FANews
FANews
RELATED CATEGORIES

PFA Ruling: The recovery of management costs and duties of a participating employer

02 November 2007 Pension Fund Adjudicator


RULINGS CONCERNING THE RECOVERY OF MANAGEMENT COSTS FROM A BENEFIT/CONTRIBUTIONS AND THE DUTIES OF A PARTICIPATING EMPLOYER IN A PENSION FUND

The Pension Funds Adjudicator issued 2 important rulings.

The first ruling concerned the deduction of management costs in the matter of Norton v Investment Solutions Pension Fund.
 
On 1 January 1995, the complainant became a member of the fund and commenced paying contributions together with the participating employer to the fund. With effect from 30 September 2002, it was decided that both the employer and the complainant would no longer contribute to the fund and the complainant effectively became a "paid-up" member with his accumulated share capital remaining in the fund portfolios.  The complainant was unhappy with the initial management charge levied on his account from January 1995 until September 2002 at a rate of 2.5% plus VAT on the total amount of recurring contributions received.  Furthermore, the complainant was also unhappy about the levying of an annual management charge which commenced from 1999 and continues to be levied.  The complainant argues that these charges were unlawful in terms of the rules of the fund.  These charges were based on a variable percentage, plus VAT.  The charge is recovered on a monthly basis by reducing the number of units previously allocated in each of the portfolios in which the members capital is invested.
 
The Adjudicator firstly examined rule 2.4(1), in terms of which the fund was responsible for the cost of administration and management charges/fees.  Hereafter, the rules of the fund provided various mechanisms as to how these costs may be recovered. After examining the rules and the method of recovery, the Adjudicator firstly concluded that the initial management fee which was deducted from the contributions (member and employer) was in accordance with the rules of the fund and therefore this complaint could not succeed.
 
The Adjudicator then turned to the annual management fee levied on the complainant's account with effect from 1999. The Adjudicator held that until 1999 when Investment Solutions took over the administration of the fund, this fee was correctly deducted from the investment return.  However, from an unspecified date in 1999, the method of recruitment for annual management fees was altered and the annual fee was instead deducted from the member's accumulated shares (that is, the member's current fund interest or fund credit held in the fund).  The Adjudicator further held that this was in direct conflict with the provisions contained in rule 2.4(2), which prohibited a deduction for expenses from units already allocated to a member. After carefully examining the rules, the Adjudicator held that the fund had no authority to recover the annual management fee by cancelling allocated units in the complainant's account. In this regard, she stated that the rules make it absolutely clear that the only mechanism for recovery of fund costs is through deduction from contributions. Since the complainant and the employer were no longer contributing, this vehicle for cost recovery fell away. The Adjudicator could find no other authority in the fund rules for the recovery of the annual management fee.
 
The Adjudicator concluded that the trustees ought to have consulted the rules before effecting these deductions. Accordingly, it was declared that the fund was not entitled to recover the annual management fee from the complainant members accumulated share and furthermore the fund was directed to calculate the complainants account as if the deductions had not been effected.
 
The above ruling again highlights the importance of the rules of the fund regulating possible deductions (including cost recoveries) from a members benefit or contributions.

Click here to read the full reading (PDF file 100kb)

The second ruling concerns the duties on a participating employer in a fund in the matter of Private Security Sector Provident Fund v Tyron Security CC.

The complainant was a provident fund which was established in terms of a sectoral determination issued by the Minister of Labour under the Basic Conditions of Employment Act.

The complainant sought the following relief against the respondent:

* The respondent be prohibited from applying for liquidation of the business;
* The respondent be compelled within seven days to make payment of the outstanding contributions to the fund's bank account;
* The employer be compelled to submit schedules containing membership data to the fund;
* The administrator of the fund, NBC Holdings (Pty) Ltd be compelled to calculate late payment interest and submit the calculations to the employer for payment;
* The respondent be ordered to pay the late payment interest within 7 working days of receipt of the calculations;
* The administrator be ordered to calculate the repudiated amounts for death and disability claims plus late payment interest and the employer be ordered to pay the said amount.

During the course of the Adjudicator'
s investigation, the employer submitted copies of deposit slips confirming payment of contributions for the months of April, May and June 2007.

The Adjudicator firstly held that an order that the respondent be prohibited for applying for liquidation of the business would ordinarily be an application to an ordinary court of law. Furthermore, a blanket prohibition against applying to Court would be inappropriate and unconstitutional.

Regarding the late payment of contributions and the non-submission of schedules, the Adjudicator was satisfied that during the course of her investigation, the contributions had been paid and the schedules provided. However, she stated that should the non-payment of contribution and non-submissions of schedule be a recurring problem, such issues may be brought before the Adjudicator by way of an affidavit as is normally required in a court of law.

Regarding the late payment interest, the Adjudicator ordered the complainant to instruct its administrator to calculate the late payment interest due in accordance with the relevant legal provisions. Upon receipt of the calculations, the respondent was ordered to pay the late payment interest.

Regarding the repudiated amounts, the Adjudicator held that no determination could be made as it was not shown that death and/or disability claims had been repudiated.

Click here to read the ruling (PDF file 42KB) 

Quick Polls

QUESTION

How confident are you that insurers treat policyholders fairly, according to the Treating Customers Fairly (TCF) principles?

ANSWER

Very confident, insurers prioritise fair treatment
Somewhat confident, but improvements are needed
Not confident, there are significant issues with fair treatment
fanews magazine
FAnews June 2024 Get the latest issue of FAnews

This month's headlines

Understanding prescription in claims for professional negligence
Climate change… the single biggest risk facing insurers
Insuring the unpredictable: 2024 global election risks
Financial advice crucial as clients’ Life policy premiums rise sharply
Guiding clients through the Two-Pot Retirement System
There is diversification, and true diversification – choose wisely
Decoding the shift in investment patterns
Subscribe now