Union’s Dirty Hands on Pension

the mega plunder of pension funds

Is Cosatu’s call for the scrapping of new tax laws affecting pensions really in the interest of workers? Perhaps it is time workers looked elsewhere for leadership.

In Brief

  • The Congress of South African Trade Unions (Cosatu) has called workers to strike on 1 March 2016 when the new Tax Laws Amendment Act comes into effect.
  • The new law, which aims to protect pensioners, states workers will only be allowed to take one-third of their retirement savings and the rest would be retained in annuity
  • Cosatu’s contention that the Taxation Law Amendment Act would deepen class division is misplaced and aimed at maintaining the status quo which has been subject to abuse by some union officials for self enrichment

The new Tax Administration Laws Amendment and Tax Law Amendment legislations have triggered misguided anger from various trade unions. The Congress of South African Trade Unions (Cosatu) and its affiliates are erroneously intimating union officials are the guardians of workers’ retirement funds, but evidence suggests otherwise.

Union officials are the worst plunderers of workers’ retirement funds. When workers retire, they are left on their own. So, why is Cosatu loudly demanding a say on how pension and provident funds are operated?

Cosatu has asked members to start a nationwide protest on 1 March 2016 when the new laws will come into effect. Having consulted widely on the impacts and needs of the two amendments, our team found the laws quite sensible. That union leadership is up in arms over this issue is baffling, and they should disclose on whose interest they are acting.

Cosatu’s contention that the Taxation Law Amendment Act would deepen class division is misplaced and aimed at protecting the schemes officials of various unions [and Cosatu itself] use to enrich themselves.

The dual retirement schemes (provident and pension funds), as previously practiced, created a major loophole that enabled the rich to legally shield their wealth from tax liabilities.

In summary, the amendment seeks to:

  • Enhance post-retirement income by extending the requirement to purchase an annuity to provident funds
  • Simplify the tax treatment of contributions to retirement funds
  • Improve vertical equity between high and low income taxpayers through the imposition of a limit (R350,000) on the allowable deduction to high income taxpayers
  • Improve horizontal equity through harmonisation of the same deduction across all retirement funds

Due to the high poverty and unemployment levels, many retired middle and low-income earners are now destitute. [Not so long ago, foreign currencies smuggler, Christo Wiese’s Shoprite Holdings was found to be indebting pensioners by selling to them retrenchment and occupational disability insurance covers – on this Cosatu and its affiliates remained silent.] They now depend on inadequate state social grants or handouts from equally stressed relatives.

The amendments to the tax laws plus the various regulations in the pipeline are intended to protect pensioners who are no longer union members. At present, Provident and Pension Funds are cash cows for the well-connected and complicit union officials. The administrations of these Funds have similarly remained more evilly lucrative (profitable) to Funds’ administrators/managers and FSB appointed liquidators.

That workers’ retirement funds are raided to create a few billionaires (some of whom are within the ranks of various unions) makes Cosatu’s calls for protests against the new laws wanting.

Nearly all unions in the country have what they call ‘Investment Vehicles’. The initial capital for the investment vehicles is not generated from bank loans or members’ contribution, but from Pension and Provident Funds in collusion with the funds’ administrators and managers.

Cosatu has Kopano Ke Matla Investment Company as its investment vehicle. By investing in sectors such as Communication, Financial Services, Property Development, Infrastructure and Resources, the labour federation shamelessly accepts to be conflicted in whose interests should come first – that of its members or that of itself as a shareholder in the corporations in which it is heavily invested.

More than ten of Cosatu’s affiliates have similar investment vehicles or trading arms, but it is hard to tell how they aid union members. A quick peak into the operations of several of these outfits exposes unimaginable plunder of workers’ retirement funds.

Take NUM’s Mineworkers Investment Company (Pty) Ltd, for example. This investment company, which reportedly owns portfolios in excess of R5billion, could not help mineworkers during the prolonged 2013/14 strike. The workers and their families had to rely on food parcels from donors and organisations such as Gift of the Givers.

Perhaps the clearest case of how pension and provident funds have been squandered to create a few union millionaires can be found at the Chemical, Energy, Paper, Printing, Wood and Allied Workers Union (CEPPWAWU). 

During a protest match led by Cosatu president, S’dumo Dlamini and South African Communist Party (SACP) deputy secretary general, Solly Mapaila, in Johannesburg last October, the handful of protesters repeatedly called out Oupa Issac Shongwe and his business partner Derek Thomas.

You would have to be in the know to appreciate why the two men were singled out and the influence they have in the running of CEPPWAWU’s R3.9b investments spread across a range of sectors. Shongwe’s rags-to-riches story is fascinating. A Rhodes-Oxford scholar, he is one of the go-to-men for BEE deals.

Working for some corporation wasn’t in Shongwe’s cards when he returned from the UK in the late 1990s. After a meeting with Aspen Pharmaceuticals where a possible BEE deal was reached, the only thing that stood between him and the millions to be made was the initial capital Aspen had demanded for stocks that were on offer for empowerment partners. Records availed to our team from multiple quarters, including court files, and talks with union officials explain how it has in fact been easy to be a millionaire by simply knowing where to look and whom to talk to.

Shongwe: The Rhodes-Oxford scholar who mastered how eat with the union officials

With Aspen’s offer on the table, records show that Shongwe approached CEPPWAWU’s top leadership in the persons of Pasco Piliso Dyani (president), the late Mzobanzi Buthelezi (secretary general) and Nelile Nolingo (deputy secretary general) in around April 1999 with a proposal to ‘help’ the union establish an investment vehicle, “just like the MUN’s Mineworkers Investment Company”.

The leadership was enticed by the opportunity as presented by the highly educated man and proceeded to establish CEPPWAWU Development Trust.

The trust’s primary objective was “to generate income from investments and other sources and to utilize the income to provide financial assistance to its beneficiaries” – union members and their families. Its secondary objective was to “make investments in ventures which are likely to contribute to the empowerment and development of union members.” Shongwe was appointed as one of the founding trustees, together with some union officials.

Did he abuse the trust when he proceeded to register CEPPWAWU Investments (Pty) Ltd to his and Thomas’ names on which he entered into a deal with Aspen?

Unfortunately for Shongwe and partner, whereas Sanlam, the managers of the associated Chemical Industries National Provident Fund had no difficulties advancing the much needed capital, the funds administrators, Negotiated Benefits Consultants (NBC) – literary the bookkeepers - objected to the proposed capital advance to CEPPWAWU Investments (Pty) Ltd on the basis that its directorships bore none union members or had more none-union members/officials than the Shongwe crew and secondly the law prohibited pension funds from investing in contributing employers – in this case Aspen.

To address the hiccup, a new investment vehicle, CEPPWAWU Pharmaceutical Investment (Pty) Ltd was registered through which the trustees of the Chemical Industries Provident Funds made available R108m to be used in acquiring the Aspen shares. On paper with the Provident Fund, for this much-needed cash injection, the Fund was to be the bearers of Aspens’ preferential shares. But unbeknown to the Union and the Fund, Aspen’s books only acknowledged the deal with Shongwe’s CEPPWAWU Investment (Pty) Ltd. This fact only came to the fore when the Provident Fund wanted to redeem ‘its’ investments five years down the line.

“Ooops! Your Fund has no investment in Aspen, it merely advanced a loan to CEPPWAWU Investment, and it has prescribed”. And there began a protracted and costly legal battle for the hundreds of millions, which later turned into billions of rand.

As the new union officials were winning this legal battle, evidence in the public domain shows that they discovered that Shongwe had used his position as the only surviving trustee of the CEPPWAWU Development Trust to structure yet another foolhardy mechanism. He had had the Trust appoint his consultancy, Letsema Investments (Pty) Ltd., as the advisors for the Trust’s investments at a cool 27.5% management fee. With that structure in place, no matter the outcome of the legal battles that enriched the respective lawyers, Shongwe & Co. still remained winners.

After numerous court and boardroom battles the Union through the Trust, regained control of their investment vehicles, but appear to remain stuck with Shongwe’s Latsema Group as managers of their multi-billion rand investments at the structured 27.5%.

The Shongwe/CEPPWAWU case above would not have occurred if the pension funds regulators at the Financial Services Board were up to their mandate. The new amendments would, to some extend, prevent future Shongwes and union officials from getting their hands on workers funds.

Instead of protesting against the legislation, the unions should first self-examine and get their houses in order.