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PFA orders held back benefits to be paid

21 September 2016 Pension Funds Adjudicator (PFA)
Pension Funds Adjudicator Muvhango Lukhaimane

Pension Funds Adjudicator Muvhango Lukhaimane

Complaints relating to the withholding of withdrawal benefits continue to flood the Office of the Pension Funds Adjudicator.

In four recent cases, Pension Funds Adjudicator Muvhango Lukhaimane ordered pension funds and/or their administrators to pay complainants their withdrawal benefits plus interest. 

In all the cases, the respondents argued Section 37D(1)(b)(ii) of the Pension Funds Act allowed a fund to deduct any amount due by a member to his employer on the date of his retirement or on which he ceases to be a member of the fund, in respect of compensation for among others, theft, dishonesty, fraud or misconduct by the member. 

Ms Lukhaimane found in all cases, that Section 37D(1)(b)(ii) did not apply and ruled in favour of the complainants. 

Case 1

Ms MLK Moletsane of Kempton Park complained that Bokamoso Retirement Fund (first respondent) and Akani Retirement Fund Administrators (Pty) Ltd (second respondent) withheld her withdrawal benefit. 

She said she was in the employ of the second respondent from 3 January 2005 until her service was terminated on 30 September 2015. 

She submitted that despite several follow-ups with the second respondent she had not been paid her withdrawal benefit and she was experiencing financial difficulties. 

The first respondent said it did not receive any documentation from the second respondent in order to process and effect payment of the complainant’s withdrawal benefit. 

The second respondent stated that the complainant owed it an amount relating to a study loan. 

It also indicated that there was a forensic investigation underway pertaining to a number of transactions performed by the complainant over weekends when its offices were closed. 

The second respondent indicated that it confronted the complainant about the transactions and she subsequently resigned. It stated that the complainant was paid an advance and she resigned before the expiry of a period of 12 months. 

It submitted that it awaited completed forms from the complainant to finalise the claim, less any deductions from the complainant’s benefit for study loans and advance payments made to her. 

In her determination, Ms Lukhaimane said save to the extent permitted by the Act, the Income Tax Act, 1962 (“ITA”) and the Maintenance Act, 1998 (“Maintenance Act”), no benefit provided for in the rules of a pension fund organisation or a right to such benefit shall be capable of being reduced, transferred or otherwise ceded, or of being pledged or hypothecated, or be liable to be attached or subjected to any form of execution under a judgment or order of a court of law (Section 37A(1) of the Act). 

Section 37D(1)(b)(ii) provides for an exception to this general rule and reads: “A registered fund may deduct any amount due by a member to his employer on the date of his retirement or on which he ceases to be a member of the fund, in respect of compensation (including any legal costs recoverable from the member in a matter contemplated in subparagraph (bb)) in respect of any damage caused to the employer by reason of any theft, dishonesty, fraud or misconduct by the member, and in respect of which the member has in writing admitted liability to the employer; or judgment has been obtained against the member in any court, including a magistrate’s court, from any benefit payable in respect of the member or a beneficiary in terms of the rules of the fund, and pay such amount to the employer concerned.” 

Ms Lukhaimane said in terms of section 37D, the condition is that the member concerned must have admitted liability to the employer in writing, or a judgment should have been obtained against her in a court of law. 

“In the present matter, the complainant has neither in writing admitted liability to the second respondent, nor has the second respondent instituted legal proceedings against her. It is clear from the submissions that the second respondent alleges fraudulent activity on the part of the complainant but it does not have concrete proof of the alleged fraud. 

“The second respondent did not provide this Tribunal with any submissions indicating that either civil or criminal proceedings have commenced against the complainant for the recovery of the alleged loss it incurred as a result of the complainant’s alleged dishonesty or theft.

“In light of the above, this Tribunal finds that there are no proper, lawful and reasonable grounds for the complainant’s benefit to be withheld in the circumstances.”

Ms Lukhaimane also ruled that these deductions could only be made from an employee’s remuneration and not a withdrawal benefit. 

She ordered the first respondent to pay the complainant’s withdrawal benefit, less only the deductions permitted in terms of the Act, which in this case will only be taxation within three weeks of this determination. 

Case 2

Ms KCD Motshepe of Kempton Park also brought a similar complaint against Bokamoso Retirement Fund (first respondent) And Akani Retirement Fund Administrators (Pty) Ltd (second respondent) refused to pay her withdrawal benefit.

She was employed by the third respondent from 12 January 2015 until her exit on 4 January 2016. 

When she contacted the second respondent regarding the payment of her withdrawal benefit, she was advised that she would not receive a benefit as the second respondent trained her and paid her a bonus subject to her working a period of one year. She believes that she is entitled to a benefit as she contributed to the first respondent.    

The second respondent said it regarded the complainant as absent without leave as she did not return to work after it reopened in January 2016. 

It said the complainant submitted her resignation letter without serving notice period in terms of the Basic Conditions of Employment Act 75 of 1997 (“BCEA”). 

It indicated that it is entitled to make any necessary deductions in lieu of the notice period the complainant did not serve.  

The second respondent also submitted that the complainant was granted an advance payment provided she remained employed for a period of one year. It attached a copy of a letter signed by the complainant confirming that should she exit the second respondent prior to the expiry of the 12- month period, then the proportionate amount in lieu of the outstanding period will be deducted from the complainant’s salary or any money due to her by it. 

In her determination, Ms Lukhaimane said it is common cause that the complainant committed breach of contract by failing to serve her notice period and honouring the conditions for the advance payment she received from the second respondent. 

However, she noted with considerable concern the second respondent’s submissions that it will make a deduction from the complainant’s benefit for the advance payments made to her. 

“The second respondent, as a fund administrator, ought to be familiar with the Act and its provisions that entail the permissible deductions from a member’s benefit. 

“However, it elected to address the deductions for breach of contract and advances from the first respondent.

“It is not the first instance where the second respondent made submissions regarding deductions that are not permissible in terms of the Act. Should the second respondent attempt or act contrary to the provisions of section 37D going forward, this Tribunal will order punitive damages against it. 

“The first respondent must also take heed of the actions of the second respondent and ensure that it does not entertain its unlawful requests. Deductions permissible from a member’s benefit are limited in terms of section 37D of the Act,” said Ms Lukhaimane. 

She ordered the first respondent to pay the complainant her withdrawal benefit.   

Case 3

Ms NL Mdlalo of Adelaide in the Eastern Cape, complained that Consolidated Retirement Fund for Local Government (first respondent), Verso Financial Services (Pty) Ltd (second respondent) and Nkonkobe Local Municipality (third respondent) had withheld her withdrawal benefit following the termination of her employment.

She said she was employed by the third respondent from 1 August 2001 until 15 January 2013, at which stage her service was terminated. 

She said on 9 December 2015, she wrote a letter to the first respondent requesting it to release her withdrawal benefit as there was no legal basis for withholding it. However, she was sent from pillar to post and told that its legal department will respond to her, which did not happen. 

The complainant submitted that section 37D(1)(b) of the Act provided that a registered fund may deduct any amount due by a member to his employer on the date of his retirement or on which he ceases to be a member of the fund. 

The complainant further submitted that on 11 July 2013, the Grahamstown High Court issued an interdict against the first respondent barring it from paying a sum of R300 000 to her until all criminal investigations and judicial processes were finalised.

She contended that the first respondent was neither in possession of a written admission of liability nor had court proceedings been instituted to confirm her liability. She stated that the third respondent had no intention of instituting any civil or criminal proceedings against her, as after two years and 11 months from the date of her dismissal, no legal proceedings had been instituted against her. 

She further contended that the third respondent had not made out a prima facie case against her and as a result, it was illegally withholding her benefit. 

The second respondent filed a response in its capacity as the administrator of the first respondent. It submitted that the first respondent received a letter from the third respondent’s attorneys informing it that the third respondent would be applying for an interdict barring the first respondent from paying the complainant’s withdrawal benefit, following the financial loss sustained by it as a result of the complainant’s misconduct. 

It further submitted that on 24 April 2013, the first respondent was presented with a founding affidavit from the municipal manager of the third respondent wherein it was stated that the loss of money was discovered in the Budget and Treasury Office. 

Subsequently, a disciplinary enquiry was instituted and the complainant was found guilty of misappropriating the said funds and dismissed. 

On 10 May 2013, the first respondent was served with a court order issued on 9 May 2013 by the High Court, interdicting it from paying the complainant’s withdrawal benefit until criminal investigations and relevant judicial processes are finalised. 

On 13 August 2013, the first respondent was served with a final court order handed by the High Court on 11 July 2013, in terms of which the first respondent was barred from paying a sum of R300 000 of the complainant’s pension benefits until criminal investigations and relevant judicial processes were finalised. It averred that on the strength of the said court order, it calculated and paid the balance of the complainant’s withdrawal benefit. 

It submitted that the first respondent regularly followed up with respect to the criminal investigations and judicial processes. The complainant had also taken her dismissal to the Labour Court for review and the matter had not yet been heard. 

The second respondent confirmed that a response was provided to the complainant on 13 January 2016 wherein she was informed that the first respondent could not pay the balance of her withdrawal benefit as ruled by the High Court. 

It concluded that the first respondent was lawfully withholding the complainant’s withdrawal benefit considering the provisions of section 37D of the Act and the High Court interdict. 

In her determination, Ms Lukhaimane said on a plain reading of the provision, section 37D(1)(b)(ii) does not authorise the withholding of a member’s benefit where he is potentially liable for theft, fraud or misconduct against the employer. 

She said the second respondent submitted that the first respondent’s inability to pay the complainant’s benefit stemmed from the interdict of the High Court which barred it from paying an amount of R300 000 to her pending the finalisation of all judicial processes.

“In this regard, it is important to note that the purpose of the said interdict was to afford the third respondent an opportunity to exhaust all the possible legal avenues to recover the alleged loss from the complainant, within a reasonable time. 

“It could not have been the intention of the court to allow the third respondent to sit idly for more than three years from the date of the complainant’s termination of service and not pursue either criminal or civil proceedings against her. 

“A point must also be made that the interdict did not traverse the merits of whether or not the complainant is guilty of any charge and, therefore, this Tribunal has the necessary authority to step in and ensure that justice prevails. 

“In this regard, this Tribunal must probe the bona fides of the third respondent when requesting the withholding of the complainant’s withdrawal benefit. Otherwise the safeguards provided by section 37A to pension fund members against the attachment of their withdrawal benefits, would be rendered meaningless.” 

Ms Lukhaimane said that from the onset, this Tribunal had requested the third respondent, on more than one occasion, to provide it with information and proof of whether or not it has instituted any civil or criminal proceedings against the complainant. However, it failed to do so. 

“On the other hand, the second respondent confirmed that according to the information at its disposal, no legal proceedings have been instituted by the third respondent against the complainant. 

“The complainant stated that she vehemently disagrees with the accusations made by the third respondent and mentioned that for over three years from the date of termination of her service, she has been left in a limbo with regards to when her benefit will be paid, considering that no legal proceedings have been instituted by the third respondent. 

“This Tribunal finds a period of over three years withholding a complainant’s withdrawal benefit to be too long after she was dismissed for fraud. 

“This Tribunal notes with concern the passive role played by the board of the first respondent in resolving this matter. The board of the first respondent failed to act with due care, diligence and good faith in dealing with the complainant’s withdrawal benefit. 

“This is evidenced by its willingness to allow the third respondent to sit idly and not institute legal proceedings against the complainant if it has any prima facie case against her. The conduct of the first respondent in this matter is unacceptable and amounts to dereliction of its fiduciary duties,” said Ms Lukhaimane. 

She said the inescapable conclusion that this Tribunal came to is that the third respondent appeared not to have a prima facie case against the complainant judging by its conduct which appeared to be motivated by malice and vindictiveness, as no justifiable reasons have been advanced why no legal proceedings have been instituted against the complainant for more than three years from the date on which her service was terminated. 

“Thus, the first respondent must be ordered to pay the complainant’s withdrawal benefit without any further delays,” said Ms Lukhaimane. 

Case 4

A Pillay of Queensburgh complained that RFS Umbrella Provident Fund (first respondent), RFS Administrators (Pty) Ltd (second respondent) and Kintetsu World Express South Africa (Pty) Ltd (third respondent) had withheld his withdrawal benefit. 

He was employed by the third respondent from 1 May 2006 until 11 November 2013. When he resigned, he was advised by the third respondent that he would be paid his benefit. 

He submitted that he was subsequently told by the third respondent that he would be charged. He received summons which he is currently defending. He states that he is being prejudiced by the first and second respondents as they refuse to effect payment of his withdrawal benefit. 

The first respondent submitted that the third respondent refused to sign and release the withdrawal form. It states that the complainant provided it with a withdrawal form signed by himself without the signature of the third respondent. 

The withdrawal benefit that is due to the complainant is R542 926.48 as at 21 July 2016 which includes investment returns to date. 

The second respondent had record of court proceedings by means of summons issued against the complainant by the third respondent. It submitted that the civil matter between complainant and the third respondent has been placed on the court roll for 13 to 17 February 2017. 

After analysing the facts, the first respondent submitted that the complainant must be paid what is due to him for the following reasons:  

  •          There is no judgment against the fund or the complainant to withhold any benefit in terms of section 37D.
  •          Enough time was allowed for the third respondent to provide the judgment for damages and the member is now being prejudiced by withholding his payment.
  •          The court matters are civil proceedings between the employee and his employer. 

The first respondent submitted that it awaits proof of bank details from the complainant by means of a bank letter or bank statement with a bank stamp not older than three months and confirmation of his income tax number. 

The third respondent submitted that there is a pending case against the complainant which is set down for trial on 17 February 2017. It stated that the case against the complainant was opened in 2014 however, due to seriousness of the matter, it is still on-going.  

In her determination, Ms Lukhaimane said that section 37D(1)(b)(ii) provides that a number of requirements must be met before a deduction is permissible. If these conditions are met, the fund may deduct the amount due by the member to the employer from the member’s benefit payable in terms of the rules and pay it to the employer. 

“It is common cause that the civil action instituted against the complainant relates to the breach of his employment contract. 

“In the present case, the deduction relating to a breach of contract is not permissible in terms of the categories of section 37D of the Act. 

“Furthermore, the fact that the third respondent has instituted civil action against the complainant does not justify the withholding of the complainant’s withdrawal benefit.

“This Tribunal notes with concern the passive role adopted by the first respondent by failing to request reasons or documentary proof for the withholding of the benefit. 

“If the first respondent made this simple request at the onset, it would be in a better position to assess the claim based on the merits thus, preventing the complainant from incurring prejudice. Almost three years have passed and the complainant has not been paid his withdrawal benefit.” 

Ms Lukhaimane said that as a result of the first respondent’s negligent conduct, the complainant suffered prejudice in that he has potentially been denied access to benefits which would have become available upon exit from the third respondent. 

“The contemplated deduction falls outside the scope of section 37D(b)(ii) and thus the withholding is illegal. 

“Therefore, the first respondent must be ordered to pay the complainant punitive damages in the amount of 5% of his benefit for its failure to satisfy itself as to whether or not the contemplated deduction was allowable thus resulting in the complainant not being paid his benefit timeously. 

“The first respondent must be ordered to pay the complainant his withdrawal benefit plus interest, upon receipt of proof of his banking details and income tax reference number,” she said.

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