Chairperson, hon members, allow me to give you a historical background to this Bill. In 2001 organised labour and business could not come to an agreement on the ownership and distribution of the surplus funds that arose as a result of members of pension fund migrating from a definite benefit fund to a definite contribution fund.
Business was of the view that the whole surplus belongs exclusively to business. Their argument rested on two assumptions. The first assumption was that business carried all the risk as final guarantor of the definite benefit scheme. The second part of the argument rested on the view that business had honoured their obligations to members as they migrated from a definite benefit funds to a definite contributions fund and therefore whatever remained in the fund belonged to business.
On the other hand, organised labour also wanted the surplus exclusively for workers or members. Their argument rested on the premises that workers did not receive their fair share when they migrated from a definite benefit fund to a definite contribution fund. The matter was finally brought before Parliament in 2001.
Parliament took a more balanced approach on this matter after listening to a comprehensive submission from organised labour, the National Treasury and the Financial Services Board. I must also mention that organised business did not make any submission on this matter.
Parliament came to the conclusion that the surplus funds belonged to the pension fund and that a legal framework should be put in place to distribute money to various stakeholders as defined in the Pension Fund Amendment Act of 2001.
Parliament considered that indeed workers did not get their fair share as they migrated from the DB fund to the DC fund.
Parliament went further to agree that the employer also has a right to the surplus after we considered good actuarial advice from the Financial Service Board. Parliament's intention in 2001 when passing this legislation was that the origin of the surplus funds should be investigated from 1 January 1980. This period was chosen after being informed by various stakeholders that this was the period when most funds were converted from definite benefit fund to definite contribution funds.
It also came to the attention of the Portfolio Committee on Finance that the surplus funds could have been used improperly by employers in the process. The Pension Funds Amendment Act of 2001 indicates four categories of improper use of surpluses by the employers: firstly, the giving of additional benefits to executives in excess to what was given to other members; secondly, the allocation of additional pension benefits to a selected groups of members to the total exclusion of other members; thirdly, employers contributing less than what was recommended by an actuary and even in certain instance, ceasing to make a contribution to the fund thus eroding the surplus; lastly, the cost of recognising prior personal services to selected members.
This Bill aims to clarify uncertainties regarding the true intention of Parliament around the investigation of the improper use of the surplus by the employer, among other issues. It came to the attention of the Portfolio Committee on Finance that there is confusion amongst certain stakeholders on the true intention of Parliament when you passed the legislation in 2001.
Clearly, we need to confirm the decision Parliament took in 2001 that the investigation on improper use of surpluses should go back to 1 January 1980. We have to say clearly that the intention of Parliament's legislation then was that it should be retrospective.
Business Unite South Africa made a submission before this committee challenging the constitutionality of backdating proper use to 1989 on the grounds that it is retrospective. After considering various legal opinions presented before the Portfolio Committee on Finance on the constitutionality of the matter of improper use of surpluses, the committee took a view that the decision of Parliament in 2001 was a correct decision. The view of the committee on the provisions of this Bill on this matter is rational and fair.
The Portfolio Committee on Finance was also of the view that Parliament in the past passed legislation aimed at redressing the past inequities. This Bill aims to redress the inequities of the past as I have already outlined.
Allow me to turn to a very important matter of divorce orders. The current Pension Act does not allow for the immediate payment of a pension benefit to a nonmember spouse upon dissolution of a marriage. Nonmember spouse benefits remain locked in the member's funds until retirement. The problem is that the spouse benefit does not grow in value while the member's fund grows in value. This puts the spouse in a disadvantaged position.
To remedy this untenable situation the Bill provides for the clean break principle: The nonmember's spouse shall have the option to elect an immediate payment of his or her portion of the pension benefit. The spouse would then pay tax on the payment received or alternatively the spouse can elect to transfer the payment to an approved fund.
A pension fund named in there must effect the deduction upon receipt of the divorce order.
Let me also turn to the issue of powers of the Registrar of Pension Funds. The recent episodes of financial misconducts warrant that this House give this matter urgent attention. Under the current Law, the Registrar of Pension Funds cannot remove trustees without first applying to the courts in terms of section 26 of the Pension Funds Act.
The problem in such a position is that court processes take a long time while member's interests are placed at risk. According to this Bill, the registrar may remove a member who is not fit and proper to hold office. The registrar has to notify the trustee and give the trustee a reasonable opportunity to be heard.
In terms of this Bill, the Registrar of Pension Funds is empowered to intervene in the management of pension funds. The registrar may direct that the rules of pension funds, including rules relating to the appointment, remuneration and removal of board members after considering the interest of the members of the funds.
The registrar can direct that the rules be amended if the registrar is of the opinion that the fund is not in a sound position or does not comply with the provisions of this Act; secondly, in case the board has failed to act where the fund is in an unsound financial position; thirdly, when the fund is not managed in accordance with this act or the rules of the fund.
Currently, there are certain pension or profitable funds established in terms of the Labour Relations Act or collective bargain agreement. These funds are not compelled by the current legislation to register with a Financial Services Board and most of these funds are registered voluntarily with the Financial Services Board.
The committee is concerned that some of these funds do enjoy the protection afforded by the Pension Funds Act. This Bill stipulates that all provident funds established under the Labour Relations Act must be governed by the Pension Funds Act. The portfolio committee is convinced that the financial board has the capacity and expertise to regulate collective bargain funds.
The current office of the Registrar of Labour Relations will not have the capacity to inspect these funds and enforce the rules of the funds. The Bill also instructs the administrator of a pension fund to endeavour to avoid conflict between the interest of the administrator and the duties of the administrator to the fund.
The administrator is required to disclose that conflict of interest to the trustee and explain fully how such conflict of interest is going to be managed. The administrator is required to manage the fund in a responsible manner. Lastly, the registrar is given the power to suspend or withdraw the approval granted to the administrator. The ANC supports this Bill.