Ilze van der Berg, Managing Director, and Graeme Brien, Executive Director, at Phoenix Financial Benefits

Not everything that looks attractive or valuable on the outside is actually genuine or valuable.  Appearances can be deceiving, and just because something shines or seems impressive doesn’t mean that it has real worth.

 An investment booster is an additional amount allocated toward a member’s retirement benefit, typically linked to factors such as contributions, investment duration, and criteria determined by the fund administrator. These boosters are commonly used by retirement fund administrators to incentivise higher voluntary contributions or the transfer of assets from previous employer funds or preservation funds.

While the value of the booster is calculated and reflected on member statements at the time of the additional investment, it does not immediately vest. Instead, it is contingent on future events or conditions being met. As such, it is more accurately described as a conditional enhancement rather than a guaranteed benefit.

This distinction becomes critical in scenarios such as fund transfers. If an employer transfers to a different umbrella retirement fund before the vesting conditions are met, the investment booster is typically forfeited. Similarly, a member who exits the fund early will not be entitled to the booster.

This raises an important question:

Is an investment booster a protected benefit, or merely a reasonable benefit expectation?

And how should stakeholders interpret its treatment in the context of a Section 14 transfer?

LEGAL FRAMEWORK

Protection of Benefits

Section 37A(1) of the Pension Funds Act (PFA) provides that:

“No benefit… shall be capable of being reduced.”

This protection applies to benefits explicitly provided for in the rules of the fund. The key issue is whether an investment booster qualifies as such a benefit.

Given that a booster is conditional on future events and member behaviour, it generally does not constitute an accrued benefit. It therefore does not form part of the member’s current fund value or a legally protected entitlement under Section 37A.

Trustee Obligations

Section 7C of the PFA requires boards to:

“take all reasonable steps to ensure that the interests of members… are protected at all times.”

Further guidance is provided in FSCA Circular PF130 (Good Governance), which requires that members receive clear, sufficient, and understandable information regarding any changes that may affect their benefits.

The question arises:

Does the loss of a non-vested investment booster fall within trustees’ fiduciary responsibilities?

The answer lies partly in the requirements governing Section 14 transfers.

Section 14 Transfers and Reasonable Benefit Expectations

In terms of Conduct Standard 1 of 2019, the board of the transferor fund must confirm that the transfer:

• accords full recognition to the rights and reasonable benefit expectations of members; and
• recognises any additional benefits that have become established practice.

This introduces a critical concept: even if a booster is not a legal benefit, it may still constitute a reasonable benefit expectation.

Trustees are also required to provide members with:

• a comparison of benefits and costs,
• clear disclosure of any potential prejudice, and
• sufficient information to make an informed decision.

The loss of an investment booster must therefore be explicitly disclosed in all Section 14 communications.

Implications for Section 14 Transfers

Employers and trustees must ensure that:

• members are properly informed of all material changes;
• any reduction in benefits is clearly explained; and
• members understand the financial planning implications.

Where booster values are reflected on member statements, members may reasonably incorporate them into their retirement expectations. If forfeiture conditions are unclear, this creates a risk of unfair prejudice.

FSCA and Treating Customers Fairly (TCF)

The Financial Sector Conduct Authority (FSCA) enforces fairness through the TCF principles, particularly:

• Outcome 3: Members receive clear and appropriate information
• Outcome 6: Members do not face unfair barriers or detriment after a change

The FSCA must be satisfied that members’ rights and reasonable expectations are not adversely affected by a transfer.

An investment booster may become a reasonable benefit expectation where:

• its conditional nature is not clearly disclosed; or
• the circumstances under which it may be forfeited are not properly explained.

In such cases, poor communication effectively elevates a conditional benefit into an expectation that must be recognised.

CONCLUSION

Although investment boosters are not legally protected benefits, their treatment in practice is far more complex.

• The loss of a booster must be clearly disclosed as part of Section 14 communications.
• Poor disclosure can transform a conditional feature into a reasonable benefit expectation.
• The forfeiture of boosters may be viewed as an unfair retention mechanism under TCF principles.
• Boosters can distort comparisons between funds if not transparently communicated.

Administrators and trustees must therefore:

• clearly state that boosters are not guaranteed and do not form part of fund value until vesting;
• explicitly define the conditions for vesting; and
• highlight the impact of transfers and early exits.

Ultimately, transparency is critical. Without it, what appears to be an attractive enhancement may mislead members and undermine fair treatment.

All that glitters is not gold – and in the case of investment boosters, clarity is everything.

ENDS