Muvhango Lukhaimane, Pension Funds Adjudicator

One of the advantages of a specialist tribunal such as the Office of the Pension Funds Adjudicator (OPFA) is that parties can rest assured that there is a repository of specialist pensions law knowledge that understands the nuances of the retirement funds industry.

It is this knowledge that enables the tribunal to resolve disputes in an expeditious and economical manner, whilst at the same time adhering to the rule of law.

Below follows a selection of determinations which settled important areas of the law around pension funds administration during the 2022/2023 financial year as per the recently released annual report.

PFA jurisdiction – Divorce Orders

The complainant was divorced from the deceased member. She claimed that during their marriage the deceased was financially irresponsible and that she had taken out a retirement annuity policy in his name, paid the contributions and made it paid up prior to their divorce.

She submitted that in their divorce settlement, they had agreed that if the deceased member predeceased her, the benefit would be paid to her. She intended to divide the benefit between their two sons who were aged 21 and 23 at the time.

She claimed that since she paid for the policy, was the nominee on the policy, was named in his Will and was recorded in the divorce settlement as a beneficiary, then she should have been awarded the death benefit.

The deceased had a life partner whom he had been in a relationship with for 18 months prior to his death. They were engaged to be married.

The fund submitted that although the complainant was married to the deceased for 21 years, she was not financially dependent on him at the time of his death nor was there a maintenance order in her favour following their divorce. The children of the deceased submitted affidavits to the fund stating that they were not financially dependent on the deceased.

The fund submitted that the deceased’s life partner shared a joint household with him, and they shared expenses. Based on certain assumptions with regard to the permanent life partner’s level of dependency on the deceased and her projected life expectancy, the life partner’s dependency was calculated by the fund to be R657 094.00. Considering that the amount available for distribution was only R91 761.00, the fund allocated 100% of the benefit to the deceased’s permanent life partner.

The fund submitted that the nomination form was not binding and only serves as a guide to the board which the board may not use to fetter its discretion.

Since the value of the benefit was insufficient to cover the life partner’s loss of support, the fund decided not to allocate a portion to the complainant based on the nomination form.

The Adjudicator held:

• The permanent life partner qualified as such, and the period of their relationship did not matter. They shared a household and shared expenses, and she was entitled to be considered for an allocation.
• The board is not bound by a Will, or a nomination form completed by the deceased. Instead, same serves merely as a guide.
• The deceased was survived by dependants and a nominee. The fact that the complainant was nominated does not automatically give her a right to receive a portion of the death benefit.
• Considering that the complainant and her children were majors who were not dependent on the deceased at the time of his death and that the permanent life partner shared household expenses with the deceased, the board did not act irrationally in allocating 100% of the benefit to the permanent life partner.

The complaint was dismissed.

Withholding of benefits owing to criminal charges

The complainant was dissatisfied with the employer’s failure to sign his withdrawal claim form. He submitted that he had sent numerous emails to the employer without a response and despite accepting his resignation, the employer did not submit his form to the fund for processing his benefit.

The fund submitted that the withdrawal form was signed by the complainant on 16 February 2021 and only received on 9 March 2021. The form was not signed by the employer, and it was informed by the financial adviser that the employer had laid criminal charges against the complainant for theft.

The employer accused the complainant of stealing an amount of R40 000 from its safe. It reported the matter to the SAPS which held the accused in custody for 48 hours before releasing him without charge.

The fund requested the employer to provide it with either a written admission of liability or summons evidencing that it had instituted civil proceedings against the member. The fund also requested confirmation that the criminal case against the member was still being pursued.

The employer advised that it did not have a written admission of liability, no civil summons was issued because it was too costly and that the criminal case was not continuing due to police incompetence.

Based on the aforesaid, the fund decided that it would no longer withhold the benefit and that payment to the complainant would be made. However, at the time of the Adjudicator’s determination, still no payment had been made by the fund to the complainant.

The Adjudicator held that the fund was not in possession of any facts that could reasonably justify the continued withholding of the member’s benefit on the basis of a prima facie case.

A significant amount of time had lapsed and even in respect of the criminal proceedings there appears to be no movement.

The fund was ordered to pay the complainant’s withdrawal benefit.

Section 37D – Withholding in respect of damages suffered by the employer

The employer lodged a complaint against the fund for its refusal to deduct a compensation claim on the basis of a sequestration order.

The employer sought in the alternative that the fund be ordered to withhold the benefit pending the outcome of criminal proceedings against the member.

The employer applied for and obtained a sequestration order against the member on the basis of allegations of theft and fraud made against the member.

The employer argued that the sequestration order constituted a civil judgment and, therefore, met the requirement in terms of section 37D(1)(b)(ii) of the Act. However, should the Adjudicator not accept its contentions in relation to the sequestration order, it requested an order that payment of the member’s withdrawal benefit be suspended pending the outcome of the criminal proceedings against the member.

The fund refused to deduct stating that the Insolvency Act, 24 of 1936 (the “Insolvency Act”) sets out the rights and obligations of the insolvent during sequestration proceedings. According to the fund, section 23(7) of the Insolvency Act specifically excludes a pension benefit to which a member is entitled to, from falling into his insolvent estate. Consequently, creditors cannot lay a claim thereto.

The fund stated that it granted the employer 30 days to provide a signed AOD or institute civil proceedings in respect of the alleged damage caused by the member. The employer failed to provide the administrator with a signed AOD, or proof of civil proceedings instituted against the member.

The member stated that a final sequestration order was granted. She appealed the matter in the Supreme Court of Appeal. However, her appeal was dismissed.

The member stated that the employer was paid from her estate and the sequestration proceedings were finalised. The amount in respect of the sequestration proceedings was quantified as R2 467 448.54. The amount that remains unrecovered is to be dealt with within criminal proceedings.

The member submitted that since her exit from the employer, she has not applied for her withdrawal benefit from the fund.

The Adjudicator held:

• that Section 23(7) of the Insolvency Act is to entitle an insolvent to sue, without reference to his trustee, for any pension to which he may be entitled for services rendered by him. It does not provide an absolute bar to a member’s benefit forming part of the member’s insolvent estate.
• In terms of section 37B, a member’s pension benefit to which he becomes entitled is protected from forming part of the assets in the insolvent estate of a member and may not be attached or appropriated by the trustee of his insolvent estate or by his creditors. That protection, however, does not extend to inter alia claims made by an employer against a member’s benefit under section 37D of the Act.
• The sequestration order was granted solely on the basis of the employer’s claim against the member for damages it suffered as a result of theft and fraud perpetrated by the member against the employer.
• The claim, according to the Court’s judgment, me the requirements of section 9(1) of the Insolvency Act and, therefore, was sufficiently proven to enable the employer to obtain a sequestration order against the member.
• The Court found that the complainant’s proven claim against the member was in the amount of R2 467 448.59. At paragraph [12] and [13] of its judgment granting the sequestration order, the Court found that the employer’s claim against the member was a liquid one based on theft of monies belonging to the complainant.
• Such conduct falls squarely within the ambit of section 37D(1)(b)(ii) of the Act and the employer obtained a judgment against the member in respect of such conduct. The section does not specify the type of judgment that must be obtained. It states that it can be the judgment of any court including the magistrate’s court.
• The purpose of section 37D(1)(b)(ii) is to protect the employer’s right to pursue the recovery of money misappropriated by its employees. Since the Court accepted that the employer’s claim was a liquid one based on theft and fraud committed by the member, and since it based its judgment granting sequestration solely on the employer’s claim against the member, the Adjudicator accepts that the employer is entitled, by virtue of the sequestration order, to a deduction.
• However, section 37D(1)(b)(ii) requires that the deduction takes place on the date of the member’s retirement or on which the member ceases to be a member of the fund. The member indicated in her submissions that since her exit from the employer on 8 December 2016, she has not applied for her withdrawal benefit from the fund.
• The employer is not entitled to a deduction and payment at this stage because the deduction can only take place on the date on which the member retires or ceases to be a member of the fund.
• The Adjudicator is acutely aware that this means that a member may continue to frustrate an employer by simply not submitting a withdrawal claim form. However, the wording of the section is unambiguous and in interpreting same, the Adjudicator may not depart from it.
• The anomaly brought about by this wording is being addressed through consequential amendments in the COFI Bill. However, the Adjudicator is at this stage bound by the current wording.
• The issue pertaining to whether a fund may withhold a benefit pending the outcome of criminal proceedings has been dealt with by the Financial Services Tribunal on several occasions, where it has held that a fund may not do so.

It was ordered that the employer was entitled to a deduction from the member’s benefit in terms of section 37D(1)(b)(ii) of the Act on the date of the member’s retirement or on which the member ceases to be a member of the fund.

Download the full OPFA Integrated Report 2022-2023

ENDS