Many complaints land before PFA because of lack of knowledge

29 July 2011 PFA
Acting Pension Funds Adjudicator Dr Elmarie de la Rey

Acting Pension Funds Adjudicator Dr Elmarie de la Rey

Insufficient knowledge of what pension fund benefits are actually due to members is resulting in a sizeable number of complaints to the Office of the Pension Funds Adjudicator – often only to be dismissed.

Earlier this year acting Pension Funds Adjudicator Dr Elmarie de la Rey dismissed a complaint brought by a former Johannesburg municipal employee who believed he was owed the entire fund value.

When he retired the member was paid out a retirement benefit of R440 358. However, he told the PFA he was due a second benefit payment of R3.6 billion as reflected in the fund’s financial statements. The amount of R3.6 billion was in fact the total value of the fund’s assets.

De la Rey dismissed the complaint.

In another matter, a member claimed a death benefit – while he was still alive.

The bus driver complained that since a death benefit was part of his contributions to a pension fund, he was entitled to be paid the death benefit over and above the withdrawal benefit of R25 428 .53 that he was paid.

He said the fund had failed to pay him a death benefit for the period he worked from November 2000 until his employment was terminated on 29 February 2008.

In dismissing the complaint, Dr De la Rey said the death benefit that the complainant had referred to was not part of the withdrawal benefit, but a group life assurance cover that would have only become payable to the complainant if he had died while still in service.

Several complaints were recently dismissed owing to poor understanding of what benefits were actually due.

1. Complainant Vuyani Ndabeni of Khayalitsha said the respondents Old Mutual Superfund Provident Fund, Alexander Forbes Financial Services (Pty) Ltd and Pelmanco Recycling CC had paid him less withdrawal benefit than he was due.

Upon termination of his employment on 20 November 2008 he was paid a net benefit of R31435.23.

The complainant was dissatisfied with the quantum of his withdrawal benefit. He submitted that he was due to receive R100000 but was only paid R31435.23.

The respondents submitted that as at 1 January 2008, the complainant’s share of fund amounted to R29 488.03.

The complainant withdrew from the first respondent on 31 October 2008, and it was, therefore, very unlikely that he would be entitled to receive a withdrawal benefit of R100000 especially since the financial markets did not perform well in 2008.

The respondents believed that the complainant may have assumed that the lump sum benefit payable at death or disability was due to be paid to him.

An amount of R105 300 would have been payable should he have died or became disabled while he was employed but these benefit events did not arise, so he became entitled to his withdrawal benefit, which was paid to him.

Dr De la Rey found that the complainant became entitled to a withdrawal benefit which was paid to him. No further benefit was due to him. Thus the complaint was dismissed.

2. In another determination, Dr De la Rey stressed it was a fund member’s responsibility to check salary slips to ensure any housing loan repayments were deducted from the salary.

Mrs ME Mphelo of Midrand had complained that the Municipal Employees Pension Fund

(first respondent) and City of Johannesburg (second respondent) had levied arrear interest

on her housing loan account.

She submitted that she should not be held responsible for the accrued interest because she was not aware that monthly deductions were not being made from her salary in respect of her housing loan.

The complainant applied for and was granted a housing loan of R80 000 by the first respondent on 1 February 2005 at an interest rate of 15% per annum. Monthly deductions of R1 918.20 over a period of 60 months were supposed to be effected from the complainant’s salary with effect from February 2005.

However, no deductions were made from the complainant’s salary until 2009. This resulted in the increase on the initially agreed monthly repayments of R1 918.20 to R5 794.81, payable over a period of 24 months. Further, the arrear amount accrued interest and the outstanding balance on the loan amount as at 28 August 2009 was R127 880.93.

In response to the complainant’s request that the respondents cancel the arrear interest levied on her home loan account, the respondents said it was the responsibility of the member to question the employer when she noticed on her pay slip that the loan account was not being paid.

Dr De la Rey ruled that by accepting the housing loan, the complainant had accepted that the primary responsibility to repay the loan was hers. It was the complainant’s responsibility to check her salary slips and to ensure that amounts were being deducted from her salary.

The complainant could not claim to have been unaware that for a period of almost four years no deductions had been effected on her salary since same would have been reflected on her monthly salary slips.

She had the use and enjoyment of the extra money she received each month due to non-payment of her housing loan, so she had not suffered any damages.

The complainant knew at all material times that she had a housing loan; she knew that it had to be re-paid each month and she was aware that no deductions were being made for the repayments.

Since no deductions were effected, this meant that the complainant’s salary was larger. Therefore, the respondents could not be held liable for damages, nor could they write off the interest on the outstanding amount because the complainant failed to make monthly payments.

Mrs Mphelo’s complaint was dismissed.

3. In another matter involving the non-payment of a death benefit, Mrs N Maqengula of Grahamstown said the Amplats Group Provident Fund had not paid her a death benefit upon the death of her husband Mr M Maqengula.

Mr Maqengula was medically boarded on 7 September 2000. Three days later, on 10 September 2000, he passed away. Due to the fact that he passed away within the prescribed period, the deceased qualified for the death benefit only.

On 7 March 2007, Mrs Maqengula complained that the respondent did not pay her any benefit after the death of her husband.

In its response dated 9 July 2007, the respondent submitted that the complainant failed to

claim the death benefit that became due to her as a result of her late husband’s death. It

submitted further that as a result of this, the benefit reverted to the fund upon the expiry of a

three-year period.

The respondent’s submissions indicated that the fund was only able to successfully trace the deceased’s family on 5 April 2007. The respondent’s administrator only received the relevant documentation from the complainant on 27 June 2007, after which a resolution was presented to the board of trustees’ meeting for approval on 28 June 2007.

The payment was made to the complainant on 12 December 2007. In her determination, Dr De la Rey said the payment was made after the complainant lodged her complaint.

In light of the payment of the death benefit by the respondent, the complaint had been resolved.

4. In another matter in which the quantum of withdrawal benefit was disputed, Mr GV Tokwe of Mfuleni said the respondents Sanlam Umbrella Provident Fund and Sanlam Life Insurance Ltd had paid an amount of R25 146.80 as a withdrawal benefit.

He was dissatisfied with the quantum of the withdrawal benefit. He contended that he was entitled to receive a withdrawal benefit R72 000.

The respondents said the complaint was based on an incorrect interpretation of a benefit statement that was issued to the complainant in April 2010 which reflected an amount of R72000. The R72 000 was the member’s annual pensionable salary and disability income salary. His withdrawal benefit was reflected as R24 195.88.

An amount of R25 146.80 was paid to the complainant as a withdrawal benefit on 22 June 2010.

The complainant had been paid his full benefit and there was no further amount that was due to him from the fund.

In her determination, Dr De la Rey said the submissions indicated that the complainant misunderstood the contents of the benefit statement that was issued to him on 8 April 2010.

“It appears that he based his complaint on the amount of R72 000 that was reflected on his benefit statement.

“However, the benefit statement indicated that the amount of R72 000 was in respect of his pensionable salary and disability income salary.

“His share of fund was reflected as R24 195.88 as at 8 April 2010. Thus, the amount of R72 000 was not the complainant’s member share as at the date of his exit from the fund and he was not entitled to this amount when he withdrew from the first respondent.

“In light of the submissions, this tribunal is satisfied that the complainant’s withdrawal benefit was computed and paid correctly in terms of the first respondent’s rules.

“Thus the complaint is dismissed.”

5. Another complaint concerning the quantum of pension increases was dismissed on the basis that the pension increases were correctly calculated.

Mr CG Robertson of Greytown complained that Metro Group Retirement Fund (first respondent), Alexander Forbes Financial Services (Pty) Ltd (second respondent) and Sanlam Life Insurance Ltd (third respondent) paid him less than another pension fund.

The complainant was an employee of Metro Cash and Carry Group and by virtue of his employment became a member of the first respondent until his retirement in 1983.

The complainant’s pension was outsourced in the first respondent’s name to the third respondent since 1 August 1996.

Subsequent to the termination of his employment with Metro Cash and Carry Group he was employed by South African Breweries Limited and by virtue of his employment became a member of the South African Breweries Pension Fund (“SAB Fund”).

He received a pension from the SAB Fund since April 1993.

The complainant was dissatisfied with the quantum of the pension increases he received from the first respondent. At the time he started receiving a pension from the first respondent the pension amount was similar to the one received from the SAB Fund.

However, the pension from the SAB Fund was 67% more than the one he received from the first respondent. The first respondent’s pension increases had become negligible.

There was correspondence from the third respondent giving him an option to choose a doubling of the pension and to forfeit all future increases. In view of the high risk of inflation and the fact that he was a young pensioner, he declined the offer.

Neither fund had automatic inflation increases, but both funds had as an objective pension increases to compensate for at least a major portion of inflation. The pension increases depended on the purchase rate.

He was advised that the pension purchase rate from the third respondent was six percent. However, he initially received correspondence from the third respondent that the purchase rate was five percent.

In response, the first and second respondents stated that the third respondent was an insurer to whom the complainant’s assets in the first respondent were transferred in August 1996 to purchase a pension on his behalf.

The first respondent had been a defined contribution fund since 1990. At the time when the second respondent was appointed the administrator of the first respondent in 1992, the pensioner liabilities were valued at a discount rate of eight percent.

This discount rate meant that the pensioner assets had to grow by at least this rate before increases could be granted. In practice the higher the discount rate, the lower the future pension increases.

Given the fact that the first respondent was a defined contribution fund, there was a danger that there would be cross-subsidisation between the active members - whose fund credits were based on contributions plus fund returns - and the pensioners where there was a promise by the first respondent to pay a pension for life.

The cross-subsidisation would occur where pensioners lived longer than the assets allocated to them as the first respondent would still be obliged to continue to pay them pension to the detriment of active members because fund returns would be lower in order to pay for the pension increases.

As a result of this potential cross-subsidisation and the risk to the pensioners that the pensioner pool would be insufficient to fund their liabilities, the trustees decided to transfer the pensioner assets to an insurance company, which would bear the liability for these pensioners and decide on pension increments.

After receipt of quotations from various insurers, the trustees selected the third respondent as the appropriate insurer at the time as it offered the best value for money. At the time that pensioner assets were transferred to the third respondent, the pensioner pool could afford to purchase these pensions by reducing the discount rate from eight percent to six per cent.

Thus, the transfer took place at a discount rate of six percent, which was beneficial to pensioners.

Since then, the third respondent had provided increases based on the discount rate of six percent. Although the third respondent referred to a discount rate of five percent in earlier correspondence with the complainant, it confirmed from the records of the third respondent that the transfer took place at a discount rate of six percent.

The respondents said the complainant should have raised this issue in 1996 when he was informed of the decision by the trustees to transfer the pensioner liability to the third respondent.

Given the fact that the pensions were based on a discount rate of six percent since August 1996 and that the SAB Fund used a much lower discount rate (the discount rate was around four percent in the early 1990’s), it could be expected that the SAB Fund pensions would have escalated at a higher rate than the first respondent.

The transfer of pensioner assets to the third respondent was carried out legitimately in accordance with the rules applicable at the time. As the first respondent entered into an agreement with the third respondent that the third respondent was going to be responsible for pension increases, the first respondent had no authority to determine or interfere with pension increases. All queries should be directed to the third respondent.

The complainant’s pension was outsourced in the name of the first respondent and he was not a GN18 pensioner. The policy issued by the third respondent, from which the pension was paid to the complainant, was in the name of the first respondent. The first respondent did not have a pension increase policy as pensioner liabilities were underwritten by the policy.

The third respondent said the complainant’s pension was outsourced to the Sanlam’s Bonus Pensions product effective 1 August 1996, based on a purchase bonus rate of six percent and not five percent as mentioned in previous correspondence.

The complainant could not compare his pension with that from the SAB Fund. Pensions purchased with different guarantees and purchase rates could never deliver same results. Bonus pensions were with-profit pensions, implying that increases depended on the bonus rates declared, which in turn depended on the investment return of the Bonus Pension Portfolio.

The annual pension increase applicable to a specific Bonus Pension was determined in accordance with the rate at which the Bonus Pension was purchased and the bonus rate as determined by it from time-to-time.

The Bonus Pension was increased to the extent that the bonus rate exceeded the purchase rate, which was six percent. The trustees of the first respondent determined this rate when the Bonus Pension was purchased.

Further, it guaranteed to pay the current level of pension for the rest of the complainant’s life. Therefore, the current level of pension would not be reduced during the complainant’s lifetime. It did not provide any guarantee on the level or extent of future increases.

However, once the pension had been increased, it guaranteed that the pension would not be reduced from the new level to a lower one. It always strived to maximise increases, subject to the constraints imposed by the guarantee that the pension would l not be reduced from the new level to a lower one.

The third respondent could not find correspondence to the effect that the complainant was given an option to choose a doubling of the pension and forfeiting all future increases.

In her determination, Dr De la Rey said the complainant ’s pension was not outsourced in terms of GN18 and although it was paid by the third respondent since August 1996, the policy was still owned by the first respondent. Therefore, the complainant remained a pensioner of the first respondent and this was confirmed by the second respondent.

The respondents had confirmed that the complainant’s pension was purchased based on a discount rate of six percent. The SAB Fund had a lower bonus rate of four percent. Therefore, the pensions from the two funds would not be the same. The second respondent had also noted that the underlying assets were invested in different asset classes, which yielded different returns each year.

This also impacted on the pension increases provided by the two funds. Further, section 14B(3)(c)(ii) of the Act did not require pension increase policies in instances where funds had purchased annuities from an insurer for their pensioners.

There was no evidence to suggest that the complainant’s pension increases were incorrectly calculated. Thus the complaint was dismissed.

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