The two local government unions involved in rationalising Johannesburg city council pension funds opposed the blanket dissolution of the 11 existing funds but have not finalised positions on an alternative approach to rationalising these funds.
The City of Johannesburg declared for the first time last week a R1,5-billion unfunded liability arising from generous apartheid-era conditions of service and pension benefits.
These are based on racially discriminating employer contributions, with white member funds enjoying employer contributions of 20% of salary and black member funds receiving 16%. These conditions were introduced in the dying days of the Democratic Party’s control of the Joburg council.
To bring equitable contributions, and manage down the liability, the council is proposing the transfer of all employees to a single fund, the eJoburg Retirement Fund.
But this week both the Independent Municipal and Allied Trade Union (Imatu) and South African Municipal Workers’ Union (Samwu) expressed vehement opposition to moving workers into a single fund.
Clive Dunstan, spokesperson for Imatu, said his union was worried by the council’s premise of opening negotiations to move workers into a single fund. He believes that the council should look at each of the 11 funds’ rules and then work towards having three or four funds, and then allow workers to choose according to their age or circumstances.
Although he agreed that some of the benefits were excessively generous, he could not provide details of what should be done about these, noting: “That would compromise our negotiating strategy.”
He singled out as “unfair” the benefit of bonus years, which gives senior employees a bonus year for every year worked and other employees a bonus year for every five years of service. The most burdensome benefit, though, is the post-retirement medical assistance, which gives retired employees and their spouses 60% medical
aid subsidy till death. The liability amounts to R800-million.
Dunstan also raised concerns about the tax implications of switching funds. Chris Todd, a lawyer for the council, suggests this has been taken care of. He says that before 1998 all municipal pension payouts were tax-free. In 1998 these became taxable, but not retrospectively.
The law had also stated that funds formed after 1998 would be subject to normal tax deductions. However, this would have meant that if members transfer to eJoburg, which was formed in 2001, all their accumulated benefits would have been taxed. The council has now secured an amendment from the South African Revenue Service to ensure that only the post-1998 portion of contributions will be taxed.
Silas Letsema, general secretary of Samwu, was dead against closing the current funds. Asked what Samwu made of the burdensome liability, Letsema said: “If the council has a liability, it must pay them.”
Letsema said he has not seen a discussion document circulated to unions and other stakeholders on the matter. The document was circulated in December.