Concourt upholds pension funds Adjudicator's ruling

04 August 2023 Office of the Pension Funds Adjudicator (OPFA)
Advocate Muvhango Lukhaimane

Advocate Muvhango Lukhaimane

While even limited financial security is beyond the reach of many as they battle to eke out a living, others can plan for their future financial well-being with a pension, says Constitutional Court Judge Jody Kollapen.

“A pension is a crucial instrument through which individuals plan and anticipate a period in which they will no longer be working to generate income. Pensions also contribute towards fulfilling the right to social security as they are a means by which individuals can secure financial stability through monetary contributions,” he said.

Judge Kollapen’s comments on the worth and necessity of pensions prefaced his judgement in a matter concerning a withdrawal benefit which was calculated by the pension fund in accordance with a rule that had been submitted to the then Financial Services Board for registration but had not yet been registered. This had the effect of substantially reducing the benefit from what the complainant would have been entitled to if the calculation was done in accordance with the rule that was in existence at the time of his retirement.

The Pension Funds Adjudicator, Advocate Muvhango Lukhaimane, had ordered that the benefit should be calculated in accordance with the existing rule since a rule that had not been registered yet cannot be applied. The pension fund challenged this determination by the Adjudicator.

On Wednesday (2 August 2023), the Constitutional Court set aside the Supreme Court of Appeal’s order that found the Municipal Employees’ Pension Fund’s amended rule could apply retrospectively to all withdrawal benefits that accrued to members as of April 2013.

In a unanimous judgment, Judge Kollapen granted and upheld the appeal lodged by former Vhembe District Municipality employee Pandelani Midas Mudau to the apex court after he lost an appeal in the SCA.

The matter arose from a withdrawal benefit claim from the Municipal Employees’ Pension Fund made by Mudau.

According to court papers, prior to 2013, the pension fund’s rules provided that a member’s withdrawal benefit would be three times a member’s contribution with interest. However, in January 2013, the fund received an actuarial valuation report which warned that it was at risk of failing to meet its future liabilities due to, among other things, the calculation of its withdrawal benefits.

Consequently, on 21 June 2013, a decision was made by the fund’s board to amend rule 37 of the rules in order to provide that a member’s withdrawal benefit would be one and a half times a member’s contributions with interest.

The unregistered amended rule further provided that the amendment would have retrospective effect from 1 April 2013. On 22 July 2013, the fund made an application to the Registrar to register the unregistered amended rule.

On 16 October 2013, Mr Mudau, who had resigned with effect from 31 May 2013, was paid a withdrawal benefit of R646 437.42 in terms of the unregistered amended rule, which, at that stage, was pending registration by the Registrar.

Mr Mudau alleged that he was entitled to receive a withdrawal benefit of R2 140 313.19 in terms of the old rule and referred a complaint to this effect to the Pension Funds Adjudicator on 2 December 2013. He sought a ruling that he was entitled to be paid the balance of R1 493 875.77. On 1 April 2014, the Registrar registered the amended rule. In a determination issued on 7 July 2014, the Pension Funds Adjudicator found in favour of Mr Mudau, holding that the unregistered amended rule could not be applied until it had been approved and registered by the Registrar.

Additionally, the Adjudicator held that the retrospective amendment could not be applied to benefits that had already accrued before it was approved by the Registrar. The Adjudicator concluded that the old rule applied to Mr Mudau’s withdrawal benefit. The Fund was ordered to pay Mr Mudau the balance to which he was entitled under the old rule, together with interest.

The pension fund and Akani Retirement Fund Administrators appealed the Adjudicator’s determination in the High Court and the full bench without success, until the SCA found that the Pension Act authorised the fund to amend its rules and to determine the effective date of application of the amended rule.

The SCA also found that the amended rule could apply retrospectively to all withdrawal benefits which had accrued to the fund’s members as of April 2013, the date stipulated in the amended rule approved by the registrar.

Unhappy with the order, Mudau brought an application to the Constitutional Court for leave to appeal the whole SCA judgment and order.

In his judgment, Judge Kollapen said at the heart of the appeal was whether a pension fund may apply a rule amendment that was not yet registered in anticipation of its future registration and determine the payment of benefits due on that basis.

The judge said while the registration of the amended rule was to take effect from April 2013, retrospectively was a different matter from the determination of the rule that was in existence at the time that Mudau had his withdrawal benefits determined and paid.

Judge Kollapen also said although amended rules may have retrospective effect after registration, they did not have binding effect before registration.

He added that there was nothing in the language of the rule that in any manner could sustain the conclusion that the rule amendment was intended to apply to pending actions.

Judge Kollapen said when the rule was amended in April 2014, there was no claim of Mudau in existence to which the rule amendment could be retrospectively applied.

“What the fund was required to do in October 2013 was to finalise the claim of Mr Mudau on the basis of the rule in existence then, which would have warranted payment of R2 140 313.19.

“Following that, and only upon the rule amendment becoming valid in April 2014, could the fund then apply the rule as well as attempt to enforce its retroactive effect.”

Judge Kollapen ordered Akani Retirement Fund Administrators to pay Mudau R1 493 875.77, together with interest from 16 October 2013 until the date of payment.

The judge complimented counsel for Mr Mudau for representing him pro bono.

“They did so with aplomb and commendable ability. This act of public service is recognised and acknowledged as an important contribution to advancing the objective of access to justice for all,’ the Judge said.

However, he ordered the Municipal Employees Pension Fund and Akani Retirement Fund Administrators to pay Mudau’s legal costs.

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