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Double check pension amounts

03 February 2014 Michelle David, Melissa Cogger, Norton Rose Fulbright

Pension funds should be wary of relying on prescription as a defence, and should ensure that the methodology used to determine settlements are tested in an effort to prevent errors.

Due to a recent judgment by the Supreme Court of Appeal (SCA) in Roestorf and Another v Johannesburg Municipal Pension Fund and Others 2012 (6) SA 184 (SCA), it is unlikely that a court will rule that prescription will run from the date upon which a member or a beneficiary ought to have known that he or she was entitled to a greater amount, which in most instances is the date of payment.

Most pension fund members are uneducated in determining whether the amounts they have received are indeed the amounts that they are entitled to. Such members therefore rely on the expertise and knowledge of their pension fund. A member may have only gained actual knowledge of an underpayment years later, which ordinarily would have been prescribed.

Specific guidelines

The prescription of complaints relating to the administration of pension funds is governed by section 30I of the Pension Funds Act, 1956 in terms of which the adjudicator is not permitted to investigate a complaint if the act, or omission to which it relates, occurred more than three years before the date on which the complaint was received in writing by the adjudicator.

In the Roestorf case, the appellants had been in receipt of annuity payments since the termination of their employment in 1995. At the time, neither appellant possessed actual knowledge or an understanding of the correctness or defectiveness of the calculation of their pension entitlement. It was only eight years later, in 2003, when the appellants’ doubts began to arise after a conversation with their consultant.

The SCA held that each monthly payment made to the appellants by the fund was a tacit acknowledgment of debt owing to the appellants according to the fund’s rules, and thus served to interrupt the period of prescription as contemplated in section 14(1) of the Prescription Act. This meant that there was a continuing and ongoing interruption of prescription in relation to every amount each appellant was entitled to claim as his correctly calculated benefit. This ensured that the claims had been protected.

In essence, the effect of interrupting prescription is that the prescription begins to run afresh from that date, that is, it would run from each month of payment of the pension.

Protective measures

The SCA held that, in terms of the time-bar provisions of section 30I of the Pension Funds Act, the fact that the details of benefits were provided to the appellants in 1995, did not mean that the appellants were barred from bringing a complaint to the pension funds adjudicator. This was because the calculation of the benefits was a complicated matter, which the appellants would have been unlikely to understand.

The appellants possessed no knowledge or expertise in relation to the fund’s rules. They relied entirely, as they were entitled to do, upon the good faith, care and expertise of the officials of the fund. The appellants were therefore entitled to bring a complaint to the adjudicator.

In most instances, a court is likely to find that a member is unlikely to question the technicalities of calculations made by pension funds in determining their entitlement due to their unfamiliarity with the formulas and reliance on the expertise of a fund. A court will, instead, find that prescription begins to run from the date upon which a member or beneficiary actually gains knowledge or suspects an underpayment since they are entitled to rely on the expertise of the officials of the fund to make correct payments. Such members will not be prevented from bringing a complaint to the Pension Funds Adjudicator, even though such a realisation of underpayments occurs years later.

 

 

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