Provident Fund reported to Conduct Authority for undue delay

Naheem Essop

The Office of the Pension Funds Adjudicator has reported the Private Security Sector Provident Fund to the Financial Services Conduct Authority for unwarranted delay before conducting investigations to make a death benefit distribution.

The Deputy Adjudicator, Naheem Essop, said in a determination that owing to the fund’s failure in its fiduciary duties, it has been referred to the FSCA to consider any appropriate regulatory action.

He said the fund was notified of the deceased’s death on 17 January 2022, but it only started conducting its section 37C investigations 17 months later on 13 June 2023. By 25 October 2024, a further 16 months, the fund was still not able to provide an update on the status of the ongoing investigation, simply stating that it was awaiting feedback from its service provider. The delay was found to be unreasonable.

In terms of section 37C of the Pension Funds Act, the fund has 12 months from the date of notification of death to investigate, identify potential beneficiaries, and make a distribution.

“Given that the fund became aware of the deceased's death on 17 January 2022, if the fund had initiated its investigation immediately upon receiving notification of the deceased's death, it would have been expected to complete its investigation by
17 January 2023.

“The board failed in its fiduciary duties, the duty of good faith and loyalty, the duty of reasonable skill and diligence and the duty to give attention to the deceased’s beneficiaries.

“The fund's delay in initiating the section 37C investigation was detrimental and caused financial prejudice to the members and beneficiaries, and such a delay is frowned upon. The unexplained delay since it started the investigation also leaves a lot to be desired,” said Essop.

He expressed concern that the fund’s administrative processes were detrimental to its beneficiaries and members and not in line with the provisions of section 7C(2)(f) of the Act.

Essop was ruling on a complaint brought by the mother of the fund member’s two children about the delay in paying a death benefit. The deceased was employed from 2 November 2019 until he passed away on 27 December 2021. The deceased had a fund credit of R26 978.93, as at 3 April 2024.

The complainant stated that the deceased had three school-going children, two of whom were hers. She said she also provided the fund with documents of the other child. She stated she had been following up with the fund for a year, as she was informed that the process takes 12 months before payment is made.

The fund stated that it received contributions from the employer for the period November 2019 to March 2020 (only risk and admin expenses) and April 2020 to December 2021. The fund stated that the employer ought to have commenced paying full contributions on behalf of the deceased from November 2019. Thus, the employer owed contributions on behalf of the deceased for November 2019 to March 2020.

The fund submitted a benefit quotation reflecting a sum assured amount of R210 951.00 and fund credit of R29 554.73 as at 03 October 2024. The fund submitted that it is liable for payment of the insured portion to the deceased’s beneficiaries.

The employer stated that its records indicate that contribution schedules were submitted to the fund on a monthly basis and all provident fund deductions made from the deceased’s salary were remitted to the fund. The employer provided a copy of the summary of contributions paid to the fund on behalf of the deceased. The employer’s contribution report reflects that for the period November 2019 to March 2020, the employer only remitted risk and administration expenses. The employer commenced with full provident fund contributions in April 2020.

II his ruling, Essop said the employer ought to have commenced paying full provident fund contributions from November 2019. The employer was ordered to pay the outstanding contributions to the fund.

He gave the fund three months in which to finalise the investigation, identify the deceased’s beneficiaries, allocate the death benefit and pay the death benefit to the deceased’s dependants without unreasonable delay.