Lize de la Harpe, Senior Legal Advisor, Sanlam

 

The Pension Funds Amendment Bill 2024 (currently awaiting signature by the President) amends the Pension Funds Act, 1956 and certain other laws regulating public sector funds to make provision for the implementation of the two-pot retirement system coming into effect on 1 September 2024. One of these changes relate to the deduction of maintenance orders against a member’s benefit.

 

In this article I will explain the conflict between these amendments and the Maintenance Act, 1998, specifically in respect of future maintenance.

 

Enforcing maintenance orders against pension funds

 

When applying for a maintenance order one must carefully consider the source of income you intend to claim from. Pension funds are highly regulated and as such it is important to start off with looking at the applicable sections of the Pension Funds Act.

 

Section 37A(1) of the Pension Funds Act specifically limits instances in which a fund may deduct amounts from a member’s pension benefits. It states that a fund is only permitted to make a deduction from a member’s benefit if such a deduction is allowed in terms of the Pension Funds Act, the Income Tax Act and the Maintenance Act.

 

Section 37D(1)(d)(iA) of the Pension Funds Act in turn enables a registered fund to deduct any amount payable in terms of a maintenance order as defined in section 1 of the Maintenance Act.

 

Next, we must turn to the Maintenance Act, 1998. The Maintenance Act defines a “maintenance order” as any order for the payment, including the periodical payment, of sums of money towards the maintenance of any person.

 

Chapter 5 of this act makes provision for maintenance orders to be enforced by civil execution. Section 26 states that if a maintenance order remains unpaid the claimant can approach a maintenance court for a warrant of execution against property, an order for the attachment of emoluments or an order for the attachment of a debt.

 

Section 26(4) in turn specifically makes provision for the enforcement of a maintenance order against benefits to which a retirement fund member is entitled. If you look at the specific wording of this section, you will see it is limited to arrear maintenance – it does not deal with amounts which will become due in the future. As such, where a cash lump sum payment is concerned, a fund is limited cash lump sum payments in respect of arrear maintenance only.

 

Future maintenance

 

As stated above, chapter 5 of the Maintenance Act deals with arrear maintenance. It does not deal with amounts which will become due in the future. As such, a fund is not allowed to make a lump sum payment in respect of future maintenance.

 

This has been confirmed in case law.

 

In the matter of Sentinel Retirement Fund v Mtambo and Others (Case No 75404/2013) the fund received a court order ordering it to pay arrear maintenance from the member, namely the second respondent’s benefit, to the first respondent and to withhold his benefit for an apparently indefinite period. The fund wrote a letter to the magistrate/maintenance court stating that the parts of the order in respect of the payment of future maintenance was unenforceable, and furnished full reasons why past maintenance could be paid from the fund but not future maintenance.

 

The second respondent’s attorneys informed the fund that they would apply to the magistrate/maintenance court for the orders to be rescinded but had difficulties in finalising the application because the second respondent was in Uganda.  In the interim, the fund was being threatened by employees of the magistrate court that contempt of court proceedings would be brought against it.

 

There was a lot of to and fro with amending the order, but the crux of the matter was the following:

 

1. An amount of R161 280.00 had de facto been attached by means of section 30 of the Maintenance Act.
2. Payment of the future maintenance of R161 280.00 was allegedly due and payable to the first respondent – it however related to future maintenance which was not yet due and payable.
3. As set out in the applicant’s supplementary heads of argument and supplementary affidavit, there was also a further maintenance order that was obtained in March 2024.

 

Because the order was susceptible of various interpretations the fund sought clarity as to whether the maintenance’s court can order it to make a lump sum payment of future maintenance.

 

After careful analysis, the High Court held that the provisions of section 26(4) of the Maintenance Act does not allow for the payment of maintenance which is not in arrears. The High Court accordingly held that an order directing a fund to pay an amount of future maintenance in one lump sum was contrary to the provisions of sections 37A and 37D of the Pensions Funds Act, read together with the Maintenance Act.

 

This fact is clearly distinguishable from the question whether a court can order that a lump sum benefit be withheld by a retirement fund to secure the future maintenance payments of the maintenance obligations.

 

There are various court cases where the courts attached future payments to safeguard money for future maintenance.

 

The case of Mngadi v Beacon Sweets & Chocolates Provident Fund and Others 2003] 7 BPLR 4870 (D) it was an uncontested fact that the father had resigned from his job to avoid paying maintenance. The applicant obtained a warrant of execution in respect of arrear maintenance. Her attorneys wrote a letter to the fund in question and requested that his pension benefit be attached to secure the payment of future maintenance for his children. The fund responded by consenting to payment of the arrear maintenance but declining the request to set aside an amount for future maintenance.

 

The applicant lodged a complaint with the Pension Funds Adjudicator who dismissed the complaint holding that section 26(4) of the Maintenance Act did not permit a fund to hold moneys for future maintenance. The Applicant thereafter applied to the High Court for relief.

 

The High Court therefore had to decide whether it was competent to order that a lump sum be retained by a fund to secure future payment of a member’s maintenance obligations. The court first considered the relevant provisions of the Maintenance Act and held that it made provision for certain remedies in respect of non-payment of arrear or due maintenance amounts but did not provide for a remedy in respect of future maintenance.

 

Next, the High Court looked at the prohibition set out in section 37A(1) of the Pension Funds Act which limits the instances in which a retirement fund may make deductions, and found that it can be interpreted as enabling the fund to retain the withdrawal benefit due to the father of the minor kids and to pay the benefit in monthly maintenance payments to the mother.

 

In the matter of Magewu v Zozo and Others 2004 (4) SA 578 (C); [2004] 3 All SA 235 (C) the applicant asked the court to direct the pension fund in question to retain the respondent’s pension benefit for as long as the minor child needed maintenance support. What differentiates this case from the Mngadi-case discussed above is that in this matter the respondent was not yet in arrears with maintenance. He did however have a history of defaulting on maintenance payments.

 

When the first respondent was retrenched, the applicant approached the court for an order directing the fund and its administrator to retain the first respondent’s pension benefit for as long as the minor child required maintenance. What the court had to decide was whether his fund benefit and retrenchment package could be withheld from him.

 

The court confirmed that the Maintenance Act does not deal with future maintenance. Nevertheless, the court turned to section 28(2) of the Constitution which states that the interest of a child is paramount in all matters affecting the child and held that a court it empowered to order the retention of the pension benefit in such circumstances. As a result, the fund was directed to withhold the withdrawal benefit in order to secure future maintenance claims of the child.

 

Changes to the Pension Funds Act

 

When looking at the above cited case law it is clear that in all these cases the attachments of fund benefits were authorised to safeguard future payments. The courts did not instruct the funds to make a lump sum payment for future maintenance –  the courts simply ordered the funds to withhold the pension benefits thereby safeguarding it.

 

The amendments to the Pension Funds Act include a new section 37D(3)(aC) which enables a fund to deduct from the members benefit a lump sum in respect of future maintenance.

 

As explained above, the Maintenance Act does not make provision for future maintenance. Only once a maintenance order remains unpaid can the claimant approach a maintenance court for an order in terms of section 26(4) attaching pension benefits. As such, this new section is in conflict with the Maintenance Act.

 

Conclusion

When reading the Maintenance Act and the relevant provisions of the Pension Funds Act it becomes clear that the two acts work together to provide relief to a claimant who has a maintenance order that remains unpaid. The changes to the Pension Funds Act does not align with the Maintenance Act, which leads to legal uncertainty that may prejudice members.

 

It remains to be seen how this amendment will be interpreted by the courts.