The successful class action settlement with Transnet pensioners has opened up new opportunities to hold state and private pension funds to account.
Though fewer than 50,000 Transnet pensioners (out of 80,000) are left, in two "historic" funds (now closed funds), it is a good-news story.
And it is still producing new pension fund accountability initiatives a year after the class-action victory.
New boards for the Transnet funds have enabled them to clean up any association with the Zupta-linked state-capture companies. Their latest financial reports indicate no apparent current linkages to the alleged looting of pension funds.
The first consequence of the ruling, made an order of the court by judge Sulet Potterill on June 17 2020, is that the two historic funds will ultimately be merged. They will remain separate from the main pension fund, which serves contributing members. That main fund, The Transnet Retirement Fund (TRF) was started in 2000 at the same time as the two existing funds became "closed" funds; in other words, had no new Transnet workers contributing to the funds.
The TRF is an open fund which serves contributing current Transnet employees as well as those who retired from that fund since 2000.
At no stage was it mentioned in the court proceedings that the Transnet Second Defined Benefit Fund (TSDBF) and the Transport Pension Fund (subfund) should merge with the open fund. Interested parties say this was deemed too complicated a legal argument amid the battle by those fighting the class action. They focused on seeking to be paid more than 2% increases a year, far below CPI.
The TPF subfund, with a pot of R3.5bn and 5,600 members (of which just over 100 are still contributing members), will merge with the TSDBF with assets of R14bn and members just short of 42,000. The two funds’ principal officer, Peet Maritz, says management is finalising the draft rules to "realign the investment strategy of the two funds so there is a smooth transfer".
He says the merged funds will be cost-effective because two managements will be combined into one. Since legal proceedings started in 2012, the number of pensioners in the funds has dropped from 80,000 to fewer than 50,000 now, owing largely to deaths.
The second consequence of the class action is that it has focused the minds of advocates to form a lobby group and nonprofit organisation to fight for pensioners’ rights, in the public and private sectors.
One of its first aims is to win the right for pensioners belonging to state pension funds — including Transnet, Eskom and the Government Employees Pension Fund — to approach the pension fund adjudicator, who at present has authority to work only with private sector funds. The adjudicator is a statutory body established in terms of the Pension Funds Act. The adjudicator, appointed by the finance minister, resolves complaints about pensions and protects the interests of (at present nonstate) pension fund members.
Anton Alberts, an advocate and FF Plus MPL in Gauteng, says the new body took its cue from the Organisation Undoing Tax Abuse (Outa), a registered nonprofit civil action organisation born out of a fight against toll roads. "Out of this (class action) process I realised that (state) pension funds do not have proper protection against mismanagement and pressures from government," says Alberts.
He discussed the establishment of an independent organisation to deal with mismanagement with Ig Bredenkamp, SC. He in turn agreed with the potential for such an organisation "and so we embarked on a journey in the past six months to set up [a] civil society pressure and activist group … to hold trustees of pension funds, investment managers and governments to account".
It is called Pension Protect and can be visited at pensionprotect.co.za. Alberts serves as chair and Bredenkamp as CEO while Piet Smit, an auditor, is CFO.
One of the aims is to build up a pension subsidy fund for pensioners "to assist them where their pension has proven to be negatively [affected] by unfair performance and mismanagement by pension fund managers". The subsidy fund benefits will be at the discretion of the board of directors, who will take into account contributions from members as well as the rate of inflation, verifiable losses, duration of losses, industry trends and fund availability.
Pension Protect also aims to set up a legal fund to fight mismanagement and irregularities in pension funds or regulatory infractions. It will, in consultation with legal counsel, decide which matter is ripe for legal action. Members would be able to make submissions on which matters deserve attention.
The class action, started in 2012, took nearly eight years to settle — with the final breakthrough driven by Geyser & Coetzee Attorneys. Much of the political legwork was conducted in parliament by Alberts, at that time a Freedom Front MP.
The third consequence of the class action is that the pensioners have all received special allowances totalling R20,000 to date. They received their first tranche of R10,000 in December 2019, in terms of an agreement with Transnet before the final court victory six months later; the second in December 2020; and they will receive their third and last tranche of R10,000 in December 2021.
Geyser & Coetzee Attorneys, represented by Wynanda Coetzee, reported that one of the issues raised was the failure of Transnet to honour its promise made to pensioners, prior to the commercialisation of Transnet in 1990. This was to allow the pension funds to follow the practice of granting pension increases of at least 70% of inflation.
Between 2004 and 2019 pensioners received only 2% increases. Owing to the legal action taken by the pensioners, and to bring some financial relief, provision has been made for additional increases of 11% in August 2020, a 7% increase in August 2021 and a 4% increase in August 2022 over and above the statutory 2% increase provided for in the pension fund rules. These increases, and the R10,000 lump sum payments, are guaranteed by the final court order.
Maritz says the processes to merge the funds are ongoing. He hopes it will not take more than 18 months to get legislation through parliament amending the pension fund rules, but it could also be up to three years. A member of the TSDBF board, Tom Dunn, a former industrial relations manager at Spoornet, says the agreement with Transnet is that from August 2023 onwards, increases will target at least 70% of inflation.
Geyser & Coetzee Attorneys say from 2023 the trustees of the fund will have the discretion to grant increases in excess of 70% of inflation, subject to affordability as certified by the fund’s respective actuaries and in accordance with the funds’ pension increase policies.
This was not possible before the finalisation of the settlement agreement.
Dunn, a pensioner-elected trustee and chair of the TSDBF executive committee, who also administers a Facebook page keeping the Transnet pensioners informed about their pension matters, believes the rotten apples on the Transnet pension fund boards have been removed. Alleged Gupta/Regiments Capital linked trustees and service providers were previously appointed to manage the assets of the TSDBF.
The new elected trustees have, since their appointment in April 2019, recovered R530m from Regiments Capital. This came in the form of Capitec shares that were transferred to the fund.
The 2020 financial statements indicate: "The fund purchased 810,228 ordinary shares in Capitec Bank Holdings Ltd on terms that created an additional benefit to the fund in excess of R100m. The overall value to the fund of the implementation of the settlement agreement is in excess of R630m." The settlement has been made an order of court.
Geyser & Coetzee says these figures indicate that the increases and the three lump sums will recover about 99% of the pensions that would have been payable to the members if they enjoyed the benefit of the 1990 Transnet promise.
The protracted delays caused by the long court processes and negotiations made the number of pensioners in the funds drop from more than 80,000 to 48,000 today.
The successful class action was too late for about 32,000 pensioners. However, at the time of the settlement, 80% of the pensioners who remained, earned less than R4,000 a month, 62% received less than R2,500 a month while 45% were earning less than R1,600. Some were earning just R1 a month after deduction of the contributions to the Transmed Medical Fund.
Transnet, the former SA Transport Services, was established in 1990. Thereafter the Transnet pension fund was bogged down by a so-called "legacy debt" involving underperforming government bonds which boiled down to the pensions being underfunded for much of SA’s democratic per-iod. But that is another long and involved story.
Andre Pienaar, an Alexander Forbes actuary and valuator of the TSDBF and TPF, says in his latest report that the TSDBF’s assets exceeded its liabilities "and was therefore financially sound, but did not cover the full recommended reserve at the valuation date".
However, "the agreed surplus transfer from the Transnet subfund in the Transport Pension Fund, as part of the class action settlement agreement, will more than cover the full recommended reserve".
The solvency reserve is R375m. The actuarial present value of the promised retirement benefits accrued service liabilities in respect of pensions is R11,452bn. These figures apply to the valuation of the fund as at March 31 2020.
The TSDBF has about R1bn in foreign investments and R10.5bn in local investments. The investment in the participating employer consists of bonds worth R682,026,000 with Transnet SOC Ltd. About R5.3bn is invested in debt instruments, including Islamic debt instruments.
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