) of the Money Bills Act in effecting this amendment as explained in our Report to Parliament.

The other elements of the package could not be put in the Bill, and were included in our Report to Parliament and will constitute the framework for our quarterly oversight of progress.

NUMSA rejected any deferment of the annuitisation provisions and argued that the Bill was not in fact a Money Bill. Based on legal advice and conventions in Parliament, the Committee does not accept that the Bill is not a Money Bill, and requests that NUMSA continue to engage with National Treasury on their concerns.

The DA says that the passing of this Bill shows the government`s lack of policy certainty once again. All this does is help Moody`s to decide on a downgrade for our country. Which is what the DA most wants, at the expense of the country`s interests!

Of course, we need more policy certainty. And who more than the Minister of Finance has been saying this recently? But policy certainty is not created by words alone, but by action. And what sort of policy certainty would it be if key stakeholders refuse to implement it? Without COSATU and other trade unions government would not be able to effectively implement retirement reforms. Policy has to be responsive to the concerns of key stakeholders. And that government has opened up space for further engagement on annitisation and retirement reforms is not a sign of weakness, but strength. Ensuring greater consensus on policy is key to providing policy certainty. Now there has to be swift progress towards a reasonable degree of consensus. And we are making this clear: if government and the trade unions and other parties don`t sort this matter out in 2 years, Parliament will for all of them!

Of course, the DA says that the government caved in for fear of losing votes from COSATU members in the elections. But it`s the need for consensus that drives the government. Anyway at a recent CEC meeting, COSATU decided that they`d campaign for an ANC victory even though they`re opposed to the annuitisation provisions. All the DA does is reveal its anti-worker biases.

To get to where we did on this Bill, we had to engage outside the Committee informally with the parties, particularly COSATU. This was done within the framework of discussions held in the Committee. None of the informal discussions had any practical meaning until the Committee as a whole decided its positions on them.

The processing of this Bill was no different to that of all contested Bills. For example, when we processed the Bill relating to the African Bank, we had several informal and sub-committee meetings with sections of industry. Right now, with the Financial Intelligence centre Amendment Bill, the Committee has requested National Treasury to meet with stakeholders in the industry to try to strike consensus. Committee members are free to attend the meetings. No party in the Committee questioned these informal and sub-committee meetings.

But now that the same process has been adopted with the Revenue Laws Amendment Bill, the DA has been raising a fuss. Why was it okay to have such meetings with industry but not with COSATU?

This does not mean that industry, trade union or other sections of civil society co-legislate. No, we are clear that ultimately, parliament legislates, the elected MPs do! But we do so after the fullest consultation. That`s what a People`s Parliament is meant to do. But we need not just the powerful stakeholders here, but ordinary people too. The people must have their say, not just by voting for us every 5 years, but by actively engaging their parliament. With our current economic and jobs challenges, we need that more than ever.