2 of 2020
Financial Services Tribunal rulings
Legal dependant does not need to be a factual dependant as well
Sanlam Umbrella Provident Fund (“Fund”) vs the Pension Funds Adjudicator, Adele Wolmarans and Sanlam Employee Benefits
Following a determination from the Adjudicator, wherein she set aside the decision of the board of management to allocate the deceased’s death benefit in equal shares to the deceased’s two estranged major children, the Fund submitted an application for reconsideration to the Financial Services Tribunal. The deceased member had, at the time of his death, two daughters from whom he was estranged. They were not dependent on him. His wife predeceased him and he was cared for by his sister‐in‐law’s children, one being the complainant in the matter before the Adjudicator. The deceased member did not designate a nominee, but left his estate to his sister-in-law’s children. The Tribunal held that the deceased’s heirs (his sister-in-law’s children) were not beneficiaries in relation to the death benefit, as they were neither dependants nor nominees and that the estate is a conditional beneficiary, which means that the death benefit can only be paid to the estate where the Fund does not become aware of, or cannot trace any dependant of the deceased.
The Fund contended that the deceased’s two children fall within the definition of dependant, even though the deceased was not legally liable for their maintenance.
The Tribunal found that the Adjudicator had erred in holding that the deceased’s two children were not his legal dependants. It further held that the question of fairness would have arisen if the allocation between the two children would have been unfair or inequitable, which was not the case.
The Tribunal held that there was no other possible distribution, because payment to the estate only comes into play once the pre-condition of no dependants or nominees has been met, which in this case was not met.
The Tribunal set aside the Adjudicator’s determination and remitted the matter back to the Adjudicator for reconsideration.
Legal dependency is sufficient to allow a person to be allocated a portion of the death benefit. The person does not have to be a legal and a factual dependant to be allocated a portion of a death benefit.
A death benefit can only be paid to the deceased’s estate where no legal or factual dependants have been identified.
Principles of equity cannot be used to override the provisions of the Act
The Municipality Gratuity Fund vs The West Rand District Municipality and the Pension Funds Adjudicator
Following a determination from the Adjudicator wherein she ordered that the Fund should use its available legislative tools to ensure compliance on the part of the Municipality to pay over contributions, the Fund submitted an application for reconsideration to the Financial Services Tribunal.
The Municipality had failed to pay contributions to the Fund within the prescribed period and interest accrued in terms of section 13A(7). The failure to pay arrear interest led to the complaint where the Fund sought an order for payment of the arrear contributions, together with interest.
The Municipality had been placed under administration and it attributed its failure and/or late payment of fund contributions to the Municipality’s financial condition and the consequent provincial government administration. The Adjudicator held that these were not grounds for not paying contributions.
The Adjudicator used her “equitable jurisdiction” provision and ordered the Fund to conclude a settlement agreement with the Municipality, in terms of which the parties should agree on a lower non-statutory rate or amount of interest in respect of the Municipality’s outstanding contributions. She then ordered the Fund to recalculate the interest and the Municipality to pay the reduced amount within one week of the computation.
The Tribunal held that the Adjudicator may only use principles of equity in appropriate cases and must have regard to the provisions of the Act. An equitable jurisdiction cannot be used to override the provisions of the Act, which sets the obligation to pay interest and the rate.
The Tribunal held that even though section 13A(8) and 13A(9) create personal liability for certain categories of persons in the event of non-compliance with the duty of payment of contributions, such liability does not displace the liability of the employer to pay the contributions and interest.
The Tribunal found that the Adjudicator’s determination is not capable of being enforced as the Fund was instructed to settle with the Municipality, which could end up in a deadlock. The Tribunal provided that, as an example, the Adjudicator could have requested the Municipality for a payment plan and made a suitable payment order.
The Tribunal set aside the determination and referred the matter back to the Adjudicator for reconsideration.
The Adjudicator has a duty to use the principles of equity jurisdiction where appropriate and within the bounds of the law and not to override the law.
Funds cannot agree with employers to charge a lower rate of interest in respect of the late payment of contributions, as the interest rate chargeable is prescribed in terms of the Act.
High Court appeal ruling
The board of management has no discretion regarding when to effect a section 14 transfer once a decision to transfer has been made
Amplats Group Provident Fund (“Fund”) vs Anglo American Platinum Corporation Limited and Rustenburg Platinum Mines Limited (“Employers”)
Prior to this hearing, the Employers brought an urgent application against the Fund in the High Court. The order was to compel the Fund to complete the section 14 transfer documents for the transfer to the Old Mutual Superfund (“Superfund”), to submit them to the FSCA and to pay the costs of the application. The High Court ordered the Principal Officer to sign and submit the section 14 documentation to the FSCA within 20 days and ordered the Fund to pay the Employer’s costs of the urgent application.
The Fund brought an application to appeal the decision of the High Court where it was inter alia held that member-elected trustees had failed to ensure that the interests of the affected members in terms of the Fund rules are protected in respect of section 14 transfers.
- Fund’s arguments
The Fund submitted that before section 14 and Directive PF 6 could be fully complied with, it had to address the members’ objections, which was a right given in terms of section 14 and Directive PF 6. It maintained that members are entitled to freedom of association and must be given the right to choose to which fund they want to belong. It further submitted that an objection was sufficient to halt the section 14 transfer and that the transfer need not be prejudicial to members for members to object to it.
- Employers’ arguments
The Employers submitted that the objections raised mainly dealt with the calculation of the transfer values, which was explained at board meetings. They submitted that all reasonable objections were dealt with and that simply allowing for any objection as submitted by the Fund would be tantamount to allowing any member to object, without any valid reason for the objection.
The Employers had submitted that failing to process the transfers of members who have not objected was a breach of the Fund’s fiduciary duties, which is also prejudicial to Fund members.
The High Court held that:
- The Fund was in breach of the rules of the Fund, which provides that if an employer ceases to participate in the Fund as a result of a decision to participate in or establishes another approved fund, then the affected members’ fund credits will be transferred to such approved fund, which was contrary to what the Fund had believed.
- The Employers had a clear right to enforce the Fund’s rules in agreement with the High Court and managing contributions by members to more than one fund is impractical and prejudicial to members.
- The Employers had a right to insist that the Fund give effect to their decision to transfer assets and liabilities of members in terms of the section 14. The member elected board members had not complied with the rules of the Fund and had acted in breach of their fiduciary duty by refusing to support the progress of the section 14 transfer and by considering themselves to be mandated by the members who did not want to transfer.
- The Fund is in breach of section 7C(2) of the Pension Funds Act by refusing to progress the section 14 and the fact that it continued to expose the Fund to penalties, to the detriment of members. Members were further paying costs to two funds.
- The board’s fiduciary duties extend to all members and the board members must avoid a conflict of interest.
- The appeal was dismissed, but a cost order against the Fund would result in the members being further prejudiced.
- The Principal Officer, Chairperson and member elected trustees had failed in their fiduciary duties and they were required to submit affidavits setting out why they should not be held personally liable for the costs.
- The Principal Officer, Chairperson and a board member nominated by the Chairperson must complete the relevant documents and do all things necessary to submit the section 14 transfer documents to the FSCA.
Board members do not have a discretion to decide when a section 14 transfer should be effected. Once a decision to participate in another fund and to transfer members has been made by the employer, a fund has no alternative but to put measures in place to effect a transfer of the member interests of the affected members.
The board of management’s fiduciary duties extends to all members and failing to progress the transfers of members is a breach of the fund’s fiduciary duties.
Supreme Court of Appeal ruling
The value of the annuity income is an asset in the annuitant’s estate for purposes of calculating the accrual in a divorce action
Montanari vs Montanari
The Supreme Court of Appeal (“SCA”) dealt with whether future living annuity payments formed part of the assets in the estate of divorcing parties when calculating the accrual.
The parties had been married out of community of property with the accrual system and were in the process of a divorce. The applicant (annuitant) was a retiree in receipt of a living annuity from an external provider to his retirement fund.
The basis of the annuitant’s case, with which the High Court agreed, was that on a proper interpretation of the definition of “pension interest” in the Divorce Act, living annuities are not subject to accrual because the capital value of the annuities belong to the insurer and not the annuitant and that the annuitant is only entitled to the annuity income. A living annuity is therefore not an asset of the annuitant in the calculation of the accrual on divorce. A non-member spouse would only be able to access the annuity or income when it accrued to the annuitant by way of a maintenance order.
The respondent (non-member spouse) brought an application to appeal the decision of the High Court. The SCA stated that the parties failed to set out the issues properly in the High Court which led to the misunderstanding that the non-member spouse claim was against the capital value underlying the annuity. Meanwhile, all the non-member spouse wanted to know was what the status of the living annuity was, so that she could quantify her accrual claim.
The SCA held:
- To establish whether a married annuitant’s right to future annuity payments is an asset which can be valued and included in the accrual calculation on divorce, it had to consider the actual monthly annuity the annuitant would receive and not the capital value underlying the annuity.
- That the annuity income is an asset that can be valued and thus is an asset in the member’s estate for purposes of calculating the accrual and should not only be taken into consideration for maintenance.
- It acknowledged that the living annuity enjoys the protection provided by 37A and 37B of the Pension Funds Act and thus an annuitant cannot agree to give part or all of the living annuities to an ex-spouse in terms of a divorce order, or agree to split the annuity income. Annuity income does not fall within the ambit of pension interest and therefore a claimant would not be able to claim from the fund for payment, as it falls outside the ambit of pension interest as defined in the Divorce Act.
- That the capital value underlying the annuity would not be a true reflection of the annuitant’s balance sheet in his estate, but rather the annuity income which the annuitant receives.
- That an annuity is an asset in an accrual claim and that the High Court erred in stating that it is only an asset in so far as it relates to a maintenance claim.
- That once an annuity was purchased, the underlying capital belong to the insurer and is no longer accessible to the annuitant and thus does not fall within the ambit of pension interest as defined in the Divorce Act.
- That this meant that the value of the annuity income is an asset in the annuitant’s estate for purposes of calculating the accrual.
The special leave to appeal was granted in order for the error which was made by the High Court to be corrected.
The SCA referred the matter back to the High Court to accept evidence on the value of the annuitant’s right to receive future payments in respect of the living annuities.
Nothing has changed in relation to how funds or insurers will deal with living annuities going forward.
Living annuities are still protected by S37A and do not fall within the ambit “pension interest” in the Divorce Act.
A divorce decree cannot order the splitting of an annuity payment and an annuitant or non-member spouse cannot request a fund or insurer to split the payment of an annuity.
The High Court will provide how this right to future annuity payments will be valued, so that a figure can be provided in respect of the estate and the parties will have to agree as to how a portion of this value will be paid to the non-member spouse.
Even though the case only dealt with living annuities, this principle would apply to life annuities.