Miranda Rasehala, Legal Advisor at FNB South Africa

The Financial Services Tribunal has again underscored the centrality of fund rules in governing members’ access to benefits under the new two-pot retirement system. In Municipal Employees Pension Fund v Pension Funds Adjudicator & Another (Case No. PFA35/2025), the Tribunal set aside a determination that would have allowed a member with arrear contributions to withdraw from her savings component, finding that such payment would be contrary to the rules of the fund and therefore ultra vires.

Background

The complainant, Ms Khutso Mailula, had been a member of the Municipal Employees Pension Fund (MEPF) since her employment with the Ba-Phalaborwa Local Municipality in 2015. When she transferred to the Polokwane Local Municipality in 2018, her membership continued, as both municipalities participated in the MEPF.

However, the Polokwane Municipality failed to transmit contributions on her behalf, leaving her account in arrears. When the two-pot retirement system took effect on 1 September 2024, Ms Mailula sought to make a withdrawal from her savings component, despite the contribution default. The MEPF declined the request, citing non-payment of contributions.

The matter was referred to the Pension Funds Adjudicator, who on 11 April 2025 ordered the Fund to provide Ms Mailula with the necessary withdrawal information and to process her savings pot withdrawal once she submitted the required documents.

The Tribunal’s Reasoning

The Fund applied for reconsideration under section 230 of the Financial Sector Regulation Act 9 of 2017. The Tribunal, chaired by Judge Legodi, found that the Adjudicator had misapplied the law by authorising a savings-component payment despite arrear contributions, contrary to rule 27(2)(b) read with sections 13 and 13A of the Pension Funds Act (PFA).

Central to the decision was rule 27(2)(b) of the MEPF, which provides that where a member or employer fails to pay contributions and remains in default after notice, the member (or dependants) is entitled only to the limited benefits prescribed under rule 37. The Tribunal emphasised that this rule, read with section 13 of the PFA, is binding on the fund and its members.

The Tribunal further observed that permitting a withdrawal under these circumstances would not only disregard the rules but also undermine the binding effect of section 13. It held that such a payment would be ultra vires — beyond the powers of the fund.

Relevance of the Two-Pot System

The Tribunal explained that the two-pot system operates through fund rules. The savings component exists only “in terms of the rules” of a registered fund. Because rule 27(2)(b) limits benefits when contributions remain unpaid after notice, any withdrawal would contradict those rules and be ultra vires the fund’s powers.

While the system creates a savings component accessible annually, it applies only to persons who are valid members of a fund and who are compliant in terms of contribution payments.

Members in arrears, or whose employers have defaulted on contributions, cannot lawfully claim from their savings pot until the arrears position is resolved in accordance with the fund’s rules.

Outcome

The Tribunal set aside the Adjudicator’s determination and remitted the matter for reconsideration, reaffirming that access to the two-pot savings component must be exercised strictly within the framework of fund rules and the Pension Funds Act.

Implications for Funds and Administrators

This ruling is particularly significant as funds continue to navigate the operational complexities of the two-pot system. It highlights that:

• Compliance with contribution and rule-based requirements remains a precondition to benefit access;
• The two-pot framework does not override arrear contribution provisions under the Pension Funds Act; and
• Funds must ensure that processes for two-pot withdrawals are aligned with section 13 and 13A compliance controls.

For administrators and boards of trustees, the case reinforces the need for robust monitoring of participating employers’ contribution payments and timely enforcement of section 13A obligations to prevent members from being prejudiced when seeking access to their savings components.

ENDS