PFA Ruling: Concerning the unlawful deduction from member's withdrawl benefit due to amount owing for car loan

The Pension Funds Adjudicator issued an important ruling in R Kruger v House of Busby Retirement Benefit Fund and Others regarding the unlawful deduction from member’s withdrawal benefit due to a car loan upon the termination of his membership from the fund subsequent to his resignation from employment.

The complainant was a member of the fund during the tenure of his employment until his resignation from the employer which resulted in the termination of his membership on 25 April 2006. During the tenure of the complainant’s employment the employer stood as a guarantor for a loan granted by Nedbank to the complainant to enable him to purchase a motor vehicle. The complainant thereafter defaulted with his monthly instalments resulting in Nedbank repossessing the motor vehicle and selling it resulting in a short fall of R27 651.00 which was settled by the employer as the guarantor.

Upon the resignation of the complainant, a withdrawal benefit in the amount of R 33 712.24 became due and payable to the complainant by the fund. However, the fund on the instruction of the employer paid the said amount to the employer as a re-imbursement for the settlement amount paid by the employer to Nedbank. The complainant challenged the deduction and withholding of his withdrawal benefit.

The Adjudicator found that the deduction from the complainant’s withdrawal benefit was unlawful in terms of section 37D of the Act which only permits deductions in the following instances, were it relates to compensation to the employer in relation to damage caused to the employer by reason of theft, dishonesty, fraud or misconduct by the employee. The justification by the employer that the deduction is in terms of section 37D of the Act was held not legally justifiable in that the deduction from the complainant’s withdrawal benefit was in relation to a loan granted to the complainant for the purpose of purchasing a motor vehicle and not as a result to the damage caused by the complainant to the employer by reason of theft, dishonesty, fraud or misconduct as required by section 37D of the Act.

The adjudicator ordered the fund to pay the complainant his withdrawal benefit together with interest thereof.

Click here to read the full determination (PDF file)