BUSINESS MAVERICK EXCLUSIVE

Brian Molefe’s Eskom Retirement Fund saga is just the Tip of an Iceberg

By Ruan Jooste 6 February 2020
Caption
Eskom's former CEO, Brian Molefe during a meeting with Parliament’s Standing Committee on Public Accounts (SCOPA) on May 30, 2017 in Cape Town, South Africa. (Photo: Gallo Images / Sowetan / Esa Alexander)

It was not only former Eskom CEO Brian Molefe who unlawfully participated in and profited from an Eskom Pension and Provident Fund membership. Other people in power were also given access to employment perks they were not entitled to. It is costing current contributors their capital and leaving pensioners poorer in payouts. It is a problem far from being solved.

South Africa’s sluggish economy and the importance of “fund stability” were recently quoted by the Eskom Pension and Provident Fund (EPPF) as the main reasons it could only afford to pay pensioners a paltry 2% increase in their monthly pension payments in 2020 — and active members had to be happy with a mediocre increased investment return of 4.5%.

“Increases aren’t guaranteed,” the fund told its members in a memo, and “you are lucky you got anything at all,” it added. 

But that is much further from the truth than the fund is prepared to admit. 

In terms of fund rules, fixed-term contract workers are not permitted to become fund members, which is reserved for formal employees. This was exactly the problem with Molefe’s surprise pension windfall which was ruled partly illegal in an extended court process.

The EPPF rules, which are available on its website, clearly state that fixed-term contractual appointments at either Eskom or at its pension fund do not include retirement benefits, and people in these positions will not be afforded membership of the EPPF. 

But according to insiders, fixed-term contract workers have unlawfully been gaining access to the permanent workforce’s pension plans for years and the profits meant for the employees is being siphoned off by highly paid contract employees. Pensioners are also paying the high price of the cover-up and clean-up cost.

This revelation might help explain why it was the DA and trade union Solidarity that objected to Molefe’s cash windfall, rather than the fund itself, even though the fund is formally the institution which ought to have been protecting the integrity of the pensioners’ fund. If Molefe’s pension was improperly paid, then others might also have been caught in the net.

Former CEO Brian Molefe sidestepped this fixed-term contract rule, which helped him accumulate and access a nest egg of close to R30-million, of which a significant portion was made up from compounded interest and capital growth earned from employer contributions and sprouted from assets belonging to permanent members of the pension fund.

So when he stepped down at Eskom, he opted to retire “early” from his fund membership (rather than defer his benefits or transfer it to another fund), and cash out his one-third lump sum (R10-million) as allowed by the law, and leaving the remainder to be housed in a life annuity structure that should pay out a monthly proportion in perpetuity. There is nothing sinister about this part of the process.

The problem lies in the fact that he should never have had access to pension perks from the EPPF in the first place. The retirement savings he accumulated and had transferred from his Transnet days to the EPPF is what is muddying the waters in his case, and that is why the values of ownership are under dispute. 

The EPPFs latest court application hopes to clarify that position, but the fact remains that Molefe is only entitled to his pension funds from Transnet. Eskom owes him nothing and he needs to pay back what he received from the fund. 

But the problem here is much bigger than this. Molefe is not the only bogus member on the EPPF’s books or the only executive that quit his/her day job and took an early exit from the fund.

Each calculation and valuation is unique to that individual, but the amounts are irrelevant because none were entitled to any of it. There is also case law in this country that makes holding on to money that is not legally yours a crime. 

Remember the student, Sibongile Mani who was accidentally paid out a stash of cash by the National Student Financial Aid Scheme (NSFAS) and went on a crazy spending spree after that? Well, she is being prosecuted.

Business Maverick has seen the employee records of some of these privileged, yet undeserving, few, including Molefe, whose contracts are defined as fixed-term, yet stipulate employer retirement contributions, despite the terms of a contract worker. This undoubtedly fails the fund’s criteria to be considered as an “Eligible Employee” for membership.

According to whistleblower accounts and leaked documents, those violating the pension fund protocols include former EPPF CEO and principal officer Nopashika Lila, former fund chairman Sibu Luthuli and current chief investment officer Ndabe Mkhize. They also confirm that Lila was paid out her employee benefits when she vacated her post in 2018.

Who else falls into this category is not clear, and none of these names or the values has been disclosed to members or the general public.

The EPPF does implicitly concede there is a problem, stating in its 2019 integrated report that it is dealing with internal issues, one being the clarity around eligibility for membership of the fund. 

“We have made significant progress in reviewing fund rules, improved governance and operating processes to ensure compliance to rules, laws and regulations,” the report says.

“We have invested significant progress in the legal process required to secure the necessary declaratory orders for eligible members. We recognise that there are still [some] that require resolution, and we remain focused on the new year.”

The report says the regulation of issues of eligibility for membership of the fund “were regularised through legal and administrative process reviews”.

In a reply to the question on why the fund has not yet disclosed the names of top-brass executives who were benefiting, against the fund’s rules, the EPPF replied by email that “the Fund is at the final stage of an assurance exercise into the membership of the Fund”. 

“The Fund has received a draft report and is in the process of considering the findings. Once the findings are considered, the Fund will, if it is in the interests of members, advise members of the salient outcomes,” the email says.

“You will appreciate that it would be premature to publish or advise of the position until such time as the findings are finalised.

“The Fund has appointed Norton Rose Fulbright to conduct the assurance exercise into employees of the Fund and Mkhabela Huntley Attorneys to attend the assurance exercise into Rotek and Eskom.

“The assurance exercise is being conducted following the advice of senior counsel,” the EPPF says in the email.

That is not technically true and it is probably important to mention that financial reports state that the legal audit was commissioned only after a supervisory on-site inspection by the Financial Services Conduct Authority (FSCA) to look into various issues of regulatory compliance.

Cornelia Buitendag, who heads the retirement fund industry enforcement unit for the FSCA, says the regulator frequently engages with the board of trustees and the executive. 

But insiders say panic only started to spread following the Molefe mishap. 

Furthermore, sources close to the matter state that the executive and HR department were well aware of Ndabe, Molefe, Lila and Luthuli’s fixed-term contract status and that they were not meant to have contributed to the fund.

“HR prepared these contracts,” the sources say, “so the managerial misconduct started there and continued with retirement fund operations (RFO) accepting these monthly contributions.”

Business Maverick was told that head of operations Joey Sankar was well aware of the transgressions.

“None of the sidestepping was ever reported to the board,” sources say, and according to an email sent to staff — which Business Maverick has seen — staff were specifically told not to disclose any information to the Financial Services Conduct Authority (FSCA) on their site visit in 2018.

None of the board of trustees — and Business Maverick contacted all of them — replied to emailed requests. Lila and Luthuli did not respond to text messages to the same effect.

Yet Keitumetse Valencia Magopa, cited as a communications specialist at the EPPF, tells Business Maverick that “all information which is required to be disclosed has been so disclosed, please see the respective annual reports”.

Furthermore, on Luthuli and Lila’s golden handshakes and retirement benefit payouts, she says they “were paid all emoluments due to them in respect of normal remuneration and benefits for which they qualified in terms of their respective contracts of employment”.

Then why are none of these lump-sum payments evident in available financial reports or communicated to members? The Pension Funds Act clearly states that any payments made to executives by the fund need to be disclosed.

No mention of employee benefits was made in the meeting minutes of Lila’s vote of no confidence encounter with the board in 2018, nor were any details around her subsequent departure the following January publicly disclosed. 

Lila joined the fund in December 2010 as chief financial officer and later took over as CEO and principal officer.

All that was said in a public statement by the EPPF board of trustees chair Mantuka Maisela was that Lila resigned:

“Lila has indicated that after thorough introspection she took a personal decision to move on.”

According to leaked documents, Lila’s vote of no confidence encounter was around December 12 2018. She “resigned” on 21 January after a round of other board meetings in the third week of January 2019. 

The EPPF made an official announcement of her resignation to members on 24 January, but internal data shows it was backdated to 1 January 2019, but stating Lila took special leave shortly after the announcement to work through her three-month notice period to end-March 2019.

She now serves as the CFO of Barloworld. 

The financial statements for the financial year to June 2019 are not yet available on the EPPF website, despite the fund stating that it “has disclosed all information which it is required to disclose. The Fund has submitted AFS to the regulator by the 31 December for both 2018 and 2019 Financial Years”. 

Business Maverick asked the EPPF to produce the 2019 financial statements and reveal details around executive remuneration and incentive policies, and was simply told that the fund will only respond by Thursday 6 February at 17:00.

The 2018 audited financials, which were signed off by Lila, and are available to members, do, however, confirm a few facts. It shows Lila’s contribution made to the retirement fund, leave pay and bonuses. 

Unfortunately for members, the regulatory reporting requirements in the Pension funds Act does not require that the remuneration of each senior executive be disclosed — only that of the principal officer. So not much in contribution detail is available to outside parties.

Business Maverick was told that pension contribution deductions apply to full-time employees’ bonuses annually, but this practice did not apply to Luthuli, Lila or Mkhize. Why? How?

“Because HR prepared their contracts in such a way to allow for that,” it is said. 

“HR is well aware of pension fund rules prior to making appointments,” it was added. 

Anton van der Bijl, the head of the labour legal department at Solidarity, says these revelations are shocking, and when they are familiar with all the facts, they will have no choice but to take legal action.

Eskom is facing another demon in the dark — its R140bn pension fund

Eskom pension fund administration leaves members with more questions than answers

How the Eskom Pension and Provident Fund is being milked

There is one other curiosity: the fund’s membership database suppresses the identities of 138 beneficiaries. Business Maverick has seen screenshots of identity suppression. Neither staff members nor the auditors have access to this data.

Molefe was the one name that was unlocked to allow for legal discovery recently, so one can’t help but ask the question: coincidence? BM

Gallery

Comments - share your knowledge and experience

Please note you must be a Maverick Insider to comment. Sign up here or if you are already an Insider.

BUSINESS MAVERICK

The long and curious battle over the Amplats pension fund

By Ruan Jooste

"If you try to predict the future know that you will be wrong. The trick is to be as least wrong as possible; and be ready to change when you see how wrong you are!" ~ Sir Michael Howard