SAFSIA [ THE SOUTH AFRICAN FINANCIAL SERVICES
INTERMEDIARIES ASSOCIATION] Association incorporated under Section 21 )
Registration no 1999/013373/08)
19 March 2007
PENSION FUNDS AMENDMENT BILL, 2007
On behalf of SAFSIA (The South African Financial Services Intermediaries Association) we thank you for the opportunity to submit our comments. SAFSIA represents the interests of financial services intermediary bodies, including retirement fund intermediaries and administrators. SAFSIA comments are as follows:
1. We are concerned at the reason given for the amendments as set out in the explanatory summary of the Bill in the opening paragraph that uncertain provisions of the Act have been challenged by those seeking in many instances to circumvent the spirit of the original legislation passed by Parliament through creative legal interpretations." Whilst this may be the experience of the Financial Services Board (FSB) with a minority of funds, in our experience, it is certainly not the case for the majority of funds.
There is consensus within the retirement funds industry that the legislation is complex, contains many errors and leaves much of it open to interpretation. The industry has been at great pains to engage with the FSB over the lack of clarity of many of the provisions and to this end an urgent and desperate appeal was made to the FSB in 2002 by the Institute of Retirement Funds (IRF) to have the legislation amended to correct. and clarify various provisions. The specific problems were set out in a detailed submission by the IRF and other industry players. The legislation was not amended and instead the FSB was left to attempt to clarify various provisions and intentions of the legislation through secondary regulation and best practice guidance notes (PF Circulars).
Whilst the purpose of the original legislation was to correct past imbalances in the utilisation of surplus in retirement funds and was specifically written to take account of historical undesirable practices (the objectives of which were generally welcomed), the financial impact of the legislation on funds and their sponsoring employers was significant in certain cases.
In view of the poorly drafted legislation most funds had no choice but to seek various legal opinions in order to obtain clarity in respect of their particular situation. Trustees were faced with the dilemma of complying with the strict letter of the law, in terms of their various legal opinions, or comply with intentions set out by the FSB which, in certain instances contradict the legislation.
2. We are of the opinion that the reasons given for the amendments are critical for Parliament's consideration of the need for retrospective legislation once again. The original surplus legislation was intended to apply retrospectively and retroactively for remedial purposes. As stated above, this concept was generally accepted.
In law there is a general presumption against retrospectivity unless the language of the statute is such that it is intended to have retrospective effect. This is for considerations of fairness so that all persons can know what the law is in order to comply with it.
What is of grave concern now is that the proposed legislation, specifically clause 408, aims to change certain provisions of the legislation with retroactive effect. Retroactive legislation which is aimed at correcting previous legislative or administrative errors have been found by courts to be legitimate. However the courts have found that that it is essential that the legislature acts promptly to ensure only a short period of retroactivity. The proposed legislation aims at making changes in 2007 in respect of legislation passed on 7 December 2001. Almost six years cannot be said to be a short or reasonable period.
The intention behind the retroactive changes has been likened to travelling down a road at the indicated speed limit but then later, once the speed limits have been set at lower limits, being held responsible for having previously travelled at a speed in excess of the new lower limits!
We would urge Parliament to consider the potential unconstitutionality of the proposed retrospective amendments at this late stage of surplus apportionment exercises. It is interesting to note in a judgment by the Pension Funds Adjudicator m O'Brien Winterton v Rennies Group Pension Fund PFANVEI3460/01/KN, the Adjudicator (in passing) remarked that 'It might well be that Parliament, even had it originally intended to make the legislation retrospective, in view of the broader equities so eloquently outlined by Mr Brassy, was alert to the probable unconstitutionality of passing such legislation and for that reason refrained from an express provision to that effect. '
3. Before we look at the potential effect of the proposed retrospective legislation on funds, it is appropriate to consider the judgment in the recent Chairman of the Board of the Sanlam (Kantoorpersoneel) Pensioenfonds v Registrar of Pension Funds (case 375577/05 - unreported judgment dated 22 September 2006). Despite generally accepted legal interpretations and guidance by the
FSB of the operation of the surplus legislation (specifically in this case, around the improper use provisions), the court came to a different conclusion with regard to the effective date from which the improper use provisions should be applied.
This case has caused huge concern amongst funds and for the FSB (the Registrar has applied for leave to appeal). Of particular concern to fund trustees is that they can be found to have applied the law incorrectly Despite surplus apportionment schemes having been approved by the Registrar, employers being required to pay in 'improperly used amounts' may now refuse to do so or may reclaim amounts 'erroneously' paid into a fund in respect of past improper uses.
The FSB requested in a general circular (PF 128) that all funds submit their surplus apportionments schemes (including a request for "nil schemes" to be submitted) by 31 December 2006. Obviously funds had no choice other than to submit their schemes in accordance with the legislation as it stood as at 31 December 2006. These schemes should be considered by the Registrar in terms of the same legislation under which they were requested!
It is comforting to note that the Deputy Executive Officer of the Financial Services Board, Jurgen Boyd has confirmed that his office will be doing everything in its power to finalise all surplus apportionment scheme applications and "nil scheme" submissions prior to the implementation of the proposed legislation. Schemes not approved by this date will have to be redone by funds (at enormous expense and further delays) in accordance with the new legislation and re-submitted to the FSB for approval.
6.It must be noted that in terms of the current legislation there is no obligation for funds without surplus (as defined) to submit a "nil surplus apportionment scheme". Many funds have nevertheless submitted such "nil schemes" at the request of the FSB. Having no power to approve such schemes, the Registrar has merely "noted" the submission of these schemes. The proposed legislation intends to require that all "nil schemes" now be submitted for "approval". As this applies retrospectively, all those funds which have previously submitted nil schemes for "noting" will now be required to re-submit these nil schemes for "approval". These re-submitted schemes will have to comply with completely different requirements in terms of the proposed legislation. It is no comfort that clause 408 excludes schemes already "approved" as nil schemes have not been approved as they did not feature in law. There will be significant costs associated with the re-submissions.
7. Further significant implications of the proposed retroactive legislation include (but not being an exhaustive list):
7.1 funds previously with no surplus as defined will now have to investigate improper uses and distribute the surplus
7.2 what constitutes improper uses and the date from which these must be taken into account
7.3 the calculation of improperly used amounts has changed significantly
7.4 changing the definition of employer in relation to improper uses to a different employer.
- the surplus legislation was promulgated on 7 December 2001,
- by 7 December 2004 all affected funds had passed their statutory surplus apportionment date,
- extensions granted by the Registrar required that all funds had submitted their surplus apportionment schemes by 7 June 2006, and
- in respect of those funds that had failed to submit their surplus schemes by 31 December 2006, the Registrar has appointed Specialist Tribunals to deal with the matter
- the Registrar has an obligation to approve all surplus schemes in his possession prior to the proposed legislation implementation date, in accordance with the existing legislation (the FSB has an agreed service level commitment of a 60 day turnaround on applications submitted),
it is then appropriate to note which funds will fall within the ambit of the new legislation. In our view:
8.1 the Sanlam (Kantoorpersoneel) Penioenfonds is likely to be subjected to the new law irrespective of the outcome of any appeal. Similar1y the 29 cases (15 surplus applications ito section 15B and 15 "nil schemes" are the numbers advised by the FSB at the Pension Lawyers Association on 5 March 2007) being held in abeyance of the outcome of the appeal as set out in PF 128 will also fall within the ambit of the new law;
8.2. potentially all "nil schemes" as set out in 6 above. These include 13769 schemes already "recorded as noted", 1 077 schemes pending, 229 not completed, 8 withdrawn, 22 rejected (numbers as advised by the FSB at 5 March 2007) and the unknown number not submitted in accordance with the FSB's request;
8.3 all funds where their surplus apportionment schemes have been submitted but have not been approved by the promulgation date of the new legislation (e.g. cases within the 6 week turnaround time-frame mentioned above, where there is an unresolved query or the case has been pended for some other reason etc). The FSB have indicated as at 5 March 2007 that 152 section 15B schemes were pending and 183 schemes not completed.
8.4 unknown number of funds which have lodged appeals against the Registrar's rejection of their valuation at surplus apportionment date or their surplus apportionment or nil schemes
The number of surplus apportionment schemes (in terms of section 15B) approved by the Registrar as at 5 March 2007 was indicated to be 244. We would kindly request that the Financial Services Board kindly explain what contingency plans are in place to deal with work that the new legislation will require be duplicated and of the costs associated with this. We would also appreciate the careful consideration of the costs of duplication of work by funds as these costs will have to be met by deducting such expenses off members' benefits. As at 5 March 2007 the FSB indicated that the costs of section 15B surplus apportionment schemes ranged between R 1,050 and R4,44 per member.
B C Rossouw
Managing Director SAFSIA