4 of 2020
Financial Services Tribunal case
Payment of a deferred pension benefit after re-joining the fund
Eskom Pension and Provident Fund (“Funds”) v Heinz K llner (“Complainant”) and the Pension Funds Adjudicator
The Complainant was dissatisfied with the Funds’ decision to not allow him to receive his deferred benefit. The Complainant was employed by Eskom until 2009, when his employment was terminated. At the time, the Complainant opted to defer his withdrawal benefit in the Funds. In 2014 the Complainant was re-employed by Eskom and re-joined the Funds, with a different membership number. The Complainant submitted a request to receive his deferred benefit, but his request was denied by the Funds on the basis that members who defer their benefits in the Funds become deferred pensioners and are only entitled to a retirement benefit between the ages of 55 and 65. There was no provision for partial retirement from the Funds and therefore the Complainant could not retire only in respect of his deferred benefit. The Funds submitted that at retirement from employment, the Complainant’s deferred record would be added to the benefit that would accrue to him for his current membership to make up his retirement benefit.
The Adjudicator held that the Complainant’s deferred benefit does not affect his current and continued membership in the Funds. She ordered the Funds to give effect to the Complainant’s election to retire in respect of his deferred benefit as he had attained age 55. The Complainant has an accrued right in respect of the deferred benefit and his rights cannot be diluted by his re-employment. One could test it by establishing whether, had the Complainant transferred his withdrawal benefit to another fund and re-joined the Fund, he would have been able to access his deferred benefits prior to his retirement from employment.
Dissatisfied with the Adjudicator’s determination, the Funds lodged an application for reconsideration with the Financial Services Tribunal (“Tribunal”). The Tribunal dismissed the application on the basis that the Complainant’s request required tax clearance from the South African Revenue Services and that the South African Revenue Service is the ultimate authority. The Adjudicator’s determination is subject to the tax clearance.
A person is entitled to access his/her paid-up benefit even if the person re-joins the fund. The rules of a fund may however provide that should a member re-join within a specified period (usually 30 days) and the benefit has not been paid yet, the member will not be entitled to the withdrawal benefit, to mitigate false withdrawals.
High Court case
Bloedige hand principle does not extend down the bloodline
Nel v Netcare Pension Fund (“Fund”) and another
The deceased member of the Fund had nominated his wife as the sole beneficiary. The deceased and his wife were murdered, and the Fund allocated the deceased’s entire benefit to his wife’s minor grandson on the basis that he was financially dependent on the deceased and his wife and that the deceased did not have children of his own.
Dissatisfied with the Fund’s decision, the deceased’s sister lodged a complaint with the Adjudicator on the basis that the mother of the deceased’s minor grandson (the deceased’s stepdaughter) had been charged with the murder of the deceased and his wife and would indirectly benefit from the deceased’s death benefit. The deceased was also not related to the minor and had no obligation towards the wife’s minor grandson.
The Adjudicator referred to the legal principle that a person who has unlawfully caused the death of another is disqualified from benefiting financially from that death, i.e. the bloedige hand neem geen erfenis principle. The Adjudicator stated that the Fund should have withheld payment of the benefit until the criminal case was finalised. However, if the minor child was dependent on the deceased, payment of the benefit could not be withheld. She found that the Fund had not investigated the extent of the financial dependency of the minor child on the deceased. The Adjudicator set aside the Fund’s decision to allocate the death benefit to the minor child and ordered the Fund to re-exercise its discretion in respect of the minor child.
Following further investigation, the Fund declared that the deceased’s siblings, i.e. complainants, were not dependants of the deceased and this decision was confirmed by the Adjudicator.
An application to review was lodged with the Pretoria High Court on the basis that the deceased’s minor step-grandson could not benefit from the death of the deceased, because the minor step-grandson’s mother would by extension benefit from a death which she caused. The deceased’s stepdaughter was found guilty of his murder and sentenced to a 20-year prison sentence.
The High Court found that the deceased’s minor step-grandson was financially dependent on the deceased and was therefore the deceased’s factual dependant, as he lived with the deceased and his wife and was cared for by them. The court held that the bloedige hand principle does not extend down the bloodline to exclude anyone other than the actual perpetrator.
The High Court found that the Fund had not improperly fettered its discretion and dismissed the application.
The bloedige hand neem geen erfenis principle, which states that no person who unlawfully causes the death of another may inherit from the deceased, does not extend down the bloodline to exclude anyone other than the actual perpetrator.
Supreme Court of Appeal (“SCA”) cases – The Southern Sun Group Retirement Fund, the Hortors Pension Fund and the Vrystaatse Munisipale Pensioenfonds (“the Funds”)
Judgment was handed down on 2 November 2020 in three related SCA appeals.
In terms of surplus legislation in the Pension Funds Act (“the Act”), retirement funds had to submit a surplus apportionment scheme in terms of which existing surplus as at their surplus apportionment date (which was the first statutory valuation date after 7 December 2001) had to be apportioned to all stakeholders as set out in section 15B of the Act (hereinafter called “old 15B surplus”). Old 15B surplus had to be apportioned inter alia by increasing former members’ benefits to the minimum benefit and if there was surplus left, equitably between members, former members and the employer.
The board of management of a fund had to determine which categories of persons should participate in the surplus apportionment. Funds had to include those former members who exited the fund since 1 January 1980, including untraced members, but they could have excluded unquantifiable members (members whose benefits could not be quantified as information regarding their membership was outstanding).
The Act further states that in the event that former members were identified but could not be traced, or in respect of unquantifiable former members for whom calculations could not be made, a fund may allocate a portion of the surplus to be used for those former members to a contingency reserve account in order to satisfy those potential claims.
The Act allows funds to release monies from a contingency reserve account into the fund as it deems fit, on the advice of the valuator.
However, in terms of regulation 35(4) to the Act, a fund must put any old 15B surplus allocated to former members who cannot be traced in a contingency account, but it may not be released from the account unless it is paid to the former member or transferred to an unclaimed benefit fund or the Guardians Fund.
The Funds were contesting the validity of regulation 35(4) because it exceeds the Minister of Finance’s (“Minister”) powers under the Act, as regulations may not be inconsistent with the Act.
The SCA agreed with the Funds and declared regulation 35(4) invalid. According to the SCA, regulation 35(4) intrudes upon the wide discretion that boards of management have by forcing them to place the entire untraced old 15B surplus allocation in a contingency account, which will have the effect that the amount is ring-fenced, from which neither former members nor current members will ever benefit. If transferred to the Guardian’s Fund or to an unclaimed benefit fund, it will also be lost to former members and to the fund.
When surplus is apportioned, a fund assumes liabilities to its members and former members. This vests in members and former members having a claim against the fund.
The SCA found that the board of management of a fund determines how surplus is to be allocated and decides how it is applied for the benefit of the different categories of beneficiaries, including the establishment of contingency reserve accounts.
The boards of management in the three cases took extensive steps to trace former members and paid those who could be traced. The remaining untraced claims, if released to the funds, will not be extinguished, but will continue to exist. The valuators calculated what it might cost the funds to pay the claims of those untraced members that might come forward in the future.
The question is whether actuarial assumptions in valuation reports as to their eventuating are acceptable. The FSCA can, through the measures available under the Act, take it up with funds if the FSCA is of the view that the valuators used wrong assumptions. Importantly, the SCA found that reversion and extinguishing of claims is not allowed in terms of the Act. The engagement between the FSCA and the funds should be about whether it is necessary to make provision for claims eventuating and to what extent.
The SCA ordered that regulation 35(4) be declared invalid and unenforceable in that it exceeds the Minister’s powers under the Act.
The effect of the judgements is:
- Old 15B surplus allocated to former members may be ringfenced in a contingency reserve account but it need not be.
- The claims by former members to the allocated old 15B surplus continue to exist
- The valuator may use assumptions to determine the probability of claims eventuating.
- This means that a portion of the unclaimed old 15B surplus may be released and taken into account when for instance determining a fund’s financial soundness and does not have to be set aside in a contingency reserve account.
- The release of those funds from the contingency reserve account will still have to be approved by the FSCA through statutory valuation reports.
- In terms of the second draft of the Conduct of Financial Institutions Bill (COFI Bill), funds will not be entitled to reduce unclaimed benefits (this includes unclaimed old 15B surplus) or use it for any other purpose by a fund. Depending on the final wording in the COFI Bill, the effect of this and other judgements may therefore be short-lived once COFI comes into effect.
- Another proposal in the COFI Bill is the establishment of a central unclaimed benefit fund, to which all unclaimed benefits may have to be transferred to at some stage. This may mean that the unclaimed old 15B surplus allocated to former members will have to be transferred, because the liability never went away even though the probability reduced over years.