If you leave your job because you are too ill to work, make sure you lodge a claim for a disability benefit – and not a withdrawal benefit – from your retirement fund.
And don’t let your employer decide for you whether or not you qualify for a disability benefit – your retirement fund, or its life assurer, should make this decision.
These are the take-home messages emerging from cases relating to disability benefits that have come before the courts and the Pension Funds Adjudicator (PFA).
Acting PFA Elmarie de la Rey says a retirement fund can act only on the instructions it is given. Therefore you should say loudly and clearly to your retirement fund that you want to apply for a disability benefit, and then make sure you submit all the relevant forms and medical reports, she says.
Do not simply stay away from work and give your employer vague reasons for your absence. An employer may then terminate your employment and inform your retirement fund that it should pay you a withdrawal benefit.
And if you tell your employer that you are sick and unable to work, your employer must not try to make a decision about whether or not you qualify for a disability benefit, Naleen Jeram, senior legal adviser at Momentum, told the recent Pension Lawyers Association conference. That is the role of the trustees, or, where a fund has re-insured the disability benefit with a life assurer, the role of the assurer, he says. Jeram is also an adjunct professor in the University of Cape Town’s law faculty and a former deputy PFA.
An employer that participates in an occupational pension or provident fund has a duty timeously to inform the fund if you, as an employee member, are disabled.
In a case that came before the PFA in 2005, a fund member who was employed as a driver contracted tuberculosis (TB) and his services were terminated.
The employer argued that the case did not involve disability, because it had terminated the man’s employment due to poor attendance.
Because the fund did not receive a disability claim, it paid the member a withdrawal benefit of just over R1 000 – considerably less than the member would have got had he received a disability benefit.
Jeram says the right you have to a pension benefit arises from your employment contract, and it is part of the consideration you receive for rendering your services.
“As a result, it gives rise to an implied contractual obligation on the employer to act in good faith when exercising rights and obligations in relation to pension benefits,” Jeram says.
In the case of the member with TB, the adjudicator held that where the rules of a retirement fund provide for a disability benefit and the member suffers from injury or disease, the employer is obliged to refer the claim to the fund.
It is not up to the employer to determine whether or not you deserve a disability benefit. The fund – or its appointed life assurance company – must exercise its discretion to determine if you are entitled to the benefit, Jeram says.
He says over the years the adjudicator has issued numerous rulings dealing with cases where employers had failed to inform the fund either of the termination of a member’s employment contract or that the member’s employment had been terminated as a result of disability.
But the rulings establish that an employer has an important duty to inform the fund of a member’s disability, he says.
Many life assurers require the employer or the fund to inform them of a disability within a certain period of time. A failure to lodge a claim within this period can result in the claim being rejected on this basis alone, Jeram says.
In cases that have come before the adjudicator where an employer has not submitted a claim, the assurer has been asked to calculate the payout to which the member would have been entitled had the claim been submitted in time, he says. The employer has then been found liable for the claim.
De la Rey says sometimes employees choose to resign so they can get their hands on a lump sum withdrawal benefit, instead of applying for a disability benefit, because often the disability benefit will be in the form of a monthly income until you retire.
But once your lump sum has been spent and you are still unable to work, you may realise that a monthly income to support you until retirement and then a retirement benefit would have been a better bet. However, it may then be difficult to claim a disability benefit because the withdrawal benefit may have to be repaid, De la Rey says.
NOT ALWAYS EASY TO DETERMINE WHO PROVIDES YOUR BENEFIT
If your claim for disability benefits is denied and you want the decision to be reviewed, you need to understand who provides the benefits and the rules related to those benefits, so that you know where to complain.
Acting Pension Funds Adjudicator (PFA) Elmarie de la Rey says she is unable to deal with cases where disability benefits are provided through a stand-alone scheme that is not within a retirement fund (see “Three main ways in which your fund can offer a disability benefit”, below).
Her office refers complaints about these benefits to the Ombudsman for Long-term Insurance.
Naleen Jeram, senior legal adviser at Momentum, says, typically, retirement funds that provide a lump sum benefit or an early retirement benefit on disability re-insure this benefit with a life assurer.
They also typically state in their rules that the fund will not provide a benefit unless the life assurer agrees to pay the claim. This rule protects the fund, he says, because if you complain to the PFA about the repudiated disability claim, the fund has a valid defence, because, in terms of its rules, it can pay the benefit only if the claim was accepted by the life assurance company.
Several pension fund adjudicators over the years have expressed their concern over rules of this nature, Jeram says.
De la Rey says it is often difficult to determine who has jurisdiction over a complaint about a denied disability benefit, because it is not clear who is responsible for deciding whether or not the benefit will be paid.
However, if it is clearly a decision to be taken by a life assurance company and the retirement fund has no discretion, you will have to take your complaint to the Ombudsman for Long-term Insurance.
The ombudsman’s office has jurisdiction over such complaints because it can hear complaints from lives insured, beneficiaries or those who pay premiums on a life policy, Jennifer Preiss, deputy ombudsman for long-term insurance, says.
Jeram says there are cases where a retirement fund gives the discretion to the board of trustees or some other functionary within the fund to decide whether you, as a member, are entitled to a disability benefit, regardless of whether or not a life assurer pays the claim.
In this case, the board or the other functionary is expected to exercise that discretion and to make its own decision on a member’s disability and not to rely solely on the decision taken by the assurer, Jeram says.
THREE MAIN WAYS IN WHICH YOUR FUND CAN OFFER A DISABILITY BENEFIT
There are three main ways in which retirement funds can offer you a disability benefit, Naleen Jeram, senior legal adviser at Momentum, told the recent conference of the Pension Lawyers Association.
1. Lump sum benefit. Your fund may offer a lump sum disability benefit, which is normally a multiple of your pensionable salary (the salary on which your pension fund contributions are based), Jeram says.
In addition to this lump sum, you usually receive your accumulated savings in the retirement fund, or fund credit. Your membership of the fund and your employment with your employer are terminated, he says.
In most cases, the lump sum benefit is re-insured with a life assurance company and is paid only if the life assurer agrees to meet the claim, Jeram says.
Typically, the benefit is offered under certain conditions, Jeram says. One of these conditions is that the life assurer will offer a certain “free cover limit”, which is an amount for which the assurer will insure you, as a member of your fund, without your having to go for a medical check-up, he says.
Another condition is that the cover will commence or increase only if you are “actively at work” – that is, you are performing substantial aspects of your normal employment duties. You cannot already be sick or disabled when the cover commences or is increased.
Third, most policies exclude cover for pre-existing conditions. These usually refer to an injury, illness or condition that you knew about or could reasonably be expected to have known about, or with which you were diagnosed, or the symptoms of which you displayed, six months or less before the cover began, Jeram says.
2. Monthly income. Your employer may establish a self-standing scheme with the sole purpose of providing monthly disability benefits, in which case the benefits will fall outside the ambit of your retirement fund’s rules, Jeram says.
Typically, these benefits are paid at 75 percent of the salary you earned at the time you became disabled, he says.
Self-standing schemes can offer temporary disability benefits – you are paid a benefit while you recover from a disability that is not permanent, Jeram says. The benefits stop once you return to work.
If your disability is permanent, the benefit is paid until you reach a certain age or for some fixed period outlined in the policy, Jeram says.
Usually, a monthly disability benefit will pay out until you reach retirement age, at which point you will be paid your retirement benefit, he says.
Employees who are offered these benefits usually belong to funds whose rules allow the member to stay on as a member after his or her employment has been terminated. Often, these policies have an additional benefit that pays your employer’s contribution to the retirement fund on your behalf.
You are still responsible for your contribution to the fund, and this is deducted from the income payable to you by the assurer.
3. Ill-health early retirement benefit. Funds that do not offer a lump sum disability benefit or a scheme that pays a monthly income in the event of disability may provide an ill-health early retirement benefit, Jeram says.
This is essentially an early retirement pension, but it is paid to you before you reach the age of 55 if you become disabled, he says.
Some funds that offer a lump sum disability benefit also have an ill-health early retirement benefit for members whose claim for a lump sum benefit is declined by the life assurance company, Jeram says.
If the fund that offers this benefit is a defined benefit scheme, an early retirement reduction factor may be applied to the pension (resulting in a reduced benefit), because the member is retiring before retirement age, he says. The factor used to calculate the reduction should be outlined in the fund’s rules.
Retirement annuities
Retirement annuity (RA) and preservation funds do not usually provide disability benefits, Jeram says.
However, the Income Tax Act states that an RA fund should provide a benefit for a fund member who has become permanently incapable, through infirmity of mind or body, of continuing his or her occupation before the age of 55.
Many RA fund rules therefore have a clause to the effect that members shall not be entitled to a benefit prior to retirement or death, except in the event of permanent disability. If the member is disabled he or she can get access to his or her savings to date but there is not additional disability benefit.
Unlike an occupational fund, there is no employer-employee relationship with an RA fund. As a result, the definition of disability usually does not refer to your ability to do your job but states simply that you must be permanently disabled. It is not entirely clear what “permanently disabled” means in this context, Jeram says.
WHEN ARE YOU REGARDED AS DISABLED?
When you are injured or become ill and believe you are unable to continue working, the key factor that will determine whether or not you are entitled to receive a disability benefit from your retirement fund is the definition of disabled, Naleen Jeram, senior legal adviser at Momentum, told the recent Pension Lawyers Association conference.
This may be the definition in the rules of your fund or the definition used by the life assurer with which the fund has re-insured the disability benefits offered to you, he says.
Jeram says retirement funds and life assurers use different definitions, but, by and large, they have the same critical elements that must be met.
First, the definition will require you to be “totally and permanently disabled”. Second, you must be unable to perform your own or any other occupation, having regard for your knowledge, training, education, ability and experience.
Totally disabled
The first issue that arises when your retirement fund or a life assurance company considers whether or not you are totally disabled is whether, if you can still perform some of the duties of your job, you can be regarded as totally disabled, Jeram says.
In a complaint that came before the Pension Funds Adjudicator’s office some years ago, a fund member who worked as a sander had been injured in a motor vehicle accident and had been left partially paralysed.
The then adjudicator found that, as a result of his injuries and restricted mobility, the man was able only to perform lighter tasks and struggled to handle machinery, Jeram says.
Furthermore, a medical evaluation showed that the man worked much slower than he had before the accident and could not cope with standing for long hours, Jeram says.
The adjudicator found that even though the man could perform some of the tasks of a sander, he was unable to carry out the demands of his job and thus could be described as totally disabled, Jeram says.
In a case that came before the Ombudsman for Long-term Insurance, a child-care worker employed by a children’s home had fallen and injured her hip, Jeram says. Despite surgery, she experienced a lot of pain, he says.
The life assurer found that the woman was not totally disabled, because she could perform most of the sedentary duties of the job, had staff to assist her and cared for older children who could see to their own physical needs, Jeram says.
But the ombudsman found that the insurer had underestimated the fact that the woman stayed on the premises and was responsible for the children 24 hours a day, Jeram says.
She was required to react quickly to emergencies and cope with difficult children from unfavourable home circumstances, the ombudsman’s office found. The ombudsman found the assurer had placed undue emphasis on the fact that the woman could manage lighter duties, he says.
These cases show that the requirement that you must be totally disabled cannot be interpreted literally, and you may be classified as disabled where you are unable to meet the overall demands of your job, Jeram says.
Permanently disabled
An issue that has arisen when retirement funds and life assurance companies consider whether or not you are permanently disabled is whether your disability can be removed through surgery or medical treatment, Jeram says.
In a case that came before the adjudicator’s office, an assurer had rejected a disability claim because the member had a condition known as trigeminal neuralgia, which had an 85-percent chance of being cured with surgery, he says. However, the member refused to undergo surgery for various reasons, including the possibility that the surgery could result in a clot on the brain or a stroke, Jeram says.
The adjudicator ruled that the retirement fund’s rules contained nothing stating that a disability would not be regarded as permanent if it could be removed by surgery, and therefore the member was disabled and entitled to his benefit, Jeram says.
As a result of this case, many retirement funds and life assurers amended their rules and policies to state that members must undergo reasonable medical treatment before it can be said that a condition is permanent, Jeram says.
UNABLE TO WORK AT ALL?
Typically, to qualify for disability benefits paid by a retirement fund – regardless of whether a life assurance company or your retirement fund decides whether you are entitled to be paid the benefit – you must be suffering from a physical or mental infirmity that prevents you from performing either your current occupation or any occupation similar to it, Naleen Jeram, senior legal adviser at Momentum, says.
If your retirement fund offers disability cover that pays out if you are unable to do your job in terms of your current job description, the premiums are likely to be higher than those for cover that pays out if you are unable to do your current or a similar occupation, Jeram says.
Some schemes offer a combination of cover for current occupation and similar occupation. In this case, the cover for the first two years after you have been disabled is for your current occupation. Thereafter, your disability is re-evaluated and the benefit is paid only if you are unable to do a similar or an alternative occupation, he says.
When it comes to determining “similar occupation”, the courts have held that one thing is similar to another if there is a resemblance in some relevant aspect, Jeram says.
The Pension Funds Adjudicator (PFA) has held that funds must compare the main requirements of the current occupation to the key requirements of a similar job proposed by the fund or the life assurer, and ensure that they are similar, he says.
Jeram says in a case that came before the PFA in 2000, a firefighter who had had a heart attack and claimed for a disability benefit was told by the fund’s life assurer that he could perform an alternative position, such as an administrative one or one in which he was a driver.
However, the PFA considered the main requirements for being, and the skills of, a firefighter and concluded that the alternative positions did not require the same primary skills and attributes as firefighting and therefore could not be regarded as similar occupations to that of a firefighter.
Jeram says many definitions of disability result in your being regarded as disabled only if you are unable to perform any other occupation for which you are, or for which you could reasonably be expected to become, qualified by virtue of your knowledge, training, ability and experience.
In other words, with some further training, you could undertake the alternative occupation, Jeram says.
Nevertheless, your knowledge, training, ability and experience must be taken into account in assessing what retraining you could reasonably be expected to undergo, Jeram says.
This issue was raised in a case that came before the Ombudsman for Long-term Insurance: a man who had worked in the mines almost all his life developed epilepsy and was unable to continue working underground, Jeram says. The life assurance company suggested that, because the man had spent one year as a co-owner of a motorcycle business, he could work in this business again.
The complainant said he did not have the necessary business skills and could no longer drive.
The ombudsman said it was unreasonable of the assurer to expect the man to be able to take up the alternative position, because he could no longer drive and did not have the money to retrain in order to obtain the qualifications required to take up the recommended position, Jeram says.
Jeram says some fund rules and definitions require that a member must be unable to perform any occupation before he or she qualifies for a disability benefit. This is the cheapest form of cover. But, when selecting disability cover, retirement fund trustees should consider the best interests of members and not only which cover is cheapest, he says.
WHERE TO TAKE YOUR COMPLAINT
The Acting Pension Funds Adjudicator is Dr Elmarie de la Rey.
Telephone: 087 942 2700
Website: www.pfa.org.za
The Ombudsman for Long-term Insurance is Judge Brian Galgut.
Sharecall: 0860 103 236
Telephone: 021 657 5000
Fax: 021 674 0951
Post: Private Bag X45, Claremont, 7735
Email: [email protected]
Website: www.ombud.co.za