GEPF & GPAA 2020/21 Annual Reports

Meeting report

The Chairperson welcomed Committee Members, the Government Employees Pension Fund (GEPF) board, the Government Pension Administration Agency (GPAA), National Treasury (NT) and stakeholders to the meeting.

GEPF 2020/21 Annual Report

Mr Eddie Kekana, Deputy Chairperson, GEPF, introduced the 2020/21 Annual Report presentation.

Mr Musa Mabesa, Principal Executive Officer (PEO), GEPF, said there had been significant growth in the success of the GEPF in the 25 years since it was created. Assets under management had grown from R127 billion in 1996 to R2.09 trillion in 2021, indicating the sustainable nature of GEPF assets.

Financial year results

The GEPF saw recovery in the global equity investment markets and domestic markets, following a dip in 2020 due to the COVID-19 pandemic. There was a rebound in the market by June 2020, and all of the losses were recovered.

The negative performance in unlisted and property portfolios continued in the 2020/21 financial year. Unlisted markets were hit the hardest by the COVID-19 pandemic, which took far longer to recover than listed markets.

Financial highlights

The GEPF financial highlights of 2020/21 included:

• R111 billion in benefits paid, with assets under management amounting to R2.1 trillion.
• 27.5% uptake in growth in the investment portfolio.
• 8.9% growth in reserves over ten years.
• 23.1% return on investment resulted in R484 billion in net investment income.

Mr Mabesa also noted that the contributions received and accrued had increased marginally by R1 billion since the previous year. This pattern was also noticed in the benefits awarded, which also grew by R1 billion.

GPEF benefits

GEPF benefits paid in 2020/21 included those made to the retirement, resignation, death, funeral and child’s pension funds.

Oversight and monitoring

In the last financial year, the Public Investment Corporation (PIC) mandate was updated in line with the commission of inquiry recommendations. The mandate was put in place, along with tighter controls between the GEPF and the PIC.

The GEPF also said the service management agreement (SMA) with the GPAA had been continuously updated, in line with the expectations between the entities. The GEPF received quarterly reports on the quality of service from the GPAA through the Benefits and Registration Committee.

Valuation results

Mr Mabesa highlighted that in the long-term, the GEPF would not be able to meet its liabilities in the worst-case scenario, where all assumptions made were not realised. This was deterioration from the 2018 long-term funding level. The GEPF said they could afford to hold about 20% of what actuaries recommend. In the long term, the GEPF was underfunded by 25.7%, and the Board was aware of this shortfall.

On a minimum funding level, the GEPF said that they could afford to pay all of their benefits as and when they became due.  

Unclaimed benefits

The GEPF said that unclaimed benefits were an active account, but they were challenged with the ongoing effort of trying to pay beneficiaries. The GEPF and the GPAA had to improve and implement tracing strategies.

Discussion

Mr W Wessels (FF+) said it was good that the return on investments (ROI) was recovering after the pandemic. He said that Members should be mindful that certain investments were underperforming before the COVID-19 pandemic.

On the renewed mandate to the PIC regarding the Isibaya Fund investments, he said that in 2017 these under-investments were at 30%. Currently, it was reported that the under-investment sits at 41%. He asked for a specific figure of how the Isibaya Fund investments were doing and questioned if the Board was fulfilling its mandate based on sustainable measures and provided growth.

He asked for an update on an investigation on transactions in 2019 for the Palmietfontein farm, which was priced grossly over its market value. He asked whether any development had taken place, as he felt there was no development on the land. He asked whether any market research had been done with the development office mandate on the decision to invest.

Mr I Morolong (ANC) asked how far back unclaimed benefits could be traced back for beneficiaries of retirement, death and children’s pension funds. He asked the GEPF how they had improved their systems to track unclaimed funds for beneficiaries and the average success rate of the GPAA tracing methods. He questioned how many of these unclaimed benefit issues could be solved by the GEPF.

He asked if there was a way to manage the pension of child maintenance defaulters who did not want to fulfil the obligation of maintaining their children.

Ms M Mabiletsa (ANC) said she was concerned about the status of unclaimed benefits. She felt that the issue of the dispute leading to the submission of documents was workplace-related. She questioned the efficiency of the workplace. She asked whether the GEPF considered other solutions, such as using cloud sources.

She urged the GEPF to continue to trace the recipients of unclaimed benefits because they really needed the money.

GEPF's response

Mr Mabesa noted the concerns about the renewed Isibaya Fund mandate and said that the poor performance could not be excused. The GEPF said that it was expected that investments in the listed and unlisted spaces would happen with varying performances. The under-performing investments that led to repayments were disclosed over the years.

The GEPF referred Members to the 2020/21 annual report document, where a schedule was dedicated to reversing payments. The GEPF had reversed the payments for under-performing investments to R2.1 billion.

The GEPF said that they incurred investments that were not valued at their original values without writing them off because their values could change if they could be turned around by their teams. The GEPF said that reversals were recorded whenever improvements were noted in those businesses.

On the PIC mandate on unlisted investments, the GEPF said unlisted investments brought significant growth for pension funds globally. South Africa should also be seeking returns in unlisted investments.

Mr Mabesa reported a 5% allocation in unlisted investments, which were seeing growth. The PIC was the asset manager for this, according to their agreement. Following the commission of enquiry and board recommendations, the GEPF refreshed the mandate with the PIC and implemented the recommended controls. The GEPF had also increased monitoring and oversight over the PIC and unlisted investments. The GEPF had a strategy, guided by experts, on how to invest and in which sections.

On the Palmietfontein investment, he said that the board was reviewing the transaction and that once it was finished, the GEPF would provide feedback on the review

's outcome.

 

The GEPF said that the GPAA had the data on tracing unclaimed benefits. The success rate of tracing unclaimed benefits was a moving target due to the influx of new and resolved cases.

Mr Mabesa said that an internal unit at the GPAA was used to track members. The GPAA had been limited by laws protecting personal information. There had been conversations for the GPAA to partner with banks, the South African Revenue Service (SARS) and the Department of Home Affairs to help source data.

He said that this was a data-driven issue, and the correct data allowed for the timeous payment of beneficiaries. The GEPF had to conduct their checks to avoid fraudulent claims and payments thoroughly.

On child maintenance claims, the GEPF said they could not give benefits where a court order was absent. They were limited by tax payments being between the recipient and SARS. When SARS told the GEPF that the tax affairs of a member were not in order, the GEPF was able to relay the news.

The GEPF agreed that some workplace issues emanated from the employer. The GEPF had established a bilateral agreement with the employer. A memorandum of understanding (MOU) between the GPAA, the GPEF and the Public Servants Association (PSA) had been signed. This was to make human resources (HR) and employer departments aware of their role in exit management.

When exit forms were not completed correctly, the GEPF received inaccurate data, leading to many challenges in the annual report. The GPAA had adopted an automated exit management system where claims could be received through paperless submissions. The GPAA was hard at work to make this available in the future.

Mr Mabesa stressed the importance of employers submitting documents timeously to process the benefits on time. He said that in cases where documents were submitted on time, payments were received within two weeks.

Mr Brian Karidza, Head: Actuarial and Benefits Administration, GEPF, said that less than 1% of the cases of unclaimed benefits were from 25 years ago, while 8-9% of the cases dated up to 11 years ago. He said that these were the instances of dependents being untraceable. The majority of the unclaimed benefits were from six and seven years before the 2020/21 financial year. 

GPAA's response

Mr Shahid Khan, Acting Chief Executive Officer (CEO), GPAA, said that the unclaimed benefits issue experienced by the GEPF formed part of an industry-wide challenge. The Financial Sector Conduct Authority (FSCA) has tried to remedy the unclaimed benefits situation over the past ten years.

He explained that previously unclaimed benefits from the GEPF and GPAA were turned back into income. The FSCA changed the legislation to allow a second account for unclaimed benefits in 2010. He agreed that the issue of unclaimed benefits dated far back.

The GPAA said that the bulk of the unclaimed benefits fell within the past four years. It shared the concern that the money should be given to beneficiaries, and he agreed that this was a moving target. The GPAA said they must ensure that their payment percentage outpaces their growth percentage to arrest the situation.

The GPAA noted an 87% recovery rate in terms of payment, and Mr Khan said that this was not enough and remained important to the GPAA. There were new policies, and tracing agents were employed in the provinces and were meeting with partners to access data.

The GPAA said that unclaimed benefits were reported to the board and the Minister of Finance quarterly to ensure they were prioritised.

Further discussion

Mr Wessels said he worried that the board was still reviewing the Palmietfontein transaction, and Members received the same update in a meeting on 19 February 2020. He asked what the timeframe was for it to be resolved. He felt there must be progress on the transaction that the GPEF could share. He feared that the board was sitting back on the matter if things had not transpired in the past two years.

He asked what the situation was regarding late payments. He mentioned that there should be interest in late benefits payments. He questioned what the consequences were for late payments, especially when related to administrative errors.

Mr Wessels said that in the February 2020 meeting, the GEPF had committed to updating Members on late documents.

Ms Mabiletsa asked if the GEPF would consider having the money sent to employers to pay employees. She felt this should be considered to incentivise an improved work ethic.

The Chairperson acknowledged the improvement of assets under management and the investment portfolio's growth. He asked the GEPF if they enlisted the services of black-owned companies to provide legal, auditing and actuarial services. If so, he asked if the companies could be named.

Response

Mr Mabesa said that the board was intentional about empowering black-owned firms. The board insisted that big actuarial firms partner with black-owned firms in joint operations. The GEPF valuator, Sandile Mbili, was also the owner of African Origins Actuarial Solutions, a black-owned firm in partnership with Alexander Forbes. In the first year, Alexander Forbes did the valuation, and in the second year, Mr Mbili took over as valuator.

External auditors were Deloitte, Touche and other black-owned firms in a joint venture. Legal firms followed the same arrangements to empower smaller firms and ensure transformation.

On the Palmietfontein transaction, the GEPF referred Members to page 134 of the 2020/21 annual report. In that document, the Palmietfontein investment was listed as a transaction. In February 2020, the investment was valued at R517 million. The board had then conducted an independent valuation of the property, which had come to R517 million, near the purchase price of R510 million.

The PIC had assured the GEPF that the transaction was above board. The document also noted that last year there was a change in accounting estimates. The valuer of the farm had changed the technique from a residual length valuation methodology to a comparable sales methodology. That had dropped the property's value significantly to R179 million in 2021.

This led to the review undertaken by the board. Mr Mabesa explained that this was why there were delays in the reviewing process and the updating of Members.

The GEPF acknowledged that these were data and employer submission challenges on late payments. It acknowledged its internal resource constraints.

The GEPF would follow up on questions it had not responded to if parliamentary questions were submitted to the Minister of Finance. If they were related to updates after the February 2020 meeting, the GEPF was limited by the lockdown and the meeting was rescheduled to 2022.

On paying funds to the employer, the GEPF said this would be difficult to consider because the law did not currently provide for that. The employer would not be able to transfer benefits because it would transfer responsibility to them, which would require amended processes.

GPAA 2021/22 Annual Performance Report

 

GPAA Customer Portfolio 2021/22

In terms of the GEPF overview, Mr Khan said the GPAA reported:

• 93% of their budget went to the R995.5 million administration budget.
• R80.1 billion was collected in contributions.
• R134.04 billion in claims was paid.

The National Treasury (NT) financial overview indicated that the GPAA:

• Contributed 7% of their budget (R77.7 million) to the NT administration budget.
• Paid R4.995 billion in claims.
• Claims included special pensions, a post-retirement medical subsidy, military pensions, government injury on duty, and other.

 

Performance against 2021/22 annual performance plan (APP)

The GPAA said they achieved 63% of their annual indicators in Programme 1 (support services) and 65% of their targets in Programme 2 (benefits administration). The GPAA had paid 88.25% benefits on time after receipt of duly completed documentation.

Strategic interventions

Following the effects of the pandemic, the GPAA had increased their accessibility and resources to ensure improved processes, availability and satisfaction levels.

HR management

The GPAA said it had filled all the senior executive and senior management positions. The Minister and Deputy Minister were given complete control over the situation and were finalising the CEO's appointment.

On exit management in the department, the GPAA said that it was the responsibility of everyone in government. The GPAA became involved towards the end part of that collaborative process. The GPAA and the Department of Public Administration had set up a working team to get to the bottom of challenges surrounding exit management.

Mr Khan said that GPAA provided quarterly reports to the GEPF on the challenging departments concerning paying out benefits. The GPAA had noticed that the largest departments had experienced the greatest troubles while trying to decentralise the paying out processes.

On a site visit to the Department of Defense, he had learnt that the exit processes began on the last day of the person leaving their role. The individual must hand in all equipment before the process begins at the base. Once the programme has started at the base, the document must travel to a regional office for verification before going to the provincial and national offices. Once the national office had approved it, it was sent to the GPAA for processing.

During the processing, verification processes occurred to ensure that the correct funds were paid out to not negatively affect the entity. The GPAA felt that they had to work on their internal services regarding internal inefficiencies.

The GPAA said that this was being addressed through a performance management system. The GPAA was searching for what was needed to automate and expedite the processes. Mr Khan said that the GPAA was three years from achieving this goal.

Discussion

The Chairperson referred to performance against the APP 2021/22 and asked the GPAA why they had not reached the targets for Programmes 1 and 2.

Mr Khan said in Programme 1, the GPAA had achieved 66% of the target for corporate services related to HR -- two targets had been achieved, with one outstanding. One of the two targets was achieved in Programme 2, relating to financial management. This was where it had achieved 93% of the 100% target for payments paid within 30 days. The third target on a clean audit was still awaiting an outcome. The GPAA had achieved 100% of its strategic support and business enablement targets. He said this indicated where the GPAA fell short when looking at the APP.

The Chairperson asked the GPAA for clarity.

Mr Khan said that he had called the Committee secretariat to assess what was important for the Committee to consider. He then went to see what had been tabled in Parliament by the GPAA by looking at the APP, and those had been used as indicators to assess achievements.

The Chairperson said that the GPAA must work to achieve their annual targets.

On financial management 2021/22, the Chairperson asked GPAA to explain their reported under-expenditure.

The GPAA said they had spent R983.4 million of the R1.073 billion provided by the GEPF. This gave GPAA a variance of 8%. The R89.7 million in under-spending was due to being understaffed and having to bring staff into the organisation.

On expenditure concerning contributions, the R640.9 million contributed from the GEPF achieved five out of the eight targets in Programme 1. The R3.2 million expenditure contributed to the GPAA achieving 11 out of 17 targets in Programme 2.

Using Programme 2 as an example, various targets were agreed to between the GPAA and NT, which had been tabled in Parliament. They had fallen short, considering the budgets used to achieve the targets.

The Chairperson said that the GPAA must be sure to spend the money allocated to them. He emphasised that the available posts must be filled timeously and that all entities must report to the NT. 

The GPAA said that they had a vacancy rate of 10%. Mr Khan said it was a moving target and a healthy vacancy rate, though they wished to bring it down soon. The GPAA assured Members that the Minister and Deputy Minister had taken these vacancies on as important appointments. Within the next four to five months, Members could expect an announcement of the new CEO.

The Chairperson asked who the NT's representative was for the monitoring and oversight role over GPEF and GPAA.

Mr Khan responded that the GPAA met with the Deputy Minister quarterly, at which a quarterly performance report was submitted on the GPAA. He met with the NT quarterly with a report to discuss special pensions and post-retirement medical benefits.

He also reported to the board regarding achievements and performance quarterly and attended board committee meetings. The GPAA had been managed through legislation and accountability measures.

The Chairperson asked that the GEPF and GPAA address the matters brought up by Members before the next meeting. He also encouraged the GEPF and GPAA to fill vacancies with young skilled graduates struggling to get work experience.

The meeting was adjourned.