Cape Town - Government’s recent default regulations applicable to the pension funds industry will ensure that members are better informed about their decisions at retirement, Muvhango Lukhaimane, the pension funds adjudicator has said.
Lukhaimane said once fully implemented, the regulations would require that pension funds ensure that an explanation is given to a member in “understandable language” about the risks and costs of electing a one-third lump sum benefit with a guaranteed period and a spouse’s pension.
This came following a complaint that respondent Sentinel Retirement Fund had refused to pay a lump sum retirement benefit.
According to the office of the pension funds adjudicator (OPFA), the default regulations to the Pension Funds Act are meant to improve the outcomes for members by ensuring that they get good value for their savings and retire comfortably. Member defaults should be relatively simple, cost-effective and transparent. Trustees are required to help members in the accumulation and retirement phases of their membership of a fund.
The default regulations require the board of trustees to offer its members a default investment portfolio which is not excessively complex or unreasonably expensive, a default in-fund preservation of benefits for members who move between employers before retirement, and a default annuity strategy to ensure that members are able to convert their retirement savings into an income at retirement that is efficient, transparent and cost-effective.
In the matter that came before the pension funds adjudicator, the complainant who had been employed with Harmony Gold Mining Company Limited from 2000 until his retirement in 2016, was paid a lump sum benefit in the amount of R320 943.13 and was in receipt of a monthly pension in the amount of R2 352.84.
The complainant submitted that the remaining balance of his retirement benefit with the respondent was in the amount of R633 000.00.
He submitted that his monthly pension was too small to pay for his daily needs and requested the respondent to increase his monthly pension, a request which the respondent had dismissed. He said the respondent should transfer his retirement benefit to another approved retirement fund or pay him the balance in a lump sum.
The respondent submitted that the complainant, upon retirement, completed a retirement benefit claim form wherein he elected to commute one-third of his fund credit for a lump sum and the balance to be paid as a lifelong monthly pension.
Therefore, the complainant was paid a lump sum benefit in the amount of R320 943.13 and was receiving a monthly pension in the amount of R2,352.84 and that limits were set by the South African Revenue Service, said Lukhaimane, adding that fund rules were supreme and binding.
The adjudicator said in August 2017, National Treasury gazetted some fundamental changes to how pension funds are going to work. The default regulations placed a number of new requirements on boards of management.
“With the implementation of the default regulations, the board will be required to ensure that members have access to retirement benefits counselling before they make any decisions. The Act provides for the disclosure and explanation, in clear and understandable language of the risks and costs of the options the member has,” she said, adding that all retirement funds would have to implement this capability prior to March 1, 2019. Since the Act would not specifically state how the counselling should be delivered, funds could come up with a number of ways of doing it.
“The fund is ultimately responsible and it can decide who and how to provide the counselling. What is key, is the provision of factual information on fund options.
“Therefore, once implemented, members should be better informed about their decisions at retirement and the respondent should explain to a member in understandable language the risks and costs of electing a one-third lump sum benefit with a guaranteed period and a spouse’s pension.”
She added that, in the case of the complainant, the election made regarding the type of benefit the complainant claimed, was irrevocable.
“The claim form signed by the complainant included an acknowledgement which, by itself, precludes the relief sought by the complainant to transfer his benefit or to increase his monthly pension. The complainant appended his signature on the claim form. The function of a signature is to signify that the writing to which it pertains to accords with the intention of the signatory.
“Therefore, in signing the claim form, the complainant confirmed that the terms and conditions referred to above apply to him,” said Lukhaimane.
African News Agency (ANA)