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PFA issues two new rulings

13 May 2008 Pension Fund Adjudicator

RULINGS CONCERNING MISSTATEMENTS OF FUND SALARY AND CONTRIBUTION RATES RESULTING IN AN INCORRECT WITHDRAWAL BENEFIT BEING PAID OUT BY A PROVIDENT FUND

The Pension Funds Adjudicator has issued a landmark ruling.

The matter of Barker v M1 Latex Products Provident Fund and Two Others, concerned the quantum of a withdrawal benefit payable to the complainant and contribution rates to the first respondent.

The complainant became a member of the first respondent in October 1995 by virtue of her employment with the third respondent. She resigned from employment in June 2005 at which time the first respondent became liable to pay her a withdrawal benefit. The complainant is aggrieved, firstly because the third respondent deducted monthly fund contributions from her salary despite the fund rule stipulating that employees do not have to contribute to the first respondent. Secondly, the complainant is dissatisfied with the quantum of the monthly contributions that were made on her behalf, alleging that the third respondent contributed less than what was required of it in terms of the rules.

As regards the first part of the complaint, the rules are clear that the first respondent is non-contributory for its members. Therefore, the third respondent was ordered to pay back all provident fund deductions it made from the complainant’s salary.

The second part of the complaint concerned contributions rates to the first respondent and the fund salary used. The rules stipulate a 12% contribution rate in respect of the complainant, but the third respondent assumed a 10% contribution rate. It was also found that the first respondent used an incorrect fund salary when computing the contributions payable by the third respondent in respect of the complainant.

The adjudicator found that there were a litany of errors regarding the contribution rates and fund salary applicable to the complainant, which resulted in an understatement of the complainant’s withdrawal benefit.

The adjudicator found after referring to section 13A(2)(a) of the Pension Funds Act, that it was the third respondent’s duty to inform the first respondent about any changes in the complainant’s fund salary. The third respondent failed to do this and was therefore liable to compensate the complainant. The fund rules make provision for adjustments in the event of misstatements or non-disclosure of information being discovered. The third respondent was ordered to pay the difference in contributions between what was already paid to the first respondent and the correct contribution rates computed for the complainant so that the first respondent could pay the complainant her correct withdrawal benefit.

Click here to read the full determination (PDF file 63kb)

SP MTAMBO Vs SOUTH AFRICAN LOCAL AUTHORITIES PENSION FUND, OLD MUTUAL LIFE ASSURANCE COMPANY (SA) LTD AND THE SOUTH AFRICAN POLICE SERVICES

The Pension Funds Adjudicator has issued an important ruling in the matter of SP MTAMBO Vs SOUTH AFRICAN LOCAL AUTHORITIES PENSION FUND, OLD MUTUAL LIFE ASSURANCE COMPANY (SA) LTD AND THE SOUTH AFRICAN POLICE SERVICES regarding the failure of the employer to ensure that the complainant’s claim for an ill-health retirement benefit is submitted timeously and that the correct benefit is paid to him. The effect of the determination is that employers who fail to perform their duties properly in relation to the submission of a member’s claim to a fund or administrator may have to pay the benefit that is due to a member together with interest. Further, the determination shows that the Adjudicator may issue a default judgment against any party that fail to file a response to a complaint despite been invited to do so on several occasions.

The facts of the matter are briefly the following:

Facts

The complainant was employed by the South African Police Services as a municipal police officer from 16 October 1986 until 30 December 2002 when he was declared medically unfit to work. The complainant was a member of the South African Local Authorities Pension Fund by virtue of his employment from 1 October 1985 until 1 May 2003. The complainant applied for an ill-health retirement benefit to the South African Local Authorities Pension Fund on 3 March 2003.

The administrator of the fund (Old Mutual Life Assurance) advised the complainant in a letter dated 3 September 2003 that his application for an ill-health retirement benefit had been declined by the board of trustees of the fund as it was lodged outside the prescribed waiting period. The board of trustees decided to pay the complainant a withdrawal benefit in the amount of R212 223.85 instead of an ill-health retirement as a result.

The complainant submitted that the fund and the administrator erred in paying him a withdrawal benefit as he qualified for an ill-health retirement benefit. Further, the complainant was not satisfied with the amount of the withdrawal benefit that was paid to him.

The fund and the administrator responded as follows:

They indicated that the complainant’s claim for an ill-health retirement benefit was declined as it was submitted late in terms of Clause 6.7.1 of the policy contract issued by the administrator. It was pointed out that a claim for an ill-health retirement benefit must be submitted within a 6 month waiting period with a grace period of 4 weeks. It was stated that the complainant’s claim was only received a year later after the commencement of his disability. Therefore, it was submitted that a withdrawal benefit was paid to the complainant in terms of Rule 8.1.1 of the fund’s rules as his application for an ill-health retirement benefit was declined. Further, the fund and the administrator submitted a breakdown of the amount that was paid to the complainant as his withdrawal benefit.

Determination and reasons therefor

After considering all the facts and evidence the Adjudicator held the following:

WITH RESPECT TO THE DUTIES OF THE EMPLOYER (THE SOUTH AFRICAN POLICE SERVICES)

It was held that it was the duty of the employer to submit the complainant’s claim within the prescribed waiting period as set out in Clause 6.7(1) of the fund’s reassurance plan. This is because the complainant’s claim for an ill-health retirement benefit rested to the submission of the application in writing within six months and detailed reports of at least two medical practitioners as set out in Rule 5.1.3 of the fund’s rules and Clause 6.7(1) of the reassurance plan.

Further, it was held that the employer confirmed in a letter dated 13 November 2002 that the complainant is medically unfit for further duties and that he should be discharged due to ill-health. However, the employer failed to submit a claim on behalf of the complainant timeously and as a result a withdrawal benefit was paid to him.

It was further held that the employer failed to file a response to the complainant’s complaint despite been given an opportunity to do so on three occasions. Therefore, the employer failed to provide any reason why the complainant’s claim was submitted late. The matter was referred back to the board of trustees of the fund to exercise its discretion regarding the complainant’s entitlement to an ill-health retirement benefit had the employer submitted the claim timeously. The board was also directed to compute the amount that would have been paid to the complainant if would have been entitled to an ill-health retirement benefit.

WITH RESPECT TO THE AMOUNT OF THE WITHDRAWAL BENEFIT

It was held that the complainant failed to submit anything to dispute the respondent’s submissions regarding the amount that was paid to him as a withdrawal benefit. The fund and the administrator submitted a breakdown of the complainant’s withdrawal benefit and the formula that was used to calculate his benefit as set out in Rule 1.42 of the fund’s rules. The complainant failed to submit any evidence to dispute the calculation of his benefit in this regard. Therefore, this aspect of the complainant’s complaint was dismissed.

The Order

· The South African Police Services was ordered to submit the complainant’s claim for an ill-health retirement benefit and provide reasons for the late submission of the claim as set out in Clause 6.7(1) of the reassurance plan to the fund within ten days of the date of the date of this determination.

· The fund was directed to calculate the amount of the ill-health retirement benefit if it finds that the complainant qualified for the benefit less amounts already paid to him, plus interest at the rate of 15.5% per annum from 31 January 2003 until the date of payment.

· The South African Police Services was ordered to pay the benefit computed by the fund directly to the complainant within 14 days of the date on which the fund advises it of the amount of the ill-health retirement benefit that is due to him.

Click here to read the full determination (PDF file 58kb)

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