Governance Watch

Pillay’s early retirement, wider scrutiny needed

Ivan Pillay
Ivan+Pillay.jpg

Finance Minister Pravin Gordhan acted within the letter and the spirit of the law in allowing Ivan Pillay to retire early and the charges against them are something of the past. However, a darker side to the whole affair slipped by unnoticed.

It has come to light during the news coverage of the clearly trumped-up charges against Mr Gordhan and his former colleagues Ivan Pillay and Oupa Magashula, that some 3 000 cases of early retirement from the public service have been approved in the five years between 2005 and 2010 alone. It is not known how many have been approved before 2005 or since 2010.

This happened in terms in terms of section 6(a) and (b) of the Public Service Act of 1994, which states: “An executive authority may, at the request of an employee, allow him or her to retire from the public service before reaching the age of 60 years, notwithstanding the absence of any reason for dismissal in terms of section 17 (2), if sufficient reason exists for the retirement.”

The same section of the law also stipulates that if “… an employee is allowed to so retire, he or she shall, notwithstanding anything to the contrary contained in subsection (4), be deemed to have retired in terms of that subsection, and he or she shall be entitled to such pension as he or she would have been entitled to if he or she had retired from the public service in terms of that subsection”.

In such cases the retiring employees are entitled to receive full pension benefits as if they have worked until the normal retirement age of 60 years and the employer has to pay the contributions of the ‘missing years’ to the pension fund, in what is called a ‘penalty’.

In the case of Mr Pillay, 56 years old at the time, he was four years from retirement and the ‘penalty’ amounted to R1 141 178. What is not known, is the total of the 3 000 penalties that have been paid between 2005 and 2010, but even at an average of R500 000 it amounts an astronomical R1,5 billion – money paid by the taxpayer.

Hidden perks

It is not known in how many cases, or how often, these early retirees, as in the case of Mr Pillay, were afterwards re-employed on a contractual basis or as consultants. Fact is, however, that it can and does happen on a totally legal basis.

It was reported last week that an internal 2009 memorandum of Mr Pillay’s employer, the South African Revenue Service (Sars), stated “… no technicality prevents Sars from appointing him on a contract …”

The implication of this is that there was a massive hidden perk for Mr Pillay in all of this, an almost immediate and very substantial increase in his monthly income. Besides his pension, as if he had been employed until the age of 60, he also received his remuneration as a fixed-contract worker.

Wide discretion

It is also noteworthy that the Public Service Act does not set out what the legitimate reasons for early retirement are, leaving considerable discretion in the hands of the executive official of the employing institution.

In the case of Mr Pillay, Mr Gordhan in a statement of August this year, gave some indication what the reasons might have been.

His statement, in part, reads: “The then commissioner of SARS, Mr Oupa Magashula, addressed a memorandum to me on 12 August 2010, seeking my approval for Mr Pillay’s early retirement and re-employment on a fixed term contract.

“I was told that Mr Pillay sought in this way to gain access to his pension fund to finance the education of his children. I understood that Mr Magashula had established from enquiries made with the Department of Public Service and Administration that the terms of Mr Pillay's early retirement and re-employment were lawful and not unusual."  (Our emphasis.)

He also stated that he had “approved Mr Magashula’s proposal because (he) believed it to be entirely above board and because (he had) thought it appropriate to recognise the invaluable work Mr Pillay had done in the transformation of SARS since 1995”.

Implications

If you need money for the education of your children and you are a civil servant, early retirement might be an option if you, over the years, did not make provision from your salary.

And, in the case of Mr Pillay, based on a calculation of a 10% pension contribution adding up to R1 141 178, his salary must have added up to close to R2 million per annum.

The question could also be asked if this was not sufficient reward or recognition for the work he did in helping look after the public purse while in the employ of Sars?

It is, however, important to note, in the interest of a balanced view of this practice, that the present Public Service Act dates back to 1994 – a time of transition in South Africa to a new government and political dispensation.

At that time the early retirement arrangement helped to facilitate a smooth handover, allowing civil servants not comfortable with developments to depart and to make room for a new generation of senior civil servants.

The ‘penalty’ arrangement is also not that new and at the time, in some instances years were ‘added’ to the service of retiring officials.

Time for a relook

While, to the best of our knowledge, something like ill-health has always been an acceptable reason for early retirement, the transition needs should be something of the past and the wide, persisting undefined discretion that prevails, seems far from ideal.

The controversies surrounding the charges against Mr Gordhan, his relationship with President Jacob Zuma, issues like the Public Protector’s report and the possible re-instatement of corruption charges against the president, dominated the public attention to such an extent that some the implications of the early retirement issue slipped by almost unnoticed.

The practice leaves the door wide open for abuse, both for individual, official and purely political reasons – even state-capture driven motives.

The time has come for a proper relook at this practice and its political and cost implications.

by Piet Coetzer

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