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New PFA Ruling concerning the application of a rule amendment

15 August 2006 Pension Funds Adjudicator

The pension funds adjudicator issued another landmark ruling concerning the application of a rule amendment not approved by the registrar of pension funds.

In Meiring v Bel Essex Provident Fund and Others, the complainant was employed by Bel - Essex Admin Holdings (Pty) Ltd and was a member of the fund. On 28 February 2002, the complainant left service of the employer and in terms of the rules of the fund, he was entitled to a withdrawal benefit. From the documentary evidence, it appeared as if the amount was in the region of R431 000.00. The fund refused to pay the benefit on the basis that the fund trustees had passed a resolution that the rules be amended to the effect that no withdrawal benefit be paid upon the termination of a members service, except if the termination is as a result of ill-health. However, the registrar refused to approve the rule amendment on the basis that it contravened section 14A (dealing with minimum withdrawal benefits) of the Act. Hereafter, the complainant referred the matter to the adjudicators office.

The adjudicator firstly held that the registered withdrawal rule applicable to the complainant makes provision for the immediate payment of the benefit after cessation of service or for a maximum period of six months after withdrawal from the fund. The complainant was employed as a managing director of various subsidiary companies of the employer since May 1984 until February 2002. In terms of the rules, he was an executive who had completed more than 9 years of service and was thus entitled to his withdrawal benefit defined as his members share. Furthermore, the proposed amendment to the existing withdrawal benefit rule has no legal validity until it has been approved and registered by the registrar.

The adjudicator further held that the conduct of the board of management is to be severely deprecated. Notwithstanding two rulings from the Supreme Court of Appeal (the highest court in our country for all issues except constitutional issues) stating that the rules of the fund are supreme and only come into effect once they have been approved and registered by the registrar, the board of the fund, in blatant disregard of these rulings and several determinations by this Tribunal, simply decided that it would not apply the registered rules of the fund. The law regarding pension fund rules as it currently stands is patently clear in terms of which the registered rules are king and remain valid until amended (approved by the registrar in terms of section 12 of the Act). Had the complainant been legally represented in this matter, the adjudicator would have had no hesitation in making a cost order in favour of the complainant, a power very rarely exercised by the adjudicator.

The fund administrator was ordered to compute and pay the withdrawal benefit together with interest at 15.5% per annum from 1 March 2002 until date of payment, within 4 weeks of the date of the determination.

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