Secrecy and fury as Tiso Blackstar’s Bonamour pays off the rebel pensioners.
There’s been a secret settlement in the long-running legal battle between Times Media Group – now renamed Tiso Blackstar – and 51 of its pensioners over their frozen medical aid subsidies (noses189; 191). Although Andrew Bonamour, chief executive of the newspaper publishing group, insisted on a strict confidentiality clause, Noseweek can reveal that the group has shelled out well over R10 million to the old- timers. Individual payouts (the biggest secret) range from R96,000 to R384,000.
The group holds a network of media, retail and mobile assets with an expanding footprint across the continent. It is South Africa’s largest national English publishing group, with brands that include the Sunday Times, Sowetan, Financial Mail and Business Day.
The pensioners include such blasts from the past as Stephen Mulholland, Jim Jones, Ric Wilson, Roy Paulson, Jimmy Mould and Gerry Hirshon. At first sight the payouts seem generous – several have scored more than R300,000 – but TMG has deducted tax at 18%-to-23%, knocking such bumper payouts down to as little as R231,000. And with Discovery’s Classic Comprehensive cover for couples currently costing R105,240 annually, the settlement payouts will barely cover two years’ contributions.
Traditionally, Times Media had increased its medical aid subsidy every year in a gesture to more-or- less keep pace with the soaring costs of medical aid schemes. But things changed when asset-stripper Andrew Bonamour and his Blackstar group took effective control of Times Media in 2012. Within months Bonamour was CEO and into his well-chronicled stripping of TMG’s assets, including the retrenchment of hundreds of staff. His ruthless “restructuring” included a determination to wipe the post- retirement medical aid liability, which had mushroomed from R67m in 2000 to R273m on the balance sheet.
That year, 2013, he offered voluntary modest once-off payouts to end post-retirement benefits for good. A pensioner in his 70s was offered R70,000 after tax – less than two years’ medical aid contributions. Of 305 subsidy-holding staff, 67% grabbed the cash. But among 383 pensioners, only 8% swallowed the bait. Bonamour responded by announcing that he was freezing the subsidy in 2014. By the end of 2013 he was able to report that the irritating R273m liability had been reduced to R87m.
However, a hard core of pensioners refused to roll over. Former Sunday Times managing editor Jimmy Mould, now 77, ex-TMG chief executive Roy Paulson, 84 on September 11, and former SAAN managing director Stephen Mulholland, now 81, pulled 24 retirees together and with financial backing from an unnamed supporter they launched a high court battle to force Bonamour to resume annual subsidy increases. In 2015 the corporate raider agreed to backdate two years of subsidy increases – a meagre payout that averaged under R3,000 a head. But only to the 23 – one plaintiff had died.
However, Bonamour refused to extend the back-payments to all TMG pensioners and this resulted in a new high court summons from the original 23, now boosted to 51. Despite all his efforts, Mould repeatedly told them in his bulletins that Bonamour refused to supply contact details for the remaining 300.
|Times Media pensioners (left to right) Roy Paulson, Stephen Mulholland and Jimmy Mould|
Which brings us to Andrew Bonamour’s June secret settlement for the 51. The matter had been set down for trial starting on June 6, with four days allotted. Just two weeks before it was due to begin Bonamour, through TMG’s attorneys Edward Nathan Sonnenbergs (ENS), suggested mediation. The two sides duly sat down at ENS’s Sandton offices on June 7, with mediator Charles Nupen presiding. Six days later the 51, represented by Mould and Paulson, were notified of a settlement.
The pensioners’ attorney was tax specialist Johan Esterhuizen, a partner with law firm Shepstone & Wiley. Esterhuizen’s co-partner Rebecca Jansch wrote to the 51, informing each how much they had been awarded. Jansch added that, had the matter proceeded to trial and the pensioners won, TMG had made it clear they would appeal “to the highest court possible”. This, pointed out Jansch, would mean the dispute’s continuing for “another four or five years, if not longer, and at huge costs with no guarantee that at the end of the litigation we would have been successful”.
In other words, Bonamour and the lawyers between them bludgeoned the 51 retirees into settling. Not only that, Bonamour threatened to call the whole thing off unless the troublesome old hacks consented to be gagged by a strict confidentiality clause.
And had some brave spirit among the old-timers not thought to toss a bundle of the case papers – including post-settlement email exchanges between enraged pensioners – over Noseweek’s garden wall, you wouldn’t know any of this at all.
Under the secret settlement, the 51 pensioners had a choice: they could receive their award as cash (which attorney Jansch told them would be subject to taxation) or “the amount” could be used by TMG to purchase an annuity for them to “provide monthly payments to be used for purposes of your contribution to the medical aid”. Jansch added that Shepstone & Wiley could not advise on the tax consequences of either option and gave the old-timers five days to make their choice.
The garden-wall papers reveal that most of the 51 went for the annuity option, after their financial advisers told them that TMG could not withhold tax from it; SARS would grab its due from the annuities’ monthly income.So imagine the pensioners’ shock when, some days later, Shepstone & Wiley notified them how much TMG had paid to insurers – in every case they had deducted tax.
Some extracts from the garden-wall emails:
Pensioners’ leader Jimmy Mould: “I am personally most upset as I have had just on 21% deducted as tax even though the payout was paid directly into an annuity. This is counter to the advice I originally received.”
Mould had already downgraded to Discovery’s Classic Priority medical aid plan (cost: R5,570/month for him and his wife). For this, the frozen TMG subsidy had paid R3,217/month. The amount of the former managing editor’s award is unknown, but the annuity he has now bought with it is less than the frozen subsidy. It’s the same story for all of them.
Pensioner Steve Appleton’s annuity payout (amount unknown) was taxed by TMG at 22.34%. His financial adviser emailed him: “Steve, I am dumbfounded. It simply does not make sense if you have it transferred to a living annuity, to deduct tax. This is going to be double taxation.”
Seven hours later Appleton told fellow pensioners: “Old Mutual head office has stopped the investment process on my payout pending a reconfiguration of the investment vehicle. The method intended via my existing living annuity would have resulted in unavoidable double taxation – once by TMG and then automatically on each withdrawal. In addition, because the capital amount is reduced by 22.34%, the interest on the investment would also be less. I fear that TMG is not being very transparent on this.”
Pensioner Ric Wilson: “I think we know enough now to challenge them [TMG] on this. My financial adviser says the same: no tax liability on payment to a retirement annuity.”
Pensioner Richard McNeill: “There seems to be a can of worms opening up here. Just to muddy the waters further, my financial adviser says you are not permitted to buy an annuity with money that’s already been taxed.”
Pensioner Roger Makings: “I netted R276,000, was taxed 22.6%. Sorry for all of us. I guess we have been screwed big time.”
Pensioner Robbie Botha’s wife Laura: “Discovery [insurance arm] have suggested that they “park the money” to start gaining interest in a unit trust until TMG can sort out this tax story, as they are loath to start paying out an income that is taxable.
“Discovery’s legal team are working on this matter and everyone agrees it’s diabolical what TMG has done. Who knows how long TMG will take to sort out this mess and pay over the balance of R89,251 [tax deducted from their payout]. Once that is paid then the annuity can be activated and the money transferred back into it to start paying out the monthly tax-deductible amount.
“This whole process has been very stressful for us as our Discovery [medical aid] premium will now shoot up to just under R10,000 a month which we can ill afford. Robbie [70-year-old former Business Day picture editor] had letters assuring him that his medical aid will be covered in full until I die, and I’m 20 years younger than him. The amount paid out will not even cover us for five years, which will force us to move to a lower option, but all three of us have chronic conditions.”
Seven days later, after consulting with Umhlanga SARS, the Bothas emailed everyone: “Apparently it doesn’t matter what lump-sum payout you are given – retrenchment, pension, medical aid – you will get taxed between 17% and 23%. There is nothing that can be done to reimburse that money to you. The consultant did say however that you can try to claim it back in your next tax year. If over 65, you automatically get reimbursed all the tax you have paid on retirement annuities or living annuities.”
Pensioner Basil Hewer’s daughter Heather: “My dad was 90 on 7 July and has my mother as a dependent. His money was paid into a living annuity but TMG has deducted tax. Whether it was incompetence or done deliberately, it has caused major problems. The money in the annuity is now below the original amount [of Hewer’s award] and thus causing my father endless sleepless nights.”
Pensioners’ attorney Rebecca Jansch of Shepstone & Wiley, on the receiving end of “multiple emails” from the enraged 51, to Jimmy Mould: “We could not dictate to TMG how they were to process the payments. We propose that you do a final bulletin stating that [TMG’s] payments have been made according to elections made and any tax query must be referred to their respective tax consultants/advisers. They should also be informed that it now brings to a close this whole matter. The attorneys’ mandate has now come to an end and so also yours.”
Jimmy Mould to all pensioners: “Should you wish to pursue the matter further please seek your own legal advice/contact SARS.”
Pensioner Sam Stafford: “We are now being told to get on with a situation for which we have no detailed information. It seems everyone’s hands have been wiped clean of this total disaster.”
SARS’s Personal Income Team, asked for a definitive ruling, produced a stern tome by their legal counsel. It quotes the “Lategan Principle” (Lategan v Commissioner for Inland Revenue, 1926) to resolve the key issue: whether the funds paid by Times Media to insurers for the purchase of an annuity represented an “accrual” to the pensioner.
According to the SARS expert, because pensioners could elect whether their awards were received in cash or be paid by TMG to an insurer, the annuity route represented an accrual. And as an accrual it was included in a pensioner’s gross income and was subject to the deduction of tax. Times Media had acted correctly in deducting the tax before passing the net amount to the insurer. Pensioners were NOT entitled to claim a refund. Pensioners would also be taxed a second time on the monthly income they receive under their annuity. They cannot reclaim that tax. So there.
The fate of the 300-odd remaining TMG retired employees, many of them long-serving black pensioners, is unclear. One thing is certain: Andrew Bonamour doesn’t intend to continue dishing out their frozen medical aid subsidies a day longer than he has to. A probable reason for the confidentiality clause in the June settlement is that he’s about to make the 300 a derisory offer.
One of the 300, the legendary former Sunday Times cricket writer Colin Bryden, now 70, is angry with Jimmy Mould for not including him in the 51. He says the monthly medical aid subscription to Discovery for himself and his wife exceeds R9,000, which is more than he draws from his defined contribution pension fund.
After hearing about the secret settlement Bryden wrote to Bonamour, asking what is being done for the remaining pensioners. In his reply Bonamour says: “The settlement in no way changes the company’s view that it has always held, which is that the Health Care Policy, which includes the post-retirement medical aid subsidy, is a company policy that is subject to change as and when considered appropriated [sic] by the company.
“For each of the past three years [actually it’s four] it has not been appropriate for the company to have increased the amount of the post-retirement medical aid subsidy, quite apart from the fact that litigation had been instituted against the company in relation to this issue.
“The company is currently reviewing the health care policy on that basis (namely, what is in the best interests of the company going forward), without regard to either the terms of the offers that were previously accepted by some pensioners, or the terms of the recent settlement of the litigation.”
• Whatever hardship the Times Media pensioners are going through, Andrew Bonamour is getting by. His renamed Tiso Blackstar Group, listed on the AIM alternative market in London and elevated in July from AltX to the main board of the JSE, may have had term debt of R407m and a loss of R906m in fiscal 2016, but that didn’t stop CEO Bonamour, who sits on the remuneration committee, from doubling his pay package from R1.3m to R2.7m.
The 46-year-old corporate raider, an old boy of Kloof High School with a BCom from Unisa in business studies, also lists ownership of 8,781,480 shares, 3.3% of Tiso Blackstar’s voting stock, valued at around R79m. In June, pending the disposal of the group’s 22.9% interest in Kagiso Tiso for R1.5bn, he awarded himself another R4m worth of shares under the Management Incentive Scheme, bringing the value of his personal stake to around R83m.
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