Rationalisation of Local Government Pension Proposals

CIRCULAR NO.4/2005 TO MEMBERS AND PENSIONERS

The purpose of this Circular is to update Pensioners and Members on the current status of developments relating to the provision of pension benefits.

The South African Local Government Association (SALGA) has for some time now been holding negotiations with Unions with a view to rationalising pension benefits in Local Authorities.

SALGA’s objective is to have one defined contribution fund for all Local Government employees. The consequences of being placed into a defined contribution fund for Durban Pension Fund members are numerous and importantly will include the risk of providing for retirement being transferred fully to the active member and pensioner as opposed to being shared between the employer and employee as is the case presently.

When these negotiations with the Unions deadlocked, SALGA approached the Durban Pension Fund directly.  The Durban Pension Fund has been closed to new members since 1/11/2001 and existing active members have been given two options to voluntarily move to the KZN Municipal Pension fund.

This process was proposed to SALGA as the route they should follow for other defined benefit funds. The Fund was of the view that any compulsory transfer would result in labour unrest and would not be legally defendable in an inevitable Court challenge. It would appear that at this point in time SALGA is reconsidering its original intention to seek the compulsory transfer of defined benefit fund members to a defined contribution fund.

In addition to SALGA’s pension fund rationalisation intentions it would appear that the Department of Provincial and Local Government is also looking at establishing a central defined contribution fund for Local Government employees and the transferring of all active members and pensioners to this fund.

Although proposals in this regard have not been finalised your Trustees are strongly of the view that this proposal is not in the best interest of its members and pensioners and have resolved to take all action necessary to protect the interests of the Fund's active members and pensioners.

The steps taken to date by your Trustees in this regard include entering into correspondence and discussions with:

• The Registrar of Pension Funds.
• The Pension Fund Adjudicator.
• National Treasury.
• The Municipal Manager.
• Natal Joint Municipal Pension/Provident Funds.
• KZN Municipal Pension Fund.
• Institute of Retirement Funds.
• Local Government Retirement Funds Association.

Your Fund’s Trustees are of the view that the compulsory transfer of active members or pensioners from a defined benefit fund to a defined contribution fund is not constitutional and will not hesitate to seek legal counsel should the need arise.

We understand that these developments will be a source of great concern to you but remind you that your Trustees are committed to taking the action necessary to safeguard your interests.

The contents of this circular records the information presently available to the Fund and should there be any developments which affect your interests you can be rest assured that you will be notified promptly.

Kind regards

RORY TURNER
PRINCIPAL OFFICER