If you quit your job and resign from your pension fund, the fund is not permitted to deduct from your withdrawal benefit any money you owe your ex-employer, even if you consent to the deduction.

The Pension Funds Adjudicator has expressed concern that a large pension fund unlawfully deducted an amount from a withdrawal benefit to offset an employer’s loan to an employee. The adjudicator, Muvhango Lukhaimane, said the fund, the Corporate Selection Umbrella Retirement Fund No. 2, administered by the Liberty Group, will be reported to the Registrar of Pension Funds.

The case involved Mr S, who was employed by Rush Trailers cc, trading as The Pumpsmith, from March 2011 to September 2015.

In January 2016, four months after Mr S’s employment ended, he received a withdrawal benefit of R18 512 from the umbrella fund. He complained to the adjudicator about the amount he was paid out.

In response to the complaint, Liberty, the fund’s administrator, told the adjudicator’s office that Mr S’s full fund value was R49 688. However, there was the question of a debt owed by Mr S to his employer, and Mr S had authorised his employer to deduct a sum of R24 363 from his withdrawal benefit to settle the debt.

The umbrella fund, in its response, confirmed that Mr S had been paid out, and provided the following break-down of how the money had been distributed:

Gross amount due: R49 689

Less tax: R6 814

Mr S: R18 512

Rush Trailers cc: R24 363

In her determination, Ms Lukhaimane said that the umbrella fund’s deduction from Mr S’s withdrawal benefit of the money he owed his employer did not fall within the permissible deductions in terms of the Pension Funds Act.

“The deduction of the loan money was, therefore, unlawful and in contravention of the umbrella fund’s master rules. The [fund] acted beyond its powers and this behaviour will be reported to the Registrar of Pension Funds, given the fact that employers are required to act in terms of the Act and its rules, and funds are expected to enforce such compliance.”

Lukhaimane says section 37A(2) of the Act deems the set-off of any debt, or the deduction of a debt in terms of the rules of the fund, to be a reduction of benefit, which is prohibited.

She set aside the decision of the fund to deduct R24 363 in respect of the debt, despite Mr S signing the acknowledgement of debt, “as a person cannot consent to an unlawful act”.

She ordered the fund to pay Mr S the R24 363, together with late-payment interest.



The Office of the Pension Funds Adjudicator is a statutory body established to resolve disputes relating to retirement funds. For general enquiries or to lodge a complaint, visit www.pfa.org.za, call 012 346 1738, or [email protected]