19 September 2000
Jeff Radebe, Minister of Public Enterprises, has today tabled before Parliament the Transnet Pension Fund Amendment Bill. This amends the Transnet Pension Fund Act of 1990 and will enable government expedite its planned restructuring of Transnet.
The Bill proposes to split the existing Transnet Pension Fund in half, with the existing 102,000 Transnet pensioners being transferred into a new Defined Benefit Fund, while the 89,000 Transnet employees ("active members") would have the option to transfer into a new Defined Contribution Fund.
By transferring employees into a new fund, they would in future have freedom of choice regarding their investments, and could seek higher returns that are currently available, while the Transnet and the Government would be relieved of the high cost of guaranteeing their future benefits.
As an incentive to encourage active members to convert, the Transnet board has approved an amount of R700 million to be paid by the company to active members. This translates to an average incentive per member of R7 900.00.
When Transnet Limited ("Transnet") was established in 1990, the Transnet Pension Fund was transferred from the former South African Services to Transnet. As at 1 April 1990, the date of transfer, the fund was actuarially determined to have a shortfall of R17, 180 billion. R10, 394 billion of this shortfall was provided and subsequently funded by the issue of loan stock to the Pension Fund by the company. This loan stock became the T11 bond on the Company's balance sheet, which is currently at the level of R8, 4 billion.
The Transnet Pension Fund currently has an actuarial surplus of R2, 4 billion at 31 March 2000. This is due to the positive effect of different strategies implemented over this period and includes the successful investment strategies, the increase of the company's contributions, the company issuing the T11 Bond and the tight management of the liabilities of the Fund.
The Strategy, however, to improve the position of the Pension Fund has had a very serious negative impact on the company. Minister Radebe said: "The profitability of the Company on a yearly basis has been reduced to loss making position by the R1, 4 billion yearly interests payment on the T11 Bond".
The Company balance sheet debt: equity ratio deteriorated from 50% (before T11 bonds) to 72% when the T11 Bonds were included. The negative effect of this on funding and the relationship with lenders is very serious.
The additional company contributions to the fund over and above the required 7.5 % was up 9% up to 1997. This translated to an additional contribution of R500 million a year. This has, however, been reduced to 4.5 % (R250 million a year) since 1998.
Commenting on the Bill, Jeff Radebe said:
"Transnet is faced with a heavy debt burden arising form its Pension and Medical Funds. We are seeking to address this problem, which has been posing as a serious impediment to any endeavour to transform Transnet into a world class transport entity"
"The Transnet Pension Fund Act created the existing Defined Benefit Fund, in terms of which Pensioners and active members are members alike. The Amendment Bill is seeking to bring separation, by creating a Second-defined Benefit Fund, which is meant to ring-fence pensioners only, and the Defined Contribution Fund to which all active members will be transferred, if they so elect.
"Transfer of active members (who constitute 47% of Fund members) from the existing fund to a Defined Contribution Fund will relieve the company and the State of the liability of guaranteeing the Pension Funds in respect of active members, at a cost which is so high to the taxpayer".
"Under the Defined Contribution Fund, members will have a choice over where they invest their money and will be able to seek better returns that are currently offered by the pension fund in return for assuming the risk of their own benefits".
"At the same time as giving freedom of investment choice to Transnet employees, we are also safeguarding the benefits of existing pensioners, by extending the liability of Transnet and the State to guarantee the new (Second) Defined Benefit Fund".
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Leslie Maasdorp 083 327 4417
Siphiwe Mathobela 083 327 4420