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PFA: Amendment to a rule must be approved before it can be applied

03 December 2014 Muvhango Lukhaimane, Pension Funds Adjudicator
Ms Muvhango Lukhaimane.

Ms Muvhango Lukhaimane.

A rule amendment cannot be applied before it has been approved by the Registrar of Pension Funds, the Pension Funds Adjudicator has yet again declared.

Ms Muvhango Lukhaimane ordered the Municipal Employees Pension Fund to pay a member a withdrawal benefit amounting to three times his contribution although the rule had been subsequently changed to allow for the contribution to be multiplied by one comma five (1, 5).

As a punitive measure, she also ruled that interest at the rate of 15.5% per annum must be added to the outstanding amount.

Ms Lukhaimane was critical about the Municipal Employees Pension Fund’s unending non-compliance with existing registered rules when computing a withdrawal benefit.

MA Hobe (complainant) was employed by the Ngaka Modiri Molema District Municipality (third respondent) from 1 April 2006 to 22 August 2013. He acquired membership of the Municipal Employees Pension Fund (first respondent), administered by Akani Retirement Fund Administrators (Pty) Ltd.

Upon the termination of the complainant’s employment, a withdrawal benefit became payable by the first respondent. The amended rule had not been approved at the time of termination of employment.

The complainant was dissatisfied with the withdrawal benefit payable to him as it was his contributions multiplied by one comma five. He submitted that at inception of his membership, he was informed his withdrawal benefit would be calculated as his contributions multiplied by three.

The second respondent submitted that the complainant was its member until 22 August 2013. The benefits reflected in benefit statements were for illustrative purposes only and did not represent a guarantee that such benefits would become due and payable in future as there were many factors that affected fund benefits. These included investment returns, volatile markets and rule amendments.

The second respondent said the complainant’s resignation benefit was calculated as an amount equal to the member’s own contributions multiplied by one comma five.

However, the board of the first respondent resolved to amend the rules with effect from 1 April 2013based on the actuary’s advice that the first respondent would fail to meet its future liabilities if it continued paying resignation benefits of contributions multiplied by three.

Therefore, the benefit payable was amended to pay the member’s contributions multiplied by one comma five. The complainant resigned from service after the effective date of the rule amendment (1 April 2013). Therefore, he was entitled to the revised resignation benefit.

The second respondent added that the Registrar approved the Rule amendment with retrospective effect from 1 April 2013 as the Act allowed a fund to determine the date from which an amendment may take effect.

In her determination, Ms Lukhaimane said the complainant’s employment terminated in August 2013 when the rules of the first respondent which regulated the payment of a resignation benefit still provided for a member to be entitled to a withdrawal benefit equivalent to their contributions multiplied by three.

On 1 April 2014, the Registrar of Pension Funds approved rule amendment 5 of the first respondent’s rules which essentially provided that with retrospective effect from 1 April 2013, members would become entitled to a withdrawal benefit equivalent to their contributions multiplied by one comma five.

However, said Ms Lukhaimane, it must be noted that a rule amendment cannot be applied before its approval by the Registrar. The complainant left employment in August 2013. Rule amendment 5 was only approved by the Registrar on 1 April 2014.

Therefore, at the time of the termination of the complainant’s employment, Rule amendment 5 had not yet been approved by the Registrar and was thus not valid at the time, she said.

“The first respondent acted unlawfully in calculating the complainant’s benefit as his contributions multiplied by one comma five instead of it being multiplied by three.”

Ms Lukhaimane ordered the first respondent to recalculate the complainant’s benefit according to the Rules that were applicable before the approval and registration of Rule amendment 5.

As a punitive measure against the first respondent, Ms Lukhaimane also ruled that interest at the rate of 15.5% per annum from 27 February 2014 to the date of payment of the balance of the benefit must be paid to the complainant.

Ms Lukhaimane expressed dissatisfaction that her previous rulings which made it clear that Rule amendment 5 cannot be applied to benefits which accrued before its approval by the Registrar, continued to be flouted by the first respondent.

“This Tribunal must point out that it has, to date, issued several determinations against the first respondent in terms of which it was found that Rule amendment 5 cannot be applied to benefits which accrued before its approval and registration by the Registrar.

“Nevertheless, the first respondent continues to apply this Rule amendment to benefits which accrued before its approval and registration.

“In the absence of any indication that it took steps to set aside the said determinations in terms of section 30P of the Act, it follows that these determinations are binding on it and give clarity on how Rule amendment 5 is to be applied,” Ms Lukhaimane said.

 

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