Edition: July / September 2016


For better or worse

GEPF in firing line over withdrawal benefits.
Members invited to participate in Solidarity litigation.

Trade union Solidarity is preparing to launch a class action against the Government Employees Pension Fund. Although Solidarity itself speaks for only 7 100 public servants, a class action implies that it will seek redress for over 1,2m members of the GEPF.

Two main points appear to be at issue. The first is whether the GEPF had consulted with the Minister of Finance and employee organisations, as it’s obliged to do, before it amended the formula for calculation of actuarial interest (a member’s accrued benefit paid by the fund in specific instances such as resignation). The second is whether, having amended the formula, GEPF members are better or worse off.

According to Solidarity deputy chief executive Johan Kruger, the GEPF had reduced two actuarial-interest factors without the necessary consultation and without public-service employees even being notified. Although formal communication structures exist, fund members only heard about the changes through the media about five months after their April 1 2015 implementation date.

By way of explanation, GEPF principal executive officer Abel Sithole wrote to Solidarity: “Generally, the GEPF endeavours to engage employee organisations through the legitimate bargaining structure of the public service that represent the majority of its membership. The GEPF has focused its attention on engaging the forum where both the employer (the Department of Public Service & Administration) and employee representatives (the Public Sector Coordinating Bargaining Council) are represented....Due to the lack of direct ongoing relationship, the GEPF has had some difficulty in complying with its rules around the consultation process with the PSCBC.”

The change in the factors for computing actuarial interest impacts on members’ retirement and resignation benefits as well as death benefits for dependents and payments to spouses on divorce. The change has caused members to receive less than their previous entitlements, says Kruger.

He cites several examples. One is of a police captain who, on affidavit, shows the detrimental effect.

A calculation performed on 12 May 2015, of the policeman’s estimated retirement benefit, was as at 31 July 2015 when he intended to resign from SAPS. Then the calculation of the portion based on his contribution rate was R1,3m and his actuarial interest was R2,7m.

Another calculation was performed on 28 July 2015, still with 31 July 2015 being the date of his intended resignation. This time his actuarial interest, despite an increase in his salary, was reduced by R173 000.

The calculation of 12 May 2015 was performed after the effective date of the amendment to the actuarialinterest factors. In other words, Kruger points out, this earlier calculation was still performed on the old factors:

“This is a clear indication that the amendment of the actuarial-interest factors was done retrospectively.”

The change has further knock-on effects, notably in terms of the Divorce Act. It provides that the “pension interest” of divorced members be calculated as the resignation benefit to which the member would have been entitled on the date of divorce.

The result of the change, Kruger contends, is that the “pension interest” of all members’ spouses – who obtained court orders subsequent to 1 April 2015 in terms of which the member’s pension interest is deemed to be part of the estate assets – will also be calculated according to the revised actuarial-interest factors.

In his long letter to Solidarity, Sithole wrote: “Although the actuarial-factors did reduce effective 1 April 2015, it is important to take into account all the changes to the factors over time. Calculations prepared by the (GEPF) actuary show how the actuarial interest of members at sample ages would have changed depending on the factors used at each of the pre-2010, 2010, 2012 and 2014 statutory actuarial valuations.”

He then produced an illustrative table of relative changes for members at the same levels of salary and pensionable service but at different ages. The only decrease was for members aged 65 at end-March 2014.

Right or wrong, at least one contentious issue will continue to stand. The Public Servants Association has pointed out that the factors used in the calculation of actuarial interest must be determined by the GEPF board on advice of the GEPF actuary after consultation with the Finance Minister and the employee organisations. No consultation, as required by the GEP Law and the GEPF rules, had taken place.

Might this alone not cause the change to be invalidated?

In its defence, the GEPF has submitted (amongst other things) that the change in the actuarial-interest factors was not an amendment to the benefit but arose due to an earlier benefit improvement. It had amended the withdrawal benefit to be a member’s actuarial interest in the GEPF, rather than a mere return of the member’s contribution.