PFA Ruling: Unlawful termination of the complainant’s membership of a fund

The Pension Funds Adjudicator has issued a ruling in the matter of GF OSBOURNE Vs MM RETIREMENT ANNUITY FUND, MOMENTUM GROUP LIMITED AND GILLMICH BUSINESS FORMS (PTY) LTD regarding the unlawful termination of the complainant’s membership of a fund by a pension fund administrator on the grounds that he ceased contributions prior to his selected retirement date. This matter also involves maladministration by an administrator which resulted in the complainant suffering prejudice on his retirement benefit. Further, for the first time ever the Adjudicator issued a legal costs order against a pension fund administrator for all reasonable legal expenses incurred by a member in lodging a complaint. Thus, this ruling also involves the power of the Adjudicator to grant legal costs in cases where a complainant has suffered reasonable costs in pursuing his complaint.

The facts of the matter are briefly the following:

Facts

Mr. GF Osbourne (“the complainant”) was employed by Gillmich Business Forms (Pty) Ltd (“the employer”) as a financial manager from May 2002 until he was dismissed in March 2004. The complainant was a member of MM Retirement Annuity Fund (“the fund”) while he was employed by the employer until his membership was terminated in January 2005, ten months after the termination of his employment.

Because at the time of the commencement of his employment, the complainant did not meet the eligibility requirements for membership of the fund in which the employer participated, the complainant had entered into an arrangement with the employer in terms of which a certain amount would be deducted from his salary by the employer as contributions to the fund and remitted by way of a debit order from the employer’s bank account and paid to the fund. This arrangement continued after the complainant’s dismissal in March 2004 until it was discovered in January 2005 whereafter Momentum Group Limited (“the administrator”) reimbursed the employer all the contributions made to the fund in respect of the complainant and terminated the complainant’s membership of the fund. The termination of the complainant’s membership in turn led to the underlying policy of insurance being lapsed.

Complaint

The complainant is aggrieved by the termination of his membership of the fund. He contends that the administrator should not summarily have terminated his membership and paid his contributions to the employer as it was his monies in the first place that paid contributions to the fund. The complainant submitted that the amount deducted from his salary in respect of contributions amounts to R48 400.00. He argued that a further amount of R46 200.00 was erroneously paid by the employer from its bank account as contributions to the fund subsequent to his dismissal from employment.

Further, the complainant submitted that the employer is guilty of fraud by falsely claiming that the payments from its bank account were never authorised and that it committed theft by receiving and retaining monies that belong to the complainant. Moreover, the complainant stated that the administrator’s unilateral action constitutes a direct infringement of his rights in that: he was denied access to his investment, he was forced to incur unnecessary legal expenses and that he was caused unnecessary mental anguish and suffering over a protracted period. Therefore, the complainant seeks an order directing the administrator to immediately reinstate his membership of the fund, to give him immediate access to the proceeds of his investment, to pay his legal expenses and mental anguish and suffering.

Response

The respondents submitted, inter alia, that the insurance policy underlying the complainant’s membership of the fund lapsed at inception when all the contributions paid by the employer on the complainant’s behalf through a debit order on the employer’s bank account signed by the complainant were refunded on the basis of the complainant’s employment having been terminated. The administrator vehemently disputes the authority of the complainant to sign the debit order in respect of his fund contributions on behalf of the employer. The respondents indicated that, the administrator received instructions from the employer to have the debit order cancelled as the complainant had no authority to sign them in respect of his contributions. Therefore, the administrator submitted that it had no option but to cancel the underlying policy of insurance and refund the contributions paid since the complainant did not have the necessary authority to sign the debit order.

Determination

After considering all the evidence and the rules of the fund the Adjudicator held the following:

It was held that Rules 5.2 and 5.3 of the fund’s rules entitle the administrator to terminate the complainant’s membership of the fund in the event that he terminates contributions to the fund before the underlying policy of insurance acquires a “paid-up” value. It was held that the administrator has provided no proof besides the apparent ipse dexit of the employer that the contributions made on behalf of the complainant were not deducted from his salary and further that the contributions were unlawfully made. Held, what appears to have happened is that when the employer discovered some 10 months after the complainant’s dismissal that his contributions had erroneously continued to be paid to the fund, the employer demanded from the administrator a refund of all the contributions made in respect of the complainant, including those that were deducted from his salary during the tenure of his employment. Held, that the administrator merely accepted what the employer said without further investigations. The complainant, on the other hand, has provided documentary proof in the form of pay slips that monthly deductions of R2 200.00 were effected from his salary by the employer in respect of retirement annuity fund contributions.

It was held that the complainant’s contributions for the period June 2002 to March 2004 were lawfully deducted from his salary and formed his contributions to the fund and should never have been repaid to the employer. Further, it was held that the policy of insurance underlying the complainant’s membership of the fund should not have been lapsed at the time that he ceased his contributions as the policy had at that time acquired a “paid-up” value. Thus, in lapsing the policy, the administrator had acted wrongfully and unlawfully resulting in the complainant incurring pecuniary loss. It was held that the administrator is liable to compensate the complainant for that loss.

With regards to the complainant’s claim for immediate access to the proceeds of the policy, it was held that this tribunal is not competent to grant such relief in terms of the Income Tax Act of 1962. It was held that this Act preclude a retirement annuity fund from allowing a member access to monies invested in the fund until the member attains retirement age, which is between 55 and 70 years except in instances where the member becomes permanently incapable through infirmity of mind or body of carrying on his occupation.

As regards legal costs, it was held that this tribunal has the power to issue costs orders in terms of the section 30O of the Act read together with the Uniform Rules of the High Courts. Held that a complainant is entitled to recover all reasonable costs incurred in appointing a legal representative to proper lodge his complaint. Held that a cost orders should be issued against the administrator as it conducted its investigations prior to terminating the complainant’s membership of the fund in a very lax manner as a result of which the complainant incurred legal expenses in lodging his complaint. Further, it was held that no case has been made regarding both the patrimonial and non-patrimonial damages that the complainant seeks. Moreover, the complainant failed to advance any case of fraudulent misrepresentation against the administrator.

The Order

• The complainant’s complaint regarding access to the proceeds of the fund and his claim for pecuniary and non-patrimonial damages was dismissed.
• It was declared that the fund and the administrator had no right to lapse the policy of insurance underlying the complainant’s membership of the fund when he ceased making contributions to the fund in March 2004 prior to his selected retirement date.
• The fund and the administrator were jointly and severally directed to reinstate the complainant’s membership of the fund relating to his contributions from June 2002 to March 2004 to the value it would have currently been had his policy not been terminated.
• The fund and the administrator were ordered further (jointly and severally) to pay interest to the reinstated value of the policy at the mora rate of 15.5% per annum reckoned from the date of this ruling until the date of reinstatement.
• The administrator was ordered to pay the complainant’s costs of suit on a scale as between party and party calculated in accordance with the Magistrate’s Court tariff within 30 days of this determination.

The full determination can be read here