Illustration: Colin Daniel

A letter sent by a pension fund administrator to a retiring fund member suggesting that he had been retrenched rather reaching his natural retirement age resulted in his confusion over what his employer had contributed to the fund, prompting a complaint to the adjudicator.

In a recent determination, the Pension Funds Adjudicator, Muvhango Lukhaimane, slammed the Municipal Employees Pension Fund (MEPF), and its administrator, Akani Retirement Fund Administrators, for their “flawed” communication with the member and for failing to respond timeously to the complaint. She also asked the Registrar of Pension Funds to intervene.

Mr HL, who worked for the Polokwane Local Municipality from December 1, 1998 to January 31, 2017, when he retired, complained to the adjudicator that the MEPF had failed to compel the Polokwane municipality to pay outstanding pension fund contributions amounting to R3 017 126 on his behalf. He attached a copy of a letter from Akani dated November 24, 2016 in which it stated “... kindly submit the calculations below to your municipality for the capitalised value (R3 017 126) to be processed, to enable the fund to place you on retirement due to retrenchment …”

When, after initially ignoring the complaint, the MEPF finally responded, it conveyed a different story: that Mr HL had simply retired – he had not been retrenched. It attached a letter dated February 2, 2017 addressed to Mr HL confirming receipt of a retirement notice with effect from January 31, 2017. 

In the letter, the MEPF indicated that a retirement benefit was payable in terms of rule 33(1) of the rules of the fund. It said an amount of R907 674 was to be paid to Mr HL as a gratuity, with an annual pension of R395 081, translating into a monthly pension of R32 923.

Mr HL was a defined-benefit member of the MEPF, which, according to its rules, pays out retiring members a percentage of their benefit as a lump sum (gratuity), with the balance used to pay a monthly pension (annuity) for life, according to a formula taking the employee’s salary and length of service into account. (The MEPF also offers a defined-contribution category of membership, according to its website.)

However, if you resign from a defined-benefit fund before retirement age, because you move to another job or because you are retrenched, different conditions apply, and you typically have access to your entire benefit, subject to tax.

Rule 33(1) of the MEPF’s rules governs the payment of benefits to retiring members. A different rule, rule 35, is applicable if a member is retrenched.  

Lukhaimane said in her determination: “Rule 35 is not applicable to members whose reason for termination of service is retirement. Thus, the complainant’s submission that rule 35 is applicable to him is incorrect and misplaced.”

She said that what appeared to have triggered Mr HL’s assumption that rule 35 was applicable to him and that the municipality owed the MEPF outstanding contributions was the letter dated November 24, 2016, bearing the signature of Akani’s managing director.

Lukhaimane said the MEPF and Akani did not explain under what circumstances this “retrenchment” letter was issued to Mr HL.

She said: “This tribunal finds it unacceptable for the [MEPF and Akani] to issue misleading and inaccurate statements which confuse members, as is the case herein. “The conduct of the [MEPF] goes against the grain of section 7D of the [Pension Funds] Act, which requires pension funds to provide members with accurate and adequate information, and which appears to have been breached in this instance. In these circumstances, this tribunal finds that there is no basis to sustain the complainant’s assertion that the [municipality] owes contributions on his behalf to the [MEPF], as the basis of his assumption – the letter of November 24, 2016 – is flawed.”

Lukhaimane said the conduct of the MEPF and Akani had to be brought to the attention of the Registrar of Pension Funds.

“This tribunal had to endure threats of action by the complainant’s legal representative accusing us of dereliction of duty and responsibility by not invoking the provisions of the Commissions Act to compel the first and second respondents to submit the required information.

“It is noteworthy that it was only after this tribunal had threatened to summon the principal officer of the [MEPF] and the board’s chairman that a response was submitted to this tribunal.” 

The MEPF and Akani have been censured by the adjudicator on a number of occasions, which have been reported in Personal Finance. The most recent of these was in June last year, when a member’s performance bonus was incorrectly deducted from his pension payout. In her determination on the matter, the adjudicator said that Akani had “become a law unto itself”.

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