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New Determinations from the Pension Funds Adjudicator

21 July 2011 Pension Funds Adjudicator
Acting Pension Funds Adjudicator,  Dr Elmarie de la Rey

Acting Pension Funds Adjudicator, Dr Elmarie de la Rey

PFA refuses pension funds to be used to settle housing loans

Fifty-eight members of a provident fund have failed in their efforts to be allowed have amounts owing on their housing loans to be settled by using their fund values.

F Dadoo and 57 others complained to acting Pension Funds Adjudicator Dr Elmarie de la Rey that Avusa Ltd Provident Fund (first respondent”) and Alexander Forbes Financial Services (Pty) Ltd (second respondent) had refused to allow them to settle the balance of their housing loans by using their accumulated fund values.

The complainants said they were “struggling to make ends meet” due to the economic climate and they preferred to settle their home loans so that they would have more disposable income thereafter.

The complainants were members of the first respondent (previously known as the Johnnic Entertainment Provident Fund) by virtue of their employment with Avusa Limited (the employer). The second respondent was the administrator of the first respondent.

On 21 August 2008 the complainants had submitted a request to the second respondent to have the outstanding balances on their housing loans with HomePlan settled by using their fund values in the first respondent.

The complainants had obtained housing loans from HomePlan and their retirement savings in the fund were utilised as security.

The respondents refused to accede to the request on the basis that section 37A of the Act prohibited any reduction, attachment, cession, transfer or pledge of a retirement benefit.

The aim of this section 37A of the Act was to ensure that pension benefits were protected for members and their dependants until such time as it became payable when the member exited the fund.

Since section 37A specifically excluded the set-off of debts against a benefit from a retirement fund (the HomePlan loan in this case), the fund could not accede to the complainants’ request to reduce their benefits in the fund in order to settle their outstanding housing loans.

The second respondent requested the Office of the Pension Funds to dismiss the complaint on the basis that reducing the complainants’ fund values would be contrary to the provisions of the Act.

In her determination, Dr De la Rey said the rules of a registered fund were binding on the fund, its members, shareholders and officers, and on any person who claimed under the rules or whose claim was derived from a person so claiming.

Due to the binding effect of the rules, a fund may only pay out to its members those benefits provided for in its rules.

As a general principle pension benefits were not reducible, transferable or executable save to the extent permitted by the Act, the Income Tax Act No. 58 of 1962 and the Maintenance Act No. 99 of 1998.

The Act allowed for exceptions to this principle in certain circumstances such as a fund may make deductions from the member’s fund value where a loan had been granted and the member had defaulted in the repayments and where his membership in the fund had not terminated. The deduction could only be effected as a last resort after the board of management of the fund was satisfied that no other arrangement for the repayment could be made.

“In the present matter, although the complainants’ fund memberships have not terminated, they have not defaulted in loan repayments and there is no proof that there are no alternative repayment arrangements available to them.

“The respondents have indicated that there is a possibility of extensions of the repayment period, so the facts suggest that there are alternative arrangements available to the complainants.

“In the result, the complaint cannot succeed and is dismissed,” ruled Dr De la Rey.



Spouse not entitled to interest in a pension fund after divorce

 

A non-member spouse is not entitled to any interest or growth in a pension fund which may accumulate after the date of divorce, acting Pension Funds Adjudicator Dr Elmarie de la Rey has ruled.

Professor EW Derman of Hout Bay brought a complaint against the University of Cape Town Retirement Fund (first respondent) and Sanlam Life Insurance Ltd (second respondent) following the non-payment of interest on the 50 percent share of the pension fund paid to his former spouse.

The complainant’s marriage was dissolved by a decree of divorce. In terms of the divorce settlement agreement, the complainant’s spouse was entitled to payment of one half of the complainant’s pension value in the University of Cape Town Retirement Fund accruing to the complainant for the period from 1 September 1993 to the date of the divorce.

In terms of the agreement, the said half share of the former spouse’s pension value shall bear interest at the prescribed legal rate of 15.5% per annum from date of divorce to date of payment.

The former spouse informed the respondents that she wished to transfer her 50% share of the pension interest to another approved pension fund, which was duly done.  

 

Following the amendments to section 37D(4) of the Act brought about by the Pension Funds Amendment Act No. 11 of 2007 which came into effect on 13 September 2007, the former spouse claimed payment of the pension value assigned to her in terms of the court order.

The first respondent transferred the portion of the pension assigned to her to an approved pension fund, but did not pay any interest as stipulated in the divorce settlement agreement.

The complainant was of the opinion that the former spouse was entitled to interest. The former spouse threatened to institute legal action against him to compensate for the unpaid interest or fund return and he did not have the funds to pay it. He submitted that the first respondent should, therefore, pay interest as stipulated in the divorce settlement agreement.

The second respondent filed a response in its capacity as the administrator of the first respondent. It advised that the Act did not allow for the payment of interest or fund returns on the pension value assigned to the former spouse.

In terms of section 37D(4)(a) of the Act, a fund may only deduct from a member’s pension benefit the portion of pension assigned to the non-member spouse in terms of the court order granted in terms of section 7(8) of the Divorce Act No. 70 of 1979 (“Divorce Act”). Section 1 of the Divorce Act did not include any interest or growth which may accumulate after the date of divorce.

In terms of section 37D(4)(c)(ii) of the Act, interest will only be payable to a non-member spouse upon the expiry of 120 days after the fund has requested the non-member spouse to make an election for the mode of payment of her pension interest.

Dr De la Rey said in her determination that section 37D(4)(c)(ii) only permits payment of interest or fund returns after the expiry of 120 days from the date the non-member spouse was requested to make an election regarding the payment of pension interest.

“The fund return that is contemplated is calculated from the expiry of the 120 day period to the date of payment or transfer to the non-member spouse, so it is not fund return from the date of divorce to the date of payment.

“In this matter the first respondent transferred the pension interest before the expiry of 120 days, so it is not liable to pay fund returns to the former spouse.

“Therefore, the former spouse is not entitled to any fund returns or interest on her pension interest from the date of divorce to the date of transfer.”

She went further and said section 37A(1) prohibits the reduction, cession, hypothecation or attachment of pension benefits save to the extent permitted by the Act, the Income Tax Act No. 58 of 1962 and the Maintenance Act No. 99 of 1998.

“Section 37A(1) precludes the payment of interest from the complainant’s pension benefit to the former spouse.

“Therefore, the respondents were correct in refusing the complainant’s request to pay interest at the rate of 15.5% per annum on the former spouse’s pension interest from the date of divorce to the date of transfer.

“The former spouse has a personal right to claim interest from the complainant, but it cannot be paid by the first respondent,” Dr De la Rey said, in dismissing the complaint.

 


 

Benefit must be paid upon termination of employment, PFA rules

Upon termination of employment, a member of a pension fund is entitled to be paid the withdrawal benefit, acting Pension Funds Adjudicator Dr Elmarie de la Rey has ruled.

She was pronouncing in a matter concerning the non-payment of a withdrawal benefit following the termination of the complainant’s employment.

The complainant S K Tsoeute of Welkom submitted he was a contributing member of the Mine Employees Pension Fund (respondent) from 5 February 1997 until 19 July 2001.

Upon being promoted from 20 July 2001, he contributed to Sentinel Mining Industry Retirement Fund (Sentinel) until he left service on 19 February 2008.

He said he did not receive his withdrawal benefit from the respondent and that he was told that he may not access it until his retirement age.

In its defence, the respondent said the complainant became a non-contributory member by not terminating his membership - despite the fact that he did not make an explicit election within six months of ceasing to be a contributory member.

The respondent further submitted that the complainant was informed when he took a benefit from Sentinel that he could not access his fund credit in the respondent until he was eligible for a retirement benefit.

The respondent submitted that when the respondent’s structure was converted with effect from 1 March 2003, the complainant was credited with a conversion credit.

The respondent further submitted that these restrictions were imposed by South African Revenue Services to avoid tax arbitrage by members who took withdrawal benefits some years after leaving service when their tax rates had reduced.

In her determination, Dr De la Rey said the issue was whether or not the respondent had

failed to comply with its duties in not paying the complainant his withdrawal benefit upon

termination of his employment.

She said the complainant left service on 19 February 2008 and was paid his withdrawal benefit from Sentinel.

The complainant ceased contributing to the respondent on 19 July 2001.

She said Rule 21 (1) of the Act that was applicable at the time that the complainant was promoted provided as follows: “Every employee in the service of an employer on the fixed date shall, as from the fixed date, and every person subsequently becoming an employee shall, as from the date of becoming an employee, become a member of the Fund.

“Subject to the provisions of paragraphs (2) and (4) of Rule 23, a member shall not be permitted to withdraw from membership of the Fund while he remains in the service of an employer.”

Dr De la Rey said since the complainant was still in the service of the employer, he could not receive his withdrawal benefit from the first respondent.

However, the complainant left the service of his employer altogether on 19 February 2008 and, therefore, he could be paid his withdrawal benefit from the respondent together with fund growth thereon.

Dr De la Rey ordered the respondent to pay the complainant his withdrawal benefit, less any permissible deductions in terms of the Act, plus the member’s fund growth to date of payment.


 

 

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