The high court in Pretoria has ruled in favour of a retirement fund and its administrator, overturning a determination by the Pension Funds Adjudicator, after a member complained to the adjudicator that he had received less than his expected pension payout because the fund had changed the rules on how the payouts were calculated.
The matter, with Akani Retirement Fund Administrators, the Municipal Employees Pension Fund (MEPF) and the Dr JS Moroka Local Municipality as respondents, pertained to a complaint brought by John William Masangu to the adjudicator, Muvhango Lukhaimane.
Masangu had approached the adjudicator about the value of his withdrawal benefit, arguing the MEPF should have used the original fund rule to compute his withdrawal benefit after his resignation in October 2013. The fund argued that the figures on the benefit statement were for illustrative purposes only - they did not represent a guarantee of any benefits due, noting the effects of volatile markets, rule amendments and investment returns.
Before April 1, 2013, resignation benefits were calculated as equal to a member’s contributions multiplied by three. After that, the board sought actuarial advice on the matter due to “sustainability concerns”, and resignation benefits were calculated at 1.5 times the member’s contributions. The fund argued that since Masangu had resigned after April 1, 2013, he was entitled to only the revised resignation benefit.
Pension funds cannot change the rules of the fund without approval from the Registrar of Pension Funds. The Registrar approved the amended rules only on April 1, 2014, retrospective from April 1, 2013.
The ruling is a blow to former municipal employees, who received lower withdrawal benefits due to rule changes by the fund. The fund has over 30 000 members, with assets under management worth more than R14 billion.
“What was at issue for us is whether the rule is applicable to members who left the fund in the period prior to April 1, 2014, its registration - which we believe we have authority to pronounce over; and not whether the rule is valid or not - which we do not have authority to pronounce over. The court dealt with the latter, instead of the former,” Lukhaimane told Personal Finance.
The application was heard in an unopposed motion court, during which counsel for the fund cited an earlier judgment, the Joint Municipal Pension Fund v Grobler and Others (2007), in which the adjudicator was ruled as not having the authority to pronounce on the validity of rules once registered by the Registrar.
“Our office is not allowed to defend its rulings once taken on appeal. Therefore this was an unopposed motion where the only party represented was the fund, as the member had no money for litigation,” Lukhaimane says. “We believe that the Financial Sector Conduct Authority should also be joined, to indicate whether indeed vested rights can be taken away retrospectively.”
She says there were conflicting judgments from the high court in Pretoria and, “with due respect, the court in this instance resolved an issue that was not before us because the issue of retrospective application of a rule amendment is well settled - it does not apply to vested rights.
“You can imagine what the implications would be if you retire today and wait for your benefit to be paid. Three months later, a fund tells you it has subsequently registered an amendment that will suddenly be effective from three months before you retired and you are now entitled to half your original benefit.
“The high court answers the question that is in front of it and, in this case, this was not the question in front of me.”
She says the rule amendment is valid, but it cannot be applied to vested rights because the benefits had accrued before its registration - “even if the effective date is retrospective”.
“This is also the Registrar’s interpretation as confirmed to us while investigating the complaint,” Lukhaimane says.
* Georgina Crouth is a consumer watchdog with serious bite. Write to her at [email protected], tweet her @georginacrouth and follow her on Facebook.
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