Appeals pending against ruling on collective agreement for municipal pension funds

In a strange and surprising twist, a successful applicant and the unsuccessful respondents in a high court case have applied to appeal a judgment that declared a South African Local Government Bargaining Council (SALGBC) collective agreement (CA) unlawful and set aside.

Judge Anthony Millar, with Judges J Van der Schyff and J Mbongwe concurring, said the CA undermined the statutory obligations of pension funds in the local government sector and obligations imposed on the funds and their trustees by the Pension Funds Act (PFA).

Read: Local government pension fund collective agreement declared unlawful

The entire CA was set aside with the exception of one clause.

For and against

The judgment related to three separate applications for the CA to be reviewed.

The applicants included the Municipal Workers Retirement Fund, the Municipal Retirement Organisation, the Germiston Municipal Retirement Fund, the Municipal Gratuity Fund, the Municipal Employees Pension Fund (MEPF) and Akani Administrators.

The respondents included the SALGBC, the South African Local Government Association (Salga), the Independent Municipal and Allied Trade Union (Imatu) and the SA Municipal Workers’ Union (Samwu).

Unhappiness over excluded clause

The MEPF and Akani Administrators gave notice last week that they intend to seek leave to appeal the judgment at the Supreme Court of Appeal because Clause 8 of the Retirement Fund Collective Agreement signed on 15 September 2021 was not reviewed and set aside.

They said the judges erred because the entirety of Clause 8, which comprises three sub clauses, relies for their application on the “accreditation” of funds under the CA, with:

• Clause 8.1 providing that each new employee in the sector will be required to become a member of a defined contribution fund which is accredited as contemplated in the CA;

• Clause 8.2 providing that the employer contribution rate to an accredited defined contribution retirement fund will be 18% of the pensionable salary, subject to clause 8.3; and

• Clause 8.3 providing that if an employer is, as at the date of the signature of the agreement, paying a higher contribution rate than the rate in clause 8.2 on behalf of a member of a defined contribution fund, the employer will, unless otherwise agreed by CA, continue to pay the higher contribution rate in respect of that employee for as long as the fund is accredited and the employee remains a member.

They said that with the exception of Clause 8, the order sets aside the entire CA – which includes the entirety of the accreditation provisions and procedure.

“Pension Funds thus cannot become accredited as contemplated under the Collective Agreement. Without funds being accredited, clause 8 cannot find application.

“Clause 8 should have been set aside as a consequence of its reference and reliance on accreditation of funds and where accreditation was found to be unlawful,” they added.

“Clause 8 is inextricably linked to the balance of the Collective Agreement and cannot remain in the absence of the other provisions of that Agreement which have been struck down.

“In any event, it is not for the court to make an agreement between the parties to the Collective Agreement by severing some parts of the Agreement from the others.”

The MEPF and Akani Administrators said the judges should have set aside the entire CA, including Clause 8.

The respondents in all three cases included the SALGBC, the South African Local Government Association (Salga), the Independent Municipal and Allied Trade Union (Imatu) and the SA Municipal Workers’ Union (Samwu).

Respondent unhappiness

Craig Adams, deputy general secretary of legal and research at Imatu, said on Thursday that Imatu, together with the other SALGBC parties comprising Samwu and Salga, has decided to apply for leave to appeal against the judgment of the High Court in Pretoria.

Adams said the main objectives of the CA were to allow for freedom of association, protection of contribution rates, and a process to accredit retirement funds.

He said Imatu is pursuing an appeal because it firmly believes the matter was wrongly decided, adding that the judgment cannot be left unchallenged because it infringes on the constitutional rights of Imatu members to freedom of association.

For Imatu members, freedom of association means having the right to transfer from their current retirement funds and join other retirement funds of their choosing, said Adams, adding that the municipal sector is unique in the sense that many different retirement funds operate in the sector.

“Imatu entered into the collective agreement with the other SALGBC parties primarily to ensure freedom of association for our members and the protection of their contribution rates,” said Adams.

“Imatu’s members have long expressed an urgent desire to transfer to funds that are better managed and that produce better retirement benefits. Without the collective agreement in place, they cannot do so.”

Adams said that prior to the conclusion of the CA, there was a moratorium in place that prevented fund members from moving between retirement funds in the municipal sector.

He said this moratorium was to remain in place until such time as a mechanism could be established to regulate transfers between funds in an orderly manner.

“The collective agreement was meant to be that mechanism,” he said.

‘Unconstitutional restriction’

Adams said the CA contains a clause that sets out an orderly process for fund members to transfer between retirement funds, and while it was being negotiated the SALGBC shared copies of the draft proposed agreement with all the retirement funds as part of the consultation process.

“A number of funds then hastily adopted rules to prevent their fund members from transferring out of those funds, effectively keeping such fund members hostage in the funds against their will,” he said.

“Imatu saw this as an unconstitutional restriction on freedom of association and therefore ensured that the collective agreement contained provisions to compel these funds to change their rules and allow for freedom of association,” he said.

Read/listen: One in three retirement funds saw workforce decline owing to retrenchments, liquidations

However, Adams said the high court took a different view and held that retirement funds are entitled to adopt rules restricting freedom of association and that the CA cannot compel the funds to change their rules, even if such rules prevent fund members from transferring out of the funds.

“Imatu sees this as a troubling finding … [and] is of the view that the court did not strike a proper balance between the interests of the funds and the interests of our members.

“The court seems to have given undue consideration to the interests and financial viability of the retirement funds and did not properly consider the constitutional rights of our members to freedom of association,” he said.

“It makes no sense that the court can allow retirement funds to effectively hold our members hostage against their will and prevent them from transferring to other funds that are better managed.

“Against this background, Imatu has no option but to ensure that the judgment is appealed.”

Adams said despite the court judgment, Imatu succeeded in getting at least 14 funds to adopt rules that allow for freedom of association, with these funds representing the majority of employees in the sector and adopting the rules as part of their participation in the accreditation process.

However, he said that since the CA was set aside, this clause cannot be put into effect to allow for freedom of association to take effect.

Adams said Imatu is satisfied it succeeded in protecting the contribution rates of its members because the judgment specifically excluded Clause 8 of the CA, which remains in place and regulates contribution rates.