PFA: 'agreed practice’ should never trump fund rules and law

A pension fund has been ordered to reimburse a member the difference between his accrued benefit and his actual payout, which they claim, was the result of his administrative delays and the fund’s agreed practice.

Acting Pension Funds Adjudicator Dr Elmarie de la Rey emphasised that rules and legislation would always supersede ‘agreed practice’, such as that of South Bakels Pension Fund (first respondent) and Alexander Forbes Financial Services (secondary respondent), who disinvested and computed the accrued pension benefit only after receiving the member’s claim form.

The complainant, WF Eckhardt of Parkwood, Johannesburg was employed by South Bakels (Pty) Ltd in December 1984 and joined its pension scheme, administered by the second respondent.

Upon retiring at 65 in May 2008 the complainant’s gross benefit was stated as a certain figure. However, he eventually received a lesser amount on the payment date a year later in March 2009.

The complainant argued that since he was obliged to retire on 31 May 2008, his benefit should have been disinvested from the fund portfolio into a money market fund to protect his retirement fund benefit from adverse stock market movements.

This, together with accumulated interest, he said, would have brought his benefit payout to around a much higher figure than the figure stated upon retirement.

In response, the South Bakels Pension Fund and its administrator stated the complainant had made no attempt to switch to a conservative portfolio when offered the opportunity to do so via a pre-retirement switch letter, usually sent to all retiring members.

They contended that the complainant had also delayed with submission of his claim form until March 2009, and that calculation of his benefit and transfer of funds from the investment portfolio into the fund’s bank account could only be done at that time, as was the fund’s agreed practice.

The respondents held that that the accrual of the member’s benefit on his normal retirement date of 31 May 2008, was different from the actual calculation date and payment date defined in the fund’s rules.

In ruling, Dr de la Rey cited the Supreme Court of Appeal case of Tek Corporation Provident Fund and Others v Lorentz in 2000, which found, “The pension fund, the powers and duties of it trustees, and the rights and obligations of its members and the employer are governed by the rules of the fund, relevant legislation and the common law.”

On retirement a member becomes entitled to his ‘retirement interest’ which the Income Tax Act defines as the member's share of the value of a fund as determined by the fund rules upon the retirement date.

Dr de la Rey found the employer’s rules did not provide otherwise and ruled that the South Bakels Pension Fund pay the complainant the outstanding amount, less any deductions permitted in terms of sections 37A and 37D of the Act, within fourteen days of the determination date.