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PFA Ruling: Liability of the fund and its administrators for misrepresentation

15 April 2008 Pension Fund Adjudicator

RULING BY THE PENSION FUNDS ADJUDICATOR ON LIABILITY OF THE FUND AND ITS ADMINISTRATORS FOR MISREPRESENTATION ON THE FUND TO WHICH A MEMBER’S BENEFIT COULD BE TRANSFERRED TO AND AS SUCH ALTERING (CONTRARY TO THE MEMBER ELECTION) THE NATURE OF THE MEMBER’S BENEFIT ON RETIREMENT

The Adjudicator has just issued a ruling in the matter of Van Schalkwyk (“the complainant”) v Sanlam Preservation Pension Fund (“the respondent”), which deals with the consequences of a misrepresentation by the fund and its administrator wherein they had failed to inform the complainant that they could not legally give effect to election of transferring his pension benefit to a preservation provident fund, but had instead acted contrary to the complainant’s election (to transfer his pension benefit to a preservation provident fund) and without his knowledge put the benefit in a preservation pension fund, which had the effect of depriving the complainant access to a full lump sum payout but instead tied the complainant into an annuity at retirement.

The facts are briefly the following:

The complainant transferred his benefit from the Denel Pension Fund to the Sanlam Preservation Provident Fund in order to access his funds in full on retirement. Due to an error on the part of the fund administrator (Sanlam) it was not noticed at the time of transfer that, because his benefit had arisen from a pension fund, he could only transfer that benefit to a pension preservation fund. His benefit ought therefore to have been located in the Sanlam Preservation Pension Fund. When the error came to the attention of Sanlam, the administrator and sponsor of both funds, it simply made a book entry reversing the complainant’s membership of the provident fund to the pension fund with retrospective effect to the date of transfer. However, neither the administrator nor the fund advised the complainant of the mistake, and he quite reasonably continued to believe he was a member of the provident fund. The actual situation was only brought to his attention several years later when he applied for his retirement benefit. At this time he was told that, since he was in a pension fund, he was only entitled to take one third in cash and the remainder as an annuity.

The Adjudicator held that:-

1. The complainant was entitled to be compensated in the action based on misrepresentation, as the complainant had clearly acted to his prejudice when taking only a partial withdrawal benefit.

2. Further that the evidence showed that had the complainant been advised of the true situation at that time of his initial withdrawal, he would have made a full withdrawal from the fund. (In preservation funds, members are only entitled to one withdrawal prior to retirement. This can be any amount up to the full fund value.)

3. She held further that the measure of his loss when comparing the course he would have adopted to the present situation, was the loss of control and access to his full benefit. In monetary terms, this would best be compensated by payment to him by the fund of the balance of his benefit as at the date of his withdrawal (less any tax that would have been payable on this amount) together with interest to the present statutory rate of 15,5%.

4. This would have the effect of discharging any further liability to the complainant on the part of the fund.

The full determination can be read here (PDF file 64kb)

 

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