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The day of reckoning has arrived

23 May 2006 Angelo Coppola

The PFA issued a landmark ruling in which his office for the first time held a trustee personally liable for a death benefit payable in terms of the funds rules.

The complainants late husband was a member of the Art Medical Equipment Pension Fund (now liquidated).

The funds death benefit cover had both an insured portion (consisting of a lump sum of three times the members annual fund salary plus a spouses pension equal to 50% of the members fund salary as at date of death) and an uninsured portion (consisting of the members contributions plus growth thereon).

The ruling concerns only the insured portion. The complainants husband passed away in 1998 whereupon she made enquiries about the death benefits payable to her as beneficiary.

She was however advised that since the funds sole trustee who was also the managing director of the participating employer had failed to pay over contributions deducted from members salaries for a period of 6 months, the policy of insurance with Liberty Life had lapsed prior to her husbands death and she would not receive the insured portion.

The complainant thereafter lodged a complaint with the Pension Funds Adjudicator.

In terms of the policy of insurance between the fund and Liberty Life, the adjudicator concluded that, since no premiums had been received for a period of 6 months, in terms of the policy contract with the fund, Liberty Life had lawfully repudiated the complainants claim.

The adjudicator then looked to the funds sole trustee and the question became whether a trustee of a pension fund can be held personally liable for loss caused to a member or a members beneficiary.

The adjudicator examined the provisions of the Financial Institutions (Investment of Funds) Act and concluded that it imposes certain duties on pension fund trustees including a duty to act with proper care and diligence. Further that failure to comply with these duties attracts liability in favour of the beneficiary for any damage suffered as a result thereof.

The adjudicator held that in so far as the trustee in question had not taken active steps, in particular had failed to inform the Registrar (see section 18 of the Act) and had apparently blindly relied on the advice of his financial advisor, he had failed to act with due care and diligence and on that account was personally liable to the complainant for her loss.

The trustee was ordered to pay the complainant the death benefit which would otherwise have been payable by Liberty Life to the fund had the policy not lapsed.

This ruling is again a reminder to all trustees that failure to act with due care and diligence may result in personal liability to members or their beneficiaries.

Editors thoughts:

* This opens the doors to some interesting tussles in terms of business managers and their responsibilities.

* We will publish comment as we receive it from the various product providers.

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