Point of view: Pension Funds Adjudicator reprimands retirement fund for placing employer’s interest before member’s

Published Jun 29, 2024


THE Deputy Pension Funds Adjudicator has recently reprimanded a retirement fund for withholding payment of a withdrawal benefit without affording the member an opportunity to make representations to it as to why the benefit should not be withheld.

According to the Office of the Pension Funds Adjudicator (OPFA), the deputy Pension Funds Adjudicator, Naheem Essop, said Fedex Express South Africa Retirement Fund had acted in breach of its fiduciary duties when it failed to comply with basic procedural requirements before exercising its discretion to withhold payment.

The OPFA said the complainant had been employed by Fedex Express South Africa from April 3, 2007 to October 10, 2022. On October 28, 2022, the fund decided to withhold the withdrawal benefit of about R358 317.53 at the instance of the employer.

“The complainant submitted that he was arrested as a result of allegations levelled against him by the employer. He stated the case against him had been finalised and that he was, therefore, entitled to his withdrawal benefit.

“The fund’s administrator submitted a response on behalf of the fund, the employer and itself. It stated that the complainant was a member until his resignation following internal investigations into allegations of fraud against him and other employees,” the OPFA said.

The OPFA said the fund’s administrator stated that the complainant’s employment duties included clearing of consignment that came into the country from abroad.

“It stated that as a result of fraudulent conduct on the part of the complainant, there was an underpayment of duties and VAT to the SA Revenue Service.

“The employer was subsequently fined and penalised. The employer had laid criminal charges against the complainant and others as a result of it suffering financial loss of approximately R4 million. Two cases of fraud were opened.

“The fund’s administrator also stated that the employer was unable to provide the specific amount that the complainant was liable for as investigations were ongoing. Thus, the fund was requested to withhold his full withdrawal benefit,” it said.

According to the OPFA, on March 7, 2024, the fund’s administrator submitted that a criminal case was instituted against the complainant and two others and provided a copy of the charge sheet as proof.

“It stated that it was advised by the employer that it was in the process of starting civil proceedings against the complainant,” the OPFA said.

In his determination, Essop said as a general principle of law, pension benefits are not reducible, transferable, or executable save for certain exceptions as outlined in sections 37A and 37D of the act which provides for a fund to withhold a benefit where the member is liable for theft, fraud or misconduct against the employer.

Essop said the courts have held that the duty placed on a fund in terms of section 7C envisages scrutiny of claims made against benefits by employers, and a weighing of the competing interests of the parties after allowing the member to place his case properly before the fund.

He said it was further held that the mere satisfaction by the board that the employer had placed allegations before it which, if true, would show damages arising from dishonest conduct by the employee, would not on its own be sufficient.

“Where a benefit has accrued, the member enjoys full ownership of the pension benefit. Thus, any claim that would have the effect of depriving such a member of the use and enjoyment of this asset must be carefully scrutinised.

“This is also to ensure that a fund does not abuse the system or merely rubber-stamp the employer’s request to withhold a member’s benefit without any investigation into the merits of the allegations or the financial prejudice a member may suffer,” he said.

Essop said it was clear that the fund had failed to allow the complainant an opportunity to make representations to it before the decision to withhold was taken.

“The conduct of the board is a dereliction of its statutory and fiduciary duties and to act with due care, diligence and good faith.

“The fund stated on 7 March 2024 that only then had the employer been in the process of starting civil proceedings. In other words, civil proceedings had not been instituted yet. The submissions indicate the employer relied solely on pending criminal proceedings in respect of the withholding,” he said.

Essop said in matters concerning the withholding of benefits, funds were required to act in a manner whereby its impartiality could not be doubted. This was because the fund owed a fiduciary duty to both the member and the employer.

“It is, therefore, of concern that the fund’s administrator submits a response on behalf of both the fund and the employer. The immediate perception created is that the fund’s impartiality has been compromised.

“Such perception is exacerbated when the fund decides to withhold in the absence of evidence submitted to it in support of the strength of the employer’s case against its member,” he said.

The fund was ordered to pay the complainant’s withdrawal benefit inclusive of interest earned from October 10, 2022.

* Maleke is the Personal Finance editor.