PFA rules fund credit at time of withdrawal notice must be paid

A pension fund has been rapped on the knuckles by the Pension Funds Adjudicator for not paying out a withdrawal benefit as it stood when notice of withdrawal was given instead of the fund credit at the actual time of disinvestment.

GG Umbrella Pension Fund (first respondent) has been ordered by Dr Elmarie de la Rey, the acting Pension Funds Adjudicator, to pay the complainant the difference between the withdrawal benefit already paid and the withdrawal benefit as it stood at the time of withdrawal notification.

Mrs FJ Fuller of Parklands, Cape Town became entitled to her withdrawal benefit when she exited employment from Pharma Natura (Pty) Ltd and from the first respondent on 4 September 2007 which was the accrual date of her benefit.

She was not happy with the quantum of the withdrawal benefit that she was paid and complained to the Office of the Pension Funds Adjudicator.

She said during March 2008 she contacted Liberty to assist her with the transfer of her benefit from the then administrator of the first respondent, Hollard Administration Services (Pty) Ltd to Liberty.

During April 2008 she completed a withdrawal notification form. On numerous occasions she was informed that the payment would not be effected as the first respondent was undergoing an audit process and that they were awaiting tax approval from the South African Revenue Services for her withdrawal benefit.

She was also informed that only 75% of the withdrawal benefit will be transferred to Liberty and the balance will be paid once the audit process was completed.

She was eventually paid a withdrawal benefit of R269 070.77. An amount of R30 000 was commuted to cash and the balance of R239 070.77 (R156 159.52 and R82 911.25 respectively) was paid to Liberty Group Limited (Liberty) to purchase a living annuity on her behalf.

The delay in the payment of her withdrawal benefit resulted in a loss of approximately R69000.

Mrs Fuller requested that her withdrawal benefit be calculated as at her date of submission of a withdrawal notification form (April 2008) when her fund credit was R310 856.54 based on a valuation as at 30 September 2007.

From 30 September 2007 until 1 April 2008 her fund credit should have increased by at least the current rate of investment return.

In its response, Garrun Group Employee Benefits (Pty) Ltd, as the consultant to the first respondent, said subsequent to the complainant’s termination of employment, her fund credit was R310 856.54 as at 30 September 2007.

In April 2008 the complainant submitted a claim for the payment of her withdrawal benefit. In January 2009 the complainant’s fund credit was R248 000.00. On 27 May 2009 she was paid a withdrawal benefit in the amount of R269 070.77.

Garrun submitted that the first respondent had had an “unfortunate history” with respect to the administration and disposition of benefits. From inception it was administered by Integrated Futures, a company which was later sold to Dynam-ique SA Consultants and Actuaries (Pty) Ltd. The trustees terminated its contract and Maxim Administration Services (Pty) Ltd was appointed as the new administrator with effect from 1 October 2007.

Dynam-ique failed to transfer the data to Maxim and the matter was reported to the Financial Services Board. While the efforts to obtain data continued, Dynam-ique sold its business to another administrator. This complicated communication and further delayed the final take-on of data.

The integrity of data, when finally obtained, was in doubt and the trustees had to send in a task team to clean up the member records and to arrive at an asset-liability match acceptable to the trustees and Maxim.

This asset-liability match was for the fund as a whole and the values per member had to be reconciled as well. That process was only finalised on 20 May 2009. During the course of this process the respondents communicated extensively with the participating employers and the members to keep them apprised of this unfortunate set of circumstances.

While the trustees cannot dispute the delays, they are firmly of the view that the delays were entirely necessary to protect the first respondent as a whole and ensure that members’ interests were appropriately protected.

The complainant’s fund credit quoted as at September 2007 was composed as follows:

Contributions for retirement: R 41 440.47

Single premium for period: R194 128.34

Investment earnings: R 75 287.73

This represented an investment return of 31.97%.

The amounts transferred on 8 January 2009 (R156 159.52) and 22 May 2009 (R82 911.25) were composed as follows:

Contributions for retirement: R 41 440.47

Single premium for the period: R194 128.34

Investment earnings: R 34 481.77

This represented an investment return of 14.64%.

There was a fall in investment returns of 15.92% from 1 April 2008 until 7 November 2008, which is consistent with the fall in the financial markets over the period.

Garrun provided the Office of the Pension Funds Adjudicator with the complainant’s investment return up to the date of disinvestment. The actual disinvestments took place on 7 November 2008 and 22 May 2009 respectively.

As regards the failure to disinvest the complainant’s fund credit at the time the instruction was sent to the effect that she had left service, alternatively at the time her broker had given the instruction to transfer her monies to Liberty, the second respondent submitted that rule 4.5.1 provides that the trustees shall, within a reasonable time period from the date on which they are notified of a retirement, death, withdrawal, transfer or liquidation, or within a reasonable time period of the happening of the actual event, whichever is the later, arrange for the transfer of the member’s fund credit to a bank account in the name of the first respondent.

It was impossible for the disinvestment to take place prior to the clean-up of the data as it was not in fact possible for the complainant’s fund credit to be calculated accurately with such uncertainty existing.

The trustees were of the view that when interpreting the words “reasonable time period” it was imperative that the circumstances of the first respondent be taken into account.

No reasonable trustee or administrator was in a position to disinvest the assets underlying the member’s fund credit until such time as the correct fund credit was known, which was the case after the clean-up of the data.

This had to be taken into account in determining the reasonability or otherwise of the time period. If it were not to be taken into account, the remaining members of the first respondent would have been prejudiced by cross-subsidisation of benefits.

The trustees had done everything within their powers to protect the first respondent and its member. Subsequent to the termination of Dynam-ique’s contract, they arranged for the records to be reconstructed and data to be thoroughly checked prior to permitting any payments to be made which could have prejudiced the first respondent and its members.

The trustees denied any allegation of misconduct. Furthermore, as the first respondent was a defined contribution fund, any additional payment to the complainant would result in prejudice to the remaining members.

In her determination, Dr De la Rey said the complainant became entitled to her withdrawal benefit when she exited employment and the first respondent on 4 September 2007. This is the accrual date of her benefit.

The first respondent disinvested her fund credits on 7 November 2008 and 22 May 2009 respectively. The delay in effecting the payment was caused by the fact that the first respondent was updating its records, which were not in order due to its maladministration by the previous administrators.

This process was only completed on 20 May 2009. The delay was not caused by the maladministration on the part of the trustees or Garrun.

On 1 April 2008 when the complainant enquired about her withdrawal benefit she was informed by the previous administrator that the balance of her fund on 30 September 2007, the month of her exit, was R310 856.54.

The complainant withdrew from the first respondent on 4 September 2007. The benefit accrued to her on this date and the rules were clear that this was the complainant’s withdrawal date, said Dr DE la Rey.

“The law is clear that a member’s withdrawal interest equals his or her fund credit on his or her withdrawal date.

“While the date of payment of the benefit may differ from the accrual date, the amount payable is the withdrawal interest on the date the benefit accrued to the member.

“It is common cause that the complainant’s employment ended on 4 September 2007, at which time she became entitled to her withdrawal benefit. The complainant’s ‘withdrawal interest’ in the first respondent is her fund credit on 4 September 2007.

“Therefore, the law is clear that the complainant’s withdrawal benefit should have been calculated on 4 September 2007 when the complainant became entitled to her fund credit in the first respondent,” Dr De la Rey ruled.