PFA Ruling: Regarding the failure of a pension fund and its administrator to follow the complainant’s instruction to transfer his pension benefit to a preservation fund

The Pension Funds Adjudicator has issued an important ruling in the matter of AM WILSON Vs BIDCORP GROUP PENSION FUND, ALEXANDER FORBES FINANCIAL SERVICES AND RENNIES TRAVEL (PTY) LTD regarding the failure of a pension fund and its administrator to follow the complainant’s instruction to transfer his pension benefit to a preservation fund. Further, it concerns the failure of a fund and its administrator to advise the complainant properly regarding his options on withdrawal and to allow him to sign the withdrawal form before his benefit is paid. The effect of the determination is that pension funds and fund administrators who fail to advise members properly regarding their benefits on withdrawal and who fail to follow the member’s instructions may be held liable to pay any loss that the member incurred as a result of their conducts. Moreover, this determination stresses the point that pension funds and administrators need to act in the best interest of the members at all times, especially where a member may incur losses if not advised properly.

The facts of the matter are briefly the following:

Facts

The complainant was employed by Rennies Travel (Pty) Ltd (“the employer”) and was a member of the Bidcorp Group Pension Fund (“the Fund”) by virtue of her employment until 31 August 2005 when her contract of employment was transferred to Connex Travel (Pty) Ltd. The complainant’s employment with Connex Travel was terminated on 28 March 2006. On 1 April 2006 the employer completed a withdrawal notification form on behalf of the complainant in terms of which it transferred her pension benefit to Connex Travel Provident Fund.

The complainant submitted that Alexander Forbes Financial Services (“the administrator”) transferred her pension benefit to Connex Travel Provident Fund against her instructions and wishes. She submitted that she instructed the administrator to transfer her benefit to a preservation fund until she reaches her retirement age. The complainant stated that the transfer of her benefit to Connex Travel Provident Fund prejudiced her financially as she is liable for tax in the amount of R67 429.88. Further, the complainant submitted that the employer completed and signed her withdrawal notification form in terms of which her benefit was transferred to Connex Travel Provident Fund without her knowledge and authority. Moreover, the complainant stated that the employer declined to continue with her deferred compensation policy after her contract of employment was transferred to Connex Travel (Pty) Ltd.

The fund and the administrator responded as follows:

It was submitted that the complainant’s benefit was transferred to Connex Travel Provident Fund after receiving instruction from her employer to do so. It was pointed out that the instruction was signed by an authorised signatory of the employer as allowed in terms of Rule 12.2 of the fund’s rules. Further, it was stated that the complainant can no longer transfer her benefit to a preservation fund as she withdrew from the fund on 31 August 2005 and her withdrawal notification form was received on 1 April 2006. It was further indicated in the event of the transfer being reversed, the complainant will be entitled to cash benefit which will be subject to unclaimed benefit tax and withdrawal tax. Moreover, the administrator submitted that it was entitled to rely on the instructions it received from the employer as it is normal practice.

Determination

After considering all the facts and evidence the Adjudicator held the following

It was held that it is clear from the evidence that the complainant’s withdrawal notification form was completed and signed by her employer. It was held that the complainant was not afforded an opportunity to have sight of the withdrawal form or to sign it even though there is a section where she must append her signature. There was also a section in the form where the complainant must exercise her options regarding her benefit. Thus, it was held that the complainant’s benefit was transferred to a provident fund without her consent or knowledge. Further, it was held that the complainant was not advised of her rights and options at the time of her withdrawal from the fund.

It was further held that there is nothing in the rules of the fund which authorises the fund and the administrator to transfer a member’s benefit to another approved fund on the basis of the instruction received from an employer. It was held the failure of the administrator to allow the complainant to sign the withdrawal form amounts to a failure to act with due care, diligence and in her best interest. The same applies to the employer as it submitted the withdrawal form without obtaining the complainant’s signature. It was held that it is highly probable that the complainant would have elected to transferred her benefit to a preservation fund as indicated in her electronic mail that was sent to the respondents.

Further, it was held that the failure of the respondents to comply with their duties in this regard prejudiced the complainant financially as she is liable to pay tax in the amount of R67 429.88. Further, the complainant can no longer transfer her benefit to a preservation fund as her benefit has been regarded as unclaimed benefit in terms of SARS GN 35. The only option available to the complainant is a cash benefit which will be subject to unclaimed benefit tax and withdrawal tax. Therefore, the respondents were held liable jointly to pay the complainant the amount of his benefit if it was transferred to a preservation fund.

With regards to the issue of the deferred compensation policy, it was held that this is essentially a labour issue between the complainant and her employer over which this tribunal has no jurisdiction.

The Order

· The Fund was directed to compute the amount that would have been due to the complainant if her benefit was transferred to a preservation fund upon her withdrawal from the fund.

· The Fund was further directed to inform this tribunal, the employer and the administrator of such computation within six weeks of arriving at its decision.

· The respondents were jointly and severally directed to credit the complainant’s benefit with the shortfall in the amount that is due to her as computed in paragraph by the fund plus interest at the rate of 15.5% per annum from 31 August 2005 until the date of such credit is made.

The ruling can be read here (PDF file 56 kb)