Local government pension fund collective agreement declared unlawful

A South African Local Government Association Bargaining Council (SALGABC) collective agreement (CA) has been declared unlawful and set aside by a full bench of the High Court in Pretoria, because it undermined the statutory obligations of the Municipal Workers Retirement Fund (MWRF).

Judge Anthony Millar, with Judges J Van der Schyff and J Mbongwe concurring, said the agreement is reviewed and set aside, with the exception of Clause 8 of the agreement.

The SALGABC, the SA Local Government Association (Salga), the Independent Municipal and Allied Trade Union (Imatu) and the SA Municipal Workers’ Union (Samwu) were ordered to pay the legal costs of the MWRF, which lodged the review application.

The judgment follows SALGABC entering into a CA with Imatu and Samwu on 15 September 2021.

The CA was among other things intended to establish a uniform approach to the provision of retirement fund benefits to employees in the local government sector and impose accreditation criteria on pension funds in the sector.

‘Subverting legislation’

Millar said the CA is prejudicial to the independence of the board of a pension fund, as required by the Pension Funds Act (PFA), while the proposed rule changes are not consistent with the PFA.

He said the specific rule changes which are to be effected if accreditation were sought, together with the fact that the CA permits its accreditation committee to change rules and compel the adoption of those new rules, would “subvert the entire regulatory and directory regime of the PFA by imposing a parallel supervisory regime under the auspices of the respondents”.

“The entire construction of the accreditation regime is inimical to the separation of identity and interests between employers and the pension funds and fundamentally amounts to a rule-based intrusion on the statutorily protected independence of the trustees of pension funds,” he said.

Millar said the MWRF argued that the accreditation regime, and in particular the requirement that the rules of a pension fund must be amended as determined from time to time, conflict with the provisions of the PFA.

He said it was further argued that if the pension funds were to agree to the accreditation regime, this would in effect create a situation where the pension funds would acquiesce to a de facto curatorship under the respondents through the accreditation committee, and such a situation would be in contravention of sections of the PFA.

‘Deferred emolument’ argument

Millar said the argument of the respondents – that the payment of the pension fund contributions during the currency of employment of contributing employees brings the subject matter of the present CA within the ambit of collective agreement – is not sustainable.

He said this is based on the contention that pension payments are “deferred emoluments”, when factually this is not so, because the pension payment that is ultimately received is an aggregation of both employee and employer contributions together with net investment growth over the period during which the employee contributed.

Millar added that the entitlement to a pension bears no relation to the actual amount of work done for services rendered historically, or contributions by or on behalf of any particular employee, and thus cannot be characterised as a payment of a deferred emolument.

He said the terms of the CA also “stray impermissibly” beyond the scope of a collective agreement as provided for in the Labour Relations Act.

Millar said it was argued the basis for entering into the CA – in the form that it was and to achieve the purposes which it seeks to achieve – is based on unsubstantiated allegations of variable contribution rates, weak governance, funding deficits, inefficiencies, lack of proper communication, excessive contribution to fund, excessive benefits and the inequity and justifiability of differences between individual employers and employees and others in the sector generally.

But he said the very terms upon which accreditation is to be granted requires the MWRF to acquiesce to rule changes.

Retirement fund independence

MWRF principal officer Themba Mfeka welcomed the judgment, saying that it affirms the role and independence of boards of retirement funds.

He said the fund in particular also noted that the court in reaching its judgment was fully aware of the legal and impractical implications the “collective agreement” would have had on the required independence of a retirement fund.

“It is a very important judgment, which re-affirms the independence of retirement funds and importantly the principle that retirement funds cannot be held to an agreement to which it was not a party,” Mfeka said.

Mfeka said it is regrettable the issue had to proceed to court on a matter where the courts have long held that labour unions may not interfere with fiduciary duties of pension fund boards of trustees.

He said there are other important matters the SALGBC did not consider in concluding the CA, including the:

• Treatment of risk benefits for members during transition;

• Treatment of assets, also during the transition period, as they are vulnerable to market movements;

• Outstanding contributions by municipalities, which run into hundreds of millions of rands;

• Natal Ordinance, which prevents such envisaged “freedom of association” from taking place in KwaZulu-Natal;

• The 2% fund, which members in certain provinces are forced to join, the purpose of which is still difficult to understand;

• Impact on investment and the prejudice to members; and

• Additional costs associated with the suggested transfers.

Comment was also requested by Moneyweb from Salga but a response has not yet been received.

Read: Your South African retirement savings and their tax implications