Chairperson, it's a pleasure to be breaking new ground on two fronts: this is my first Bill as Minister of Public Enterprises and in this exciting new format.
Let me give you some background quickly. Prior to 1990, Transnet had the Railways and Harbours Pension Fund for black employees, and the Railways and Harbours Superannuation Fund for white employees.
In 1990, these two funds were merged into the Transnet Pension Fund which was established under the Transnet Pension Fund Act of 1990. All Transnet employees were then obliged to become members of the Transnet Pension Fund.
The Transnet Pension Fund is a defined benefit fund which means that Transnet guarantees upfront the amount of the pension benefit that an employee will receive on retirement.
In 2002, new funds were established and the Act was amended to accommodate these new funds. The new funds were the Transnet Second Defined Benefit Fund, a fund for Transnet pensioners, and also a Defined Benefit Fund. No new pensioners were allowed to join this fund after 2000. Only those pensioners who were existing members at the time of the fund's establishment were allowed to remain members. Thus this fund is also known as a closed fund, precisely because it is closed to new members.
The second new fund, the Transnet Retirement Fund, was an innovation in the sense that it was a defined contribution fund that was opened to all new Transnet employees to join at that time. A defined contribution Fund means that the amount of the pension benefit that the employee receives on retirement will depend on the contributions made by the employee, the employer and the income of investments made from these contributions.
Upon the establishment of these two new funds in 2000, we now had three funds, the Transnet Pension Fund and the two new ones. Most employees voluntarily transferred from the Transnet Pension Fund to the Transnet Retirement Fund. Presently, the Transnet Pension Fund has approximately 10 000 members, and its members consist of all pensioners who did not transfer to the Transnet Retirement Fund.
No new members have been allowed to join the Transnet Pension Fund since 2000. Members may also be aware that Transnet is in the process of restructuring from a transport conglomerate to a more focused freight company. Its core business is ports, rail freight and pipelines.
As part of this restructuring, we have been disposing of certain businesses that are not core to the freight business. Such disposals include, for example, the transfer of Transnet shares and SAA to government, and the transfer of Metrorail to the SA Rail Commuter Corporation, the SARCC.
It will be appreciated that as part of the transfer of businesses specifically, employees working in the transferring businesses would be transferred along with the business. Essentially, the transferred workers would no longer be employed by Transnet, but in various cases, by the SARCC as in the case of Metrorail.
As the new employer, the SARCC would provide the new workers with new employment conditions and benefits including membership of new pension funds. Thus the membership in the Transnet Funds will terminate along with the transfer. However, the peculiarity of the Transnet Fund is that all three were established by statute. In terms of the Income Tax Act, certain pension funds are established by statute and these are known as paragraph A funds. They have some benefits that allow the lump sum benefits of those members not to be taxed when the member leaves employment.
This protection however applies only to benefits attributable to membership prior to 1 March 1998. Thus the portion of a member's benefit relating to the employment before that date may not be taxable.
Thus, if a new employers pension fund is not a paragraph A fund as defined in the Income Tax Act, then the employees tax benefit for membership obtained prior to March 1998 vests when they leave the employment.
The Income Tax Act contains a formula for calculating such lump sum benefits and the vesting of such benefits. Now the effect of Transnet restructuring therefore meant that the employees transferring to entities such as the SARCC, which does not have a pension fund established by statute and may not be defined as a paragraph A fund, could lose the income tax protection afforded to them under the Transnet funds.
Therefore, in April 2006, Transnet, the trade unions and I agreed that the pension benefits of existing members of the Transnet funds would remain the same notwithstanding the disposal of certain Transnet businesses. Under the agreement, employees transferring to state-owned enterprises buying Transnet businesses and shares would continue to be members of the Transnet Retirement Fund.
The Transnet Pension Fund will be restructured into a multiemployer fund to allow continued membership of those defined employees. Thus the membership of those employees transferring to other employers such as the SARCC would retain their membership of the Transnet funds in order to receive continued income tax protection of their pension benefits.
The reason for introducing this Bill before Parliament is to effect the agreement reached between Transnet, the trade unions and myself. The draft amendments of the Bill have been approved by Transnet, the trustees of the three Transnet funds and Cabinet, and are published in the Government Gazette, 29303 of 12 October 2006.
The agreement essentially says the following:
That the Transnet Pension Fund remains a closed defined benefit fund, and is restructured into a multiemployer fund. The Transnet Retirement Fund remains a defined contribution fund and allows existing members to retain their fund membership even after the transfer of the business to a new SOE employer. I should stress that this is if it is to another state enterprise, not if the transfer is into the private sector.
The Transnet Second Defined Benefit Fund remains a closed defined benefit fund and is largely unchanged. There are some technical amendments. The Transnet Pension Fund is renamed the Transport Pension Fund, and although it is an independent multiemployer fund, it remains one legal entity.
The SOE of whom Transnet businesses have disposed may join as principal employers, and that's essentially the SARCC, SAA and, under the structure, there is one subfund per principal, and some funds automatically consist of active members.
The allocation of pensioners and dependants of pensioners as fund members is determined in the sale agreements relating to the Transnet businesses. The relevant liabilities, assets, rights and obligations allocated to the subfund are determined by the trustees and the fund evaluators and actuaries. Subfunds have clearly defined ring-fenced liabilities and assets and each principal employer alone guarantees his own subfund.
This new Transport Pension Fund will have two sets of rules - the general rules and the specific rules for the subfunds. There will also be two levels of trustees, one for the Transport Pension Fund and sub-boards for the subfunds. The retirement fund will not be a multiemployer fund. This had been a bit of an issue but we feel that it will be essential to maintain clarity and raise no false expectations so the fund remains a Transnet fund.
The Bill proposes provisions that will allow existing members who are employees of businesses sold to certain SOE and entities transferred to government to remain members even after transfer. No new employees of these SOEs or other entities may join the Transnet Retirement Fund.
The result the Bill seeks to achieve is to maintain the benefits and tax treatment available to existing fund members and, on disposal, to allow the new employer to guarantee the defined exposure of employees opting to remain in the Transnet Pension Fund.
The amendments in the Bill seek to limit the impact of Transnet's restructuring of worker benefits and legitimise the continued membership of the Transnet Pension Fund and the Transnet Retirement Fund via SOE employees.
I would like to thank the portfolio committee for the hard work it has done under the chairpersonship of Peter Hendrickse, for this and for the inputs made by the trade union movement. I sincerely hope we will receive support for this Bill as it goes forward. Thank you. [Applause.]