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PFA ruling shows pitfalls of drawing retirement funds early

11 February 2011 Pension Funds Adjudicator (PFA)
Acting Pension Funds Adjudicator (PFA) Dr Elmarie de la Rey

Acting Pension Funds Adjudicator (PFA) Dr Elmarie de la Rey

A recent ruling by the Acting Pension Funds Adjudicator (PFA) Dr Elmarie de la Rey reveals the pitfalls of early withdrawal of retirement benefits, particularly where contract work and regular breaks in employment occur.

Qondile Dyosi of Port Elizabeth worked intermittently for construction firm Murray and Roberts for 27 years from 1982 until his employment was terminated on 28 February 2009.

He was a member of Southern & Eastern Cape Building Industry Provident Fund administered by Alexander Forbes Financial Services (Pty) Ltd.

He worked on different Murray & Roberts construction projects and was retrenched each time a project was finished, and was rehired for new projects.

When Dyosi’s employment was terminated in February 2009 he was dissatisfied with his small pension payout, citing his long years of service with the company and what he believed was a disproportionate payout. He referred the matter to the Acting PFA in March 2009 because he believed his benefit had been calculated incorrectly.

He also complained that his severance package was not large enough.

Dyosi said he was employed by the firm again in 2009 for nine months and was paid another small amount as a withdrawal benefit upon his retrenchment. He was also not receiving a monthly pension as some of his retrenched peers were.

In its response Alexander Forbes Financial Services said their investigations revealed that while the complainant had entered the building industry in 1977, Murray and Roberts was not a participating employer of Southern & Eastern Cape Building Industry Provident Fund until March 1995. Thus the complainant would not have been a fund member from 1982 as indicated in his complaint.

The complainant had also withdrawn benefits from the fund on three occasions when his employment was terminated in October 1999, August 2001 and February 2009. His payouts included both his and his employer’s contributions, plus investment returns.

The fund’s rules allowed for any member who experiences terminated employment to be entitled to his total member’s contributions, plus 10% of the net employer’s contributions, plus 6% compound interest per year on these amounts at a rate of interest agreed by the fund’s council. This would only become payable after the member had been out of the industry for a period of 12 months.

The respondents submitted a breakdown of the complainant’s withdrawal benefit which showed

his benefit was paid and computed correctly on each occasion in terms of the fund’s rules as required by section 13 of the Pension Funds Act.

In ruling the Acting PFA Dr Elmarie de la Rey emphasised that a member’s withdrawal benefit in a defined contribution fund was not affected by his years of service with his employer.

De la Rey dismissed the complaint regarding the retirement benefit calculation and recommended the complainant approach the Commission for Conciliation, Mediation and Arbitration (CCMA) regarding his dissatisfaction with his severance package, as this was a labour issue between him and his employer.

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