Pension funds take Salga council to court as it tries to become gatekeeper

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There's a brewing tussle between pension funds and the SA Local Government Association Bargaining Council that wants to be the one accrediting funds serving municipalities.
There's a brewing tussle between pension funds and the SA Local Government Association Bargaining Council that wants to be the one accrediting funds serving municipalities.
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  • Pension funds that focus on municipalities are taking the SA Local Government Association Bargaining Council to court.
  • The bargaining council wants to accredit funds in the local government sector.
  • The funds say the council is reaching beyond its scope.

A group of pension funds in KwaZulu-Natal is taking the South African Local Government Association Bargaining Council (SALGABC) to court for forcing them to get accredited. The funds must be accredited by the council - or lose business from the municipalities.

SALGABC reached a collective agreement with two trade unions, Independent Municipal & Allied Trade Union and the South African Municipal Workers' Union, in September 2021. 

They agreed that to establish a uniform approach to the provision of retirement benefits to municipal workers, all funds that want to continue operating in the local government sector must get accreditation from the bargaining council.

Why the council wants to accredit funds

The agreement states, among other things, that the bargaining council wants to provide equitable access to retirement fund benefits in the sector; provide uniform rates of contribution; improve efficiency and governance of funds operating in that space; and give workers the choice to move from one fund to another.

New employees in the local government sector will only be permitted to join funds accredited by the bargaining council.

SALGABC said this has been a long time coming. Back in 1996, the National Labour Relations Forum agreed that it would strive for uniform conditions of service in municipalities. But while other collective agreements addressed issues related to leave, maternity and other benefits over the years, uniform retirement fund arrangements remained outstanding until now.

So, pension funds in the local government space still have different benefit arrangements, different contributions and are not governed the same. For a brief period between 1996 and 1997, workers in the sector were given a chance to transfer from one fund to another in search of better benefits.

Funds are fighting back

According to the last circular on this published by SALGABC in May, only 15 funds had applied for accreditation and of those, 12 had either fully complied with the accreditation criteria or agreed to submit the relevant rule amendments to the FSCA so that they can get accreditation. The SALGABC said these funds cover 64% of employees in the sector.

The KZN Municipal Pension Fund, which represents several funds operating in the local government space in the province, has launched an objection to SALGABC "playing the role of the regulator". Its arguments will be heard in the North Gauteng High Court in Pretoria in July.

"The unions don't even run their own affairs. Salga can't even run the municipalities. Why do they think they can regulate and run pension funds better? What is their interest in wanting to come closer to workers' money?" said the chairperson of Municipal Retirement Organisation, Thomas Mkhethelwa.

The fund is challenging the lawfulness of the collective agreement on the basis that it was implemented without consulting workers or the pension funds. Mkhethelwa urged the affected municipalities not to comply with the bargaining agreement. 

If the municipalities withheld contributions to the funds not accredited by SALGABC, Mkhethelwa said they were prepared to take them to court too for being in contravention of section 13A of the Pension Funds Act. 

The Municipal Employees' Pension Fund is also preparing to submit its affidavits, and objects to being certified by the SALGABC when it already has accreditation from the Financial Sector Conduct Authority (FSCA). The fund’s chairperson, Sonnyboy Masingi, said he finds the development "very strange".

"Why should we get accreditation from them? We already have a right to operate in terms of the Pension Funds Act… There are institutions allowed by law that ask you to apply for accreditation. So, this is very strange," said Masingi.

Transfers from one pension fund to another

If a fund is not accredited by the SALGABC, it will be given notice of full or partial termination of its services. 

Members will then be transferred to one of the accredited funds. They can elect to keep their money saved in the unaccredited fund or transfer everything to an accredited fund.

Among the funds that the SALGABC will accredit, workers can choose to leave one fund for the other, taking all of their savings with them if they want to, or leave some behind on a paid-up basis. This is scheduled to happen between 1 July and 31 December and every five years thereafter. The bargaining council said this is to promote freedom of association.

Masingi said if members of the Municipal Employees' Pension Fund must suddenly transfer to other funds, their savings – which are tied up in infrastructure projects and 19 shopping malls the fund is invested in - will need to be liquidated. The fund will be forced to sell whatever it can, at a price it can get, to transfer members' monies to the new fund.

The FSCA told Fin24 that it is not in a position to comment regarding this matter at this stage.

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