Pension Board slammed by PFA for acting on unapproved rule

Ms Muvhango Lukhaimane condemned the conduct of the board of the Municipal Employees Pension Fund which paid a withdrawal benefit as per an amended rule that had been submitted to the Registrar of Pension Funds for approval instead of abiding by an existing approved rule.

TS Raboshakga of Pretoria complained that he was paid the amount of his contributions plus interest in respect of his pensionable salary multiplied by 1.5 - instead of it being multiplied by three.

"Notwithstanding two rulings from the Supreme Court of Appeal 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, in blatant disregard of these rulings and several determinations by this Tribunal, simply decided that it would not apply the registered rules of the first respondent.

"The law regarding pension fund rules as it currently stands is patently clear in terms of which the registered rules remain valid until amended and approved by the Registrar,” said Ms Lukhaimane.

Mr Raboshakga worked for the Aganang Local Municipality from 1 October 2005 until he left employment on 30 June 2013. He was a member of the Municipal Employees Pension Fund (first respondent), administered by Akani Retirement Fund Administrators (Pty) Ltd (second respondent).

He was paid the amount of his contributions plus interest in respect of his pensionable salary multiplied by 1.5 as per the rule amendment submitted to the Registrar of Pension Funds for approval.

The rule that existed as approved by the Registrar at the time of the complainant’s exit from the first respondent stated that a withdrawing member was entitled to the amount of his contributions plus interest in respect of his pensionable salary multiplied by three.

The respondents said an actuarial evaluation as at 28 February 2011 had determined a shortfall of contributions for future funding. At a board meeting held on 21 June 2013, a resolution was passed to amend the withdrawal benefit and reduce it from three times to 1.5 times a member’s contributions as per the actuary’s recommendation. The rule amendment had been submitted to the Financial Services Board for registration.

In her determination, Ms Lukhaimane said in terms of Section 13 of the Pension Funds Act, the rules of a registered fund are binding on the fund, its members, shareholders and officers. The fund may only pay out to its members those benefits provided for in its rules.

She said the purported amendment to the existing withdrawal benefit rule of the first

respondent had no legal validity until it had been approved and registered by the Registrar.

"The first respondent’s conduct of acting on an unregistered rule points to a lack of proper management by its board.

"The facts in the present matter indicate that the board was advised of the possible financial crisis in 2011 when its actuary made a report on the financial soundness of the first respondent.

"However, the board did not submit any rule amendment to change the method of computing a withdrawal value and waited until 2013 to submit the rule amendment. It also decided to start applying the proposed rule amendment before its approval by the Registrar.

"Thus, the conduct of the board of the first respondent indicates failure in its duty to protect the interests of the complainant and to execute its duties with due care and diligence.

"This Tribunal would like to indicate that presumably the funding from 1998 to 2013 could

sustain the benefit as it stands now, it is therefore, patently unfair and a violation of the minimum benefit rules to adjust benefits retrospectively.

"Therefore, the appropriate remedy is to order the first respondent to pay the balance of

the complainant’s withdrawal benefit in accordance with the rules as they stand with

interest,” said Ms Lukhaimane.