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PFA Ruling: Employers have a duty to act in good faith and with diligence when dealing with member’s benefits

21 October 2008 Mamodupi Mohlala (Pictured), Pension Fund Adjudicator

The Pension Funds Adjudicator has issued an important ruling in the matter of MB MTHIMKHULU Vs NBC HOLDINGS (PTY) LTD AND COMPRA CC/ORA CC regarding to the failure of a participating employer to register a member with a fund despite deducting a certain amount from his salary for purposes of provident contributions. The effect of the determination is that participating employers have a duty to act in good faith and with diligence when dealing with member’s benefits. Employers also have a duty to ensure that they comply with all statutory requirements relating to registration of employees with funds and the payment of contributions on their behalf as required in terms of the fund’s rules and the Pension Funds Act.

The facts of the matter are briefly the following:

Facts

Mr MB Mthimkhulu (“the complainant”) was employed by Compra CC (“the employer”) from 9 September 2004 until his employment was terminated on 31 October 2005. Upon the termination of his employment, the complainant submitted a claim form for the payment of his withdrawal benefit. However, NBC Holdings (Pty) Ltd advised the complainant that according to their records he is not a registered member of the Contract Cleaning National Provident Fund (“the fund”).

Complaint

The complainant is aggrieved by the failure of the employer to register him with the fund and to comply with its duties regarding the pay of contributions on his behalf. The complainant states that the employer deducted an amount of R47.20 from his salary per month as provident contributions but failed to pay it over to the fund. Therefore, the complainant contends that a withdrawal benefit cannot be paid to him as a result of the conduct of the employer.

Responses

NBC’s response

NBC confirmed that the complainant was never registered as a member of the fund while he was employed by the employer. Further, it indicated that the complainant is employed by another employer and is currently a contributing member of the fund.

The employer’s response

The employer submitted that its former employee made a mistake by deducting the amount of R47.20 from the complainant’s salary without registering him with the fund. It further stated that it paid the complainant an amount of R317.25 for the contributions that were deducted from his salary.

Determination

After considering all the evidence, the fund’s rules and the provisions of the Pension Funds Act the Adjudicator held the following:

The Adjudicator held that it is common cause that the employer acknowledged that an amount of R47.20 was deducted from the complainant’s salary on a monthly basis as provident fund contributions until his employment was terminated. Held further that the employer acknowledged that it failed to register the complainant as a member of the fund despite deducting the amount of R47.20 from his salary.

Held that the employer cannot shift liability in this regard to its former employee as she was acting as its agent in the execution of her duties. Held that although this tribunal does not have jurisdiction to adjudicate this matter as the complainant was not a member of any fund, this tribunal cannot turn a blind eye to what appears to be a bad practice by the employer.

It was held that the conduct of the employer in this regard amount to an unlawful use of the word “pension fund” as set out in section 31 of the Pension Funds Act. This is due to the fact that it deducted a certain amount from the complainant’s salary in the name of a provident fund for which the complainant was not registered as a member. Therefore, it was held that the employer was acting contrary to its duty to act in good faith to the complainant.

Further, it was held that the amount that was paid to the complainant as a repayment of his contributions is not an accurate amount that was actually deducted from his salary. Furthermore, it was held that it does not offer him any compensation for the loss of his withdrawal benefit as he was under the impression that he was a member of a fund and that he would receive a withdrawal benefit upon the termination of his employment. Held, therefore, that the employer must pay the complainant the amount of the withdrawal benefit he would have received had he been registered with the fund and the employer paid contributions as required.

Relief

· The fund was directed to compute the value of the withdrawal benefit that the complainant would have been entitled to had he been registered with the fund and the employer timeously paid all contributions due in terms of the fund’s rules, less amount already paid and less deductions allowed in terms of the Pension Funds Act.

The employer was ordered to pay to the complainant the amount of the benefit computed by the fund within one week of fund forwarding it calculation to it, together with interest thereon at the rate of 15.5% per annum from 31 October 2005 until the date of payment

The full determination can be read here (PDF file 46kb)

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