National Treasury - Pensions Administration Proposed Dispensation for the Recognition of Pensionable Service for NSF Members to the The Select Committee on Finance 23 September 2003

National Treasury - Pensions Administration Background Former non statutory forces integrated with the SANDF and members were subsequently admitted to the GEPF Department of Defence would like to remove the disparity regarding the recognition of previous service with the NSF for pension purposes In 2000 the actuaries to the GEPF along with the DOD were asked to investigate the cost to the Fund of granting the additional service

National Treasury - Pensions Administration Background Originally 5 scenarios were proposed. - Category A represents members with less than 10 years of service prior to integration with an average age of 23 years at time of integration. - Category B represents members with service between 10 years and 20 years, with an average age of 33 years at time of integration. - Categories C and D represents older (average ages 43 and 53) members with more than 20 years of recognizable service in a non-statutory force. Option 5 was the dispensation approved by Cabinet and negotiated in PSCBC

National Treasury - Pensions Administration Background Financial implications as at 31 May The total cost for scenario 5 is R766 million as at 31 May The member portion represents the current 7.5% employee contribution. Employer contribution represents current 15% employer contribution.

National Treasury - Pensions Administration Portfolio Committee – 27 January 2003 Concerns raised by the Portfolio Committee Not comfortable with proportional recognition in respect of Category A (33%) and Category B (80%). Would prefer 100%. Employee contribution should be reduced or eliminated. Smoother transition between categories should be considered. Projections required for broader dispensation (SAPS, NIA etc) Legal opinion to be obtained on the authority of the Portfolio Committee to reject or amend the proposal.

National Treasury - Pensions Administration Subsequent Calculations presented to Portfolio Committee on 28 May )Variations of Scenario 1 (100% compensation) and Scenario 5 (PSCBC and cabinet approved proportionate representation) Total cost with additional members For each category of members, cost to Employer with Employee contribution reduced from 7,5% to 5%, 3% and 0% (compensated by increased employer contribution). Comparison of benefits between former NSF and former SADF members. 2)Cost of recognising a level percentage of 75%, 80%, 85% and 90% of NSF service for all former NSF members Total cost with additional members and no employee contributions Comparison of above with previous Scenario 1 calculations with no employee contribution

National Treasury - Pensions Administration New Scenario (Scenario 6) was requested 1)100% recognition of service for members in category B, C and D. 2)50% recognition for category A. 3)Category A is to be expanded to include all members (where previously post 1990 were 0% recognition). 4)The total cost calculated for 0%, 3%, 5% and 7.5% member contribution rates. 5)Benefit comparison to former SADF members Calculations requested subsequent to Portfolio Committee meeting on 28 May 2003

National Treasury - Pensions Administration Revised Dispensation Proposed to Portfolio Committee Scenario 6 as outlined above with an employee contribution of 5% was proposed to the Portfolio Committee on 3 September 2003 Scenario 6 can be compared to the previous Scenario 5 (proportionate Cabinet approved scenario) in terms of the following: –Service recognised across members categories –Financial consequences for the member and employer –Benefits received as compared to former SADF member –Funding the employer portion

National Treasury - Pensions Administration Comparison of Service recognised

National Treasury - Pensions Administration Revised Dispensation Proposed to Portfolio Committee Scenario 6 as outlined above with an employee contribution of 5% Scenario 6 can be compared to the previous Scenario 5 (proportionate Cabinet approved scenario) in terms of the following: –Service recognised across members categories –Financial consequences for the member and employer –Benefits received as compared to former SADF member –Funding the employer portion

National Treasury - Pensions Administration Financial Consequences

National Treasury - Pensions Administration Revised Dispensation Proposed to Portfolio Committee Scenario 6 as outlined above with an employee contribution of 5% Scenario 6 can be compared to the previous Scenario 5 (proportionate Cabinet approved scenario) in terms of the following: –Service recognised across members categories –Financial consequences for the member and employer –Benefits received as compared to former SADF member –Funding the employer portion

National Treasury - Pensions Administration Benefit Comparison

National Treasury - Pensions Administration Revised Dispensation Proposed to Portfolio Committee Scenario 6 as outlined above with an employee contribution of 5% Scenario 6 can be compared to the previous Scenario 5 (proportionate Cabinet approved scenario) in terms of the following: –Service recognised across members categories –Financial consequences for the member and employer –Benefits received as compared to former SADF member –Funding the employer portion

National Treasury - Pensions Administration Funding the Employer portion R1.5 billion that was set aside within the GEPF during 1998 So far various initiatives have identified approximately R588m (excluding NSF) Extending proposed dispensation to former NSF members of the SANDF will place further burden of R768m

National Treasury - Pensions Administration Rationale for proposed dispensation Accommodates as far as possible previous Portfolio Committee concerns Consistently more attractive than the previously agreed Scenario 5 (contributions and the benefit comparison). Members contribute at a 33% discount to the current member contribution rate of the GEPF. Members are affectively contributing below 24% to the total cost No disparity for category B, C, and D members (assuming that they contribute). Category A members are expanded on to recognise post 31 December 1990 members. Category A members will recognize between 92% and 94% of a comparative SADF member. Is within budgetary constraints

National Treasury - Pensions Administration Subsequently Portfolio Committee accepted the proposed Scenario 6 Rule amendments will now be needed –Resolution 12 of 2003 negotiated in PSCBC will need to be renegotiated insofar as NSF recognition is concerned –Rule changes will need to be gazetted

National Treasury - Pensions Administration Thank You