Transnet?in the dock

2014-08-03 15:00

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An R85?billion class action against Transnet was given the green light this week, paving the way for a colossal hole in the state-owned company’s pocket because of alleged systematic plundering of its pension funds.

The class action will involve thousands of pensioners who have seen their pension payments shrink to poverty levels.

The figure is based on actuarial estimates of how much poorer the Transnet pension funds are today?– against how they would have done if Transnet had not ­short-changed them over the years to bolster its own balance sheet.

The sum adds up to more than a third of the total assets on Transnet’s balance sheet today.

According to Judge Ephraim Makgoba of the North Gauteng High Court, the case is “pattern-made for class proceedings”.

“The class the applicants represent in this case is drawn from the very poorest within our society [old pensioners], those in need of statutory social assistance,” reads his judgment.

“What they have in common is that they are victims of official excess, bureaucratic misdirection and what they perceive as unlawful administrative methods.”

The class action will be on an “opt-out” basis. This means every pensioner on the Transnet funds’ books is automatically part of the class action unless they elect not to be.

Advertisements will soon appear in a number of national newspapers, by order of the judge.

The alleged mismanagement of the pension funds goes back to 1990, when Transnet was created as the successor to the SA Transport Services and turned into a commercial company.

At that point, the pension fund’s main asset was R10.4?billion in Transnet bonds with a fixed interest rate and an unsecured liability of R6.8?billion that was never paid into the funds.

In 2000, the bonds were swapped for 75?million shares in what was then M-Cell, now MTN.

According to the pensioners, this exchange was calculated to reduce Transnet’s liability (the bonds) by replacing them with less dependable assets (shares).

The total loss the pension funds suffered from having the shares instead of the bonds is alleged to be R5.5?billion.

The bulk of the R85?billion figure stems from Transnet’s refusal over more than two decades to pay in the liability it already owed in 1990.

Over the years, the pension fund’s trustees have cut the real increases in pensioner benefits to the extent that they have lost most of their value after inflation.

In the 1990s, Transnet pensions benefits were increasing at an average of 80% of the inflation rate.

After 2002, this fell to 47.6%?–?dramatically eroding the value of the pensions.

A large number of the pensioners are now allegedly receiving a monthly benefit low enough to still let them qualify for the state’s old age grant.

The crux of the case is the allegation that Transnet, and the pliable trustees of its pension funds, systematically reduced the benefits of pensioners to avoid liabilities on the state-owned company’s balance sheet over more than a decade.

While the judgment this week dealt only with the certification of a class action and not the actual merits of the class action, Transnet did indicate how it intended to fight off the dwindling pensioners’ claim.

In its court papers from March this year, Transnet said that the only circumstances in which it could be called on to pay money into the pension funds is if those funds were unable to pay out the benefits they owed to pensioners.

But the argument from the pensioners is that the benefits were intentionally slashed over the years precisely so that Transnet could escape paying money into the funds?–?and even taking millions out of it.

The pool of affected elderly pensioners is shrinking fast.

In 2000, there were 103?089.

That number was estimated to have dropped to 66?000 when the application for a class action was filed last year.

By now there are probably fewer than that number, says Wynanda Coetzee, spokesperson for the pensioners’ attorneys.

Although the application for a class action cited the massive figure of R85?billion as money owed to the pension funds, Coetzee says the call will now have to be made about the final figure.

The pensioners are not paying for their legal representation from Geyser and Coetzee Attorneys and it is not certain how the firm will fund the inevitably hotly contested case.

According to Coetzee, the legal firm is working on a contingency basis.

It is hard to know how that will work.

The firm is most likely going to try to win a court order for Transnet to pay money into the pension funds and not to the pensioners.

“I hope that at the end, there is a cost order,” says Coetzee.

The funds

The case involves two of the three Transnet pension funds after they were split in 2000.

One fund, the Transnet Second Defined Benefit Fund (TSDBF), took over the liabilities of all the existing pensioners at that point.

People still working for Transnet at that point got to choose between one of the other two?–?the Transnet Retirement Fund (TRF) and the Transnet Pension Fund (TPF).

The TRF is not part of the case as it is a defined contribution fund into which money is paid by members and their eventual pension is determined by the amounts accrued by retirement.

However, the TSDBF and TPF are defined benefit funds, which work in the opposite manner.

The trustees set the benefits, which determine what has to be paid into the fund.

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