Deputy Speaker, the Government Employees Pension Fund is a defined benefit arrangement where the pension payable on retirement is calculated according to the number of years' service and final pensionable salary. The state is the sponsoring employer, and if a shortfall arises between the assets held in the fund and its liability to pay benefits to its members, the state acts as its underwriter. The people of South Africa thus pay for any top-ups to fill any financial holes that may arise in the fund.
The Bill proposes two key amendments to the fund. The first relates to the so-called "clean break" principle on divorce. Before the Pension Funds Act was amended in September 2007, a divorced couple was not able to separate completely at the time of divorce if one of the spouses received a portion of the other's pension fund as part of the divorce settlement. The fund's administration was informed of the amount awarded to the former spouse of a member and this benefit was retained in the fund until an exit event occurred on the withdrawal, retirement or death of a member. This prevented a clean break for the divorced couple and often led to administrative errors and payment delays.
The Government Employees Pension Fund is not subject to the Pension Funds Act and was therefore not amended to provide for the clean break. This amendment resolves the problem and permits access to the benefit by the former spouse at the time of divorce. Unlike the Pension Funds Act, the tax position is not clarified and would require an amendment to the Income Tax Act that has not been included in the Taxation Laws Amendment Bill for 2011. The committee was informed that this would be included in 2012, but there is no reason why it cannot be done in 2011, given that amendments to it have not yet passed through this House.
The Government Employees Pension Fund needs to be more closely aligned with, if not subject to, the Pension Funds Act, particularly given that it does not permit members to access the Pension Funds Adjudicator or benefit from precedents from the adjudicator. The DA supports the "clean break" principle and this part of the amendment.
The second part of the amendment seeks to enable the revised nonstatutory forces pension dispensation that abolishes the need for former nonstatutory force members to contribute to the funding of the recognition of their past service and to recognise the full period of nonstatutory force service. This increases the benefit payable at retirement and the fund's liabilities.
In 2008, the Special Pensions Amendment Act was passed to extend special pension provisions enacted in 1996 to younger recipients. The intention of the special pension was to compensate for the gap in pension provision that arose when freedom fighters were in the field instead of in employment and contributing towards their provision for retirement. Means testing was not included and this has resulted in the unintended consequence that it is paid to many who do not require it to supplement their pension provision. Fraud and corruption, including fabricated biographies, were rife and 4 976 applications remain in backlog.
In response to our concern over cost implications, the fund actuary estimated that the additional liability owed to the fund by respective departments and institutions is R4,735 billion as at 31 December 2010. However, R1,644 billion has already been paid by employers and R1,011 billion is held in reserve for past discriminatory practices. The total liability is therefore R7,390 billion. An immediate cash injection of R1,378 billion is required to maintain the fund's funding requirement. This is in respect of members who have already exited the fund. So, the liability has already been incurred.
These numbers are based on details provided by the Government Pensions Administration Agency and, according to the National Treasury, may change in the future as more members who qualify for nonstatutory force service come forward or if the records are not correct. The National Treasury would need to conduct an actual diligence exercise to verify the costs and, we are told, this will be concluded by December 2011. Before the National Treasury can reimburse the fund for the additional liability, Parliament will need to appropriate funds for this purpose.
The amendment before us has therefore not been conclusively costed, nor are we certain that funds would be appropriated for this purpose. The amendment commits spending on an uncertain number with uncertain funds. This is irresponsible lawmaking. Although the final verification has not been completed, it appears that the calculated liability does not include provision for accelerating salary increases that escalate the total defined benefit payment.
We agree that redress is required, but the method proposed is a very blunt instrument and caters for groups rather than individuals. To resolve this, a lump sum payment to the benefit of deserving individual recipients against an appropriate means test can be implemented. In the proposed format, Parliament is signing a blank cheque that the people of South Africa must pay the price of basic service delivery to the poorest members of our society.
There is no reason why an amendment to provide for a clean break cannot be enacted on its own. If it were, the DA would support it. However, we cannot support the entire amendment as it currently stands. [Applause.]