Source: Transnet, TRANSNET PENSION FUND AMENDMENT BILL, 2006 Parliamentary Portfolio Committee, Cape Town 13 September 2006

Source: Transnet, Table of Contents Background Introduction Impact of Transnet Restructuring Proposals to limit impact Principles behind the Amendments Achieved Result Amendments Conclusion

Source: Transnet, Background Transnet Pension Fundd (“TPF”) established i.t.o Transnet Pension Fund Act, 1990 (“Act”) as defined benefit fund and all Transnet employees obliged to be members Act amended in 2000 to establish Transnet Second Defined Benefit Fund (“TSDBF”) for Transnet pensioners and to allow Transnet to establish new funds (eg Transnet Retirement Fund (“TRF”), a defined contribution fund) Most Transnet employees voluntarily transferred from TPF to the TRF (effective 1 Nov 2000) TPF has been closed to new members since then, and now has approx members, including pensioners who retired after the establishment of the TSDBF

Source: Transnet, Introduction Transnet funds are protected under the Income Tax Act because they are established by statute Thus when a member leaves employment the portion of her/his lump sum benefits attributable to membership prior to 1 March 1998 is not taxable Transnet’s restructuring includes the disposal of its non-core assets, including the transfer of its shares in SAA to Govt and the transfer of some of its business units (eg Metrorail) to other public entities (such as SARCC) or private sector entities (transfer of internal audit to Ernst& Young)

Source: Transnet, Impact of Transnet Restructuring Termination of TPF membership for employees transferring to other public entities or the private sector Transferring employees to join pension funds of new employers If the new employer’s pension fund is not a paragraph ‘a’ fund established by statute (i.a.w Income Tax Act definition), employees tax benefit for membership obtained prior 1 March 1998 vests on exit

Source: Transnet, Proposals to limit impact In April 2006 Transnet, DPE and Labour agreed: –to allow certain SOE employees continued membership in the Transnet Retirement Fund (“TRF”) –to restructure the Transnet Pension Fund (“TPF”) into a multi- employer fund to allow continued membership of specific employees This preserves the tax treatment of the benefits of existing fund members and ensures that no member is worse off than status quo Transnet Pension Fund Act amendments (“Amendments”) are required to accommodate this agreement The draft Amendments have been approved by Transnet, the trustees of the three Transnet pension funds and Cabinet

Source: Transnet, Principles of the Amendments (TPF) TPF still one legal entity Now an independent multi-employer fund Renamed the “Transport Pension Fund” SOE employers (to whom Transnet businesses have been disposed of) may join as a Principal Employers One Sub-Fund per Principal Employer Sub-Funds automatically consist of active members Sale agreements determine allocation of Pensioner and Dependant Pensioner members to Sub-Funds The relevant liabilities, assets, rights and obligations allocated to the Sub-Fund are determined by the Trustees, the fund valuator and actuary/ies Sub-Funds have clearly defined “ring-fenced” liabilities and assets Each Principal Employer alone only guarantees its own Sub-Fund

Source: Transnet, Principles of the Amendments Principle of separation of Sub-Funds (with ability to work together) Two sets of rules –General Rules control governance, allocation of costs and statutory matters –Special Rules control service, contributions and benefits Two levels of trustees –Sub-Fund Committees manage all aspects of the Sub- Funds as determined by the Special Rules (incl. investment policy and administration of benefits and assets) –Board of Trustees (“Board”) duty to control the governance of the fund as a whole and to allocate costs where necessary

Source: Transnet, Achieved result The benefits and tax treatment available to fund members is maintained On disposal, new employer will guarantee the defined benefit exposure of employees opting to remain in the TPF

Source: Transnet, Principles of the Amendments (TRF) TRF to remain in principle a “Transnet fund” Not a multi-employer independent fund However, SOE employers (to whom Transnet businesses have been disposed of) may also join as participating employers effectively allowing Existing employees of these SOE employers to remain members of the TRF No new SOE employees to join TRF

Source: Transnet, The Amendments To amend the Transnet Pension Funds Act, 1990, with effect from 11 November 2005 (to align with TRF and TPF rule amendments) DEFINITIONS to amend definitions for consistency and to insert new definitions as required SECTION 2 (Disestablishment of old funds, establishment of TPF) Deletion of old section replaced with a “purpose” clause to assist in interpretation and understanding of the Act SECTION 3 (Obligations payable from revenue) allows for proportionate allocation of this obligation between employers, with Ministerial oversight in case of dispute

Source: Transnet, The Amendments SECTION 4 (Rights and obligations of members and beneficiaries) deletion of old section new wording to provide for transfer of rights and obligations at the establishment of the TPF in 1990 SECTION 5 (Rules of TPF) Sub-sections 1 to 3 deal with rule amendments deleted initial approval and publication of rules as this requirement has been met General Rules may be amended by the trustees with the approval of at least one Principal Employer and the Ministers’ approvals. Special Rules may be amended by the Sub Fund Committee with the approval of the applicable Principal Employer and the Ministers

Source: Transnet, The Amendments SECTION 5 (Rules of TPF) cont. Sub-sections 4 and 5 establish the Sub-Funds and provide for the allocation of members etc. to the Sub-Fund establishes Sub-funds from date of introduction of new Principal Employer automatic assignment of active members to Sub-Fund assignment of Pensioners and Dependant Pensioners by way of agreement between Seller and Purchaser transfer of liabilities, assets, rights and obligations determined by Board and actuary/ies provides for transfers between Sub-Funds

Source: Transnet, The Amendments SECTION 5 (Rules of TPF) cont. Sub-sections 6 and 7 deal with Sub-Fund Committees Sub-Funds established in terms of section 6 and Rules Special Rules to provide for members contributions, Employer contributions, benefits and matters incidental confers upon Sub-Fund Committees powers and responsibilities that would otherwise have been powers and responsibilities of the Board of the TPF establishes direct benefit, cost and loss liability at Sub-Fund level Sub-sections 8 and 9 deal with General Rules General Rules must provide for allocation of administration, valuation, audit and all other governance and management related costs provides for separate administration of Sub-Funds

Source: Transnet, The Amendments SECTION 5 (Rules of TPF) cont. Sub-section 10 deals with Special rules initial Special Rules must provide for benefits, rates of contributions etc. which are same as existing rules Sub-sections 11 and 12 deal with the Employer guarantee the Principal Employer is liable for payment of benefits due to the extent that assets are not sufficient Employers have no liability to the TPF iro other Sub-Funds Sub-section 13 provides for insurance payments to provide for a transfer of the fund’s liability to pay benefits to an insurer

Source: Transnet, The Amendments SECTION 6 (Actuarial evaluation) to provide trustee appointed valuators at intervals of not more than 3 years to provide for the valuation of each Sub-Fund of the TPF as if it were a separate entity expands application of reporting requirements moves guarantee clause to Section 5(12) and Section 12 SECTION 7 (Benefits not assignable) includes deductions from benefits of amounts to be deducted in terms of the Maintenance Act SECTION 8 (How pensions are affected by insolvency) expands concept of pension to a “benefit including an annuity” clarifies exclusion of benefit from insolvent estate

Source: Transnet, The Amendments SECTION 9 (Recovery of debts) no material changes (at request of TPF) SECTION 10 (Application of benefits iro housing debts) to allow for deductions of amounts owing to third parties (Not just employer) who provide housing finance backed by fund guarantees necessary to facilitate non-core disposals SECTION 11 – 12 no material changes SECTION 13 (Registration … of Pension Funds Act)

Source: Transnet, The Amendments SECTION 14 (Employees of Employer groups) to reflect that TPF is only for persons who were members of the fund as at “effective date”, and who will become employed by an SOE following the disposal by Transnet of non-core assets and businesses to the SOE, which new employer, or which holding company of the new employer has become approved as a new Principal Employer to reflect that TRF is only for new Transnet employees and persons who were members of the fund as at “effective date”, and who will become employed by an SOE following the disposal by Transnet of non-core assets and businesses to the SOE, which new employer, or which holding company of the new employer has become approved as a new Principal Employer

Source: Transnet, The Amendments SECTION 14 (Employees of Employer groups) cont. above members may remain members of the fund while those who become employed by the private sector may not removal of requirement for “transport and harbour operations” provides for disposals between Employers, but not resignations between Employers SECTION 14A (Power to establish Pension Funds) no material changes SECTION 14B (Establishment of TSDBF) no material changes SECTION 15A (Power to make regulations) to give the Minister the power to make regulations in terms of the Act, and to provide for matters related or incidental to such matters

Source: Transnet, Conclusion The Amendments form part of Transnet’s restructuring, and preserves benefits of existing fund members affected by the restructuring by legitimising the continued membership of the fund by SOE employees