EXPLAINER: The Ivan Pillay pension issue, what the PP says and what Gordhan denies

Public Protector Busisiwe Mkhwebane has made adverse findings against Public Enterprises Minister Pravin Gordhan. He has, however, taken her findings on review. The issue revolves around an administrative decision taken in 2010 to grant Ivan Pillay, a senior SARS official, early retirement with full benefits.

Here is the ultimate guide to what Mkhwebane says Gordhan did wrong, and what Gordhan says he did right.

Also included are the exact findings against Gordhan.

THE CASE AGAINST GORDHAN

Gordhan did not grant Pillay’s request under the correct law

Mkhwebane says Pillay’s request was made in terms of Section 16 (6) (a) and (b) of the Public Service Act. Then-SARS commissioner Oupa Magashula’s recommendation and Gordhan’s approval was done under the same act, but under Section 16 (2A). The benefits that an employee is entitled to are regulated by Section 6 (b) and Gordhan does not need to approve them.

Pillay wasn’t in fact retired, because he went straight back to work at SARS

After early retirement was granted, SARS re-appointed Pillay in the same position on a fixed-term contract. He retired on December 31, 2010 but started work on January 1, 2011. The evidence shows that his retirement and reappointment was “an elaborate arrangement” to retain Pillay on preferential terms.

“Retire” or “retirement” means exactly that, but in this case it wasn’t

Mkhwebane says correspondence between the different parties show there was no intention to end the professional relationship between Pillay and SARS. The professional relationship merely continued after the alleged “retirement”. That means an “early retirement” with benefits was not authorised by law and therefore irregular. Gordhan also was not authorised to grant his reappointment on a fixed-term contract.

There were other instances of early retirees that didn’t cost the State money

Because Pillay was granted early retirement with full benefits, SARS had to pay out an actuarial amount relating to Pillay’s remaining years of service as a penalty. Mkhwebane says there are many examples of early retirements without penalties being incurred. The actuarial payment, in terms of the Public Finance Management Act, was unauthorised and therefore irregular.

It doesn’t seem as if there were sufficient reasons for Pillay to retire

The law states that the for the executive authority (the minister) to grant early retirement, there needs to be sufficient reasoning provided by the applicant. Mkhwebane does not believe his reasons – needing access to his pension fund to finance his children’s education as well as health issues – were enough. She also believes the struggle relationship between Gordhan and Pillay played a role in his decision to approve the application. The approval of Pillay’s motivation was outside of legal prescripts.

The findings

Gordhan irregularly approved the early retirement with full benefits.

Pillay did not, in fact, retire.

The early retirement was granted under Section 16 (2A) of the Public Service Act and it should have occurred under Section 16 (6) (a) and (b). Benefits are regulated by 16 (6) (b) and occurs by law. Gordhan’s actions amount to improper conduct.

The payment of the actuarial shortfall amounts to irregular expenditure and Gordhan acted outside the law in authorising the spending.

Remedial action with reference to Gordhan

President Cyril Ramaphosa must take “disciplinary action against him” because he failed “to uphold the values and principles of public administration entrenched … in the Constitution … and to act in accordance with the Constitution”.  

GORDHAN: WHY THE PUBLIC PROTECTOR IS WRONG

Gordhan’s decision was taken after wide consultation

The first opinion he received was by a senior official in SARS’ legal and policy division, Vlok Symington, in March 2009 and August 2010. Symington is a pensions expert.

There were several discussions between Gordhan and Magashula, who recommended the approval of the request, as well as a discussion with Andrew Donaldson, the deputy director-general at the National Treasury.

There were also discussions between Minee Hendricks, Gordhan’s chief of staff, and Rebecca Tee, the legal adviser at Treasury, at Gordhan’s instruction.

Other discussions included consultations with Kenny Govender, the then-acting director-general at the Department of Public Service and Administration, and Michael Olivier, the chairperson of SARS’ human resources remuneration committee.

The second was a motivation by Magashula, who was the then-SARS commissioner, seeking approval for Pillay’s early retirement in August 2010. Magashule explained Pillay’s reasoning and referred to consultations with the public service and administration department.

Gordhan approved Magashule’s request for Pillay’s early retirement with full benefits in October 2010.

There were no dissenting voices

Gordhan says he at all relevant and material time sought and followed advice that Pillay’s early retirement was lawful and that his approval thereof was permissable. There were no dissenting voices during the consultation process, including at SARS, Treasury or the public service and administration department.

There is no doubt Pillay retired

Pillay retired in terms of the Public Service Act and rules of the Government Employees’ Pension Fund [GEPF]. He was contracted after his retirement on a fixed-term basis. The contract was not meant to be permanent.

The public protector makes errors in law

She argues that early retirement was granted in terms of Section 16 (2A), but Gordhan says he acted in terms of Section 16 (6). His decision was taken based on a reading of the whole of Section 16 (6) and sections of the Government Employees’ Pension Fund Act.

These sections determine that an employee may retire before the mandatory retirement age and that he will be considered as of retirement age if the minister deems it fit. The act determines why the actuarial shortfall is liable. Mkhwebane did not consider how the different laws and the rules of the pension fund interact.

Section 16 is indeed the crucial legal provision

Section 16 (2A) (a) entitles an employee to take early retirement at the age of 55. Section 16 (1) (a) determines the mandatory retirement age at 65. Section 16 (6) (a) permits the relevant authority to approve a request for early retirement.

Section 16 (6) (b) states that the relevant authority permits the employee to retire early he or she will be regarded as having retired as if they were 60 years of age. That means the act and GEPF rules become relevant, which determines benefits and shortfall payments.

It doesn’t matter what subsection of the law SARS cited in the recommendation to Gordhan

Gordhan had the authority to grant early retirement under Section 16 (6). Case law says providing that the enabling law grants the power to be exercised the fact that the decision-maker (Gordhan) mentions the wrong provisions does not invalidate the decision.