Pension funds involved in disputes could find themselves caught in a “perfect circle” if, aggrieved with a decision of the Pension Funds Adjudicator, they turn to the Financial Services Tribunal, which replaced the Financial Services Board Appeal Board.
This is the view of pension fund lawyer Graham Damant, partner in the employment and benefits practice at Bowmans. “The tribunal has only two courses of action: to send a matter back to the adjudicator to reconsider or to dismiss it. As we have recently seen, this could create a cycle where a matter goes back and forth between the two bodies.”
In a recent decision, the tribunal disagreed with the adjudicator’s ruling in a dispute involving an actuary facing a claim that his actions had resulted in a R40 million loss to a major retirement fund.
“This is a very important case, both for its merits and the new process for funds that are unhappy with a decision of the adjudicator,” Damant says.
The retirement fund had initially referred the matter to the adjudicator, which ruled that the actuary alone was responsible for R40m in overpayments made to exiting members of the fund. The overpayments, made over a number of years, stemmed from a “hard-coding error” in the spreadsheet system the actuary had been using.
The adjudicator ruled that the error constituted maladministration on the part of the actuary, who should pay damages.
The actuary approached the tribunal, which disagreed that the actuary had been performing administration for the retirement fund. This meant that his actions did not constitute maladministration but were a contractual matter over which the adjudicator did not have jurisdiction.
The tribunal also criticised the adjudicator’s ruling and process: the adjudicator had relied on a written report from an independent actuary, whose conclusions the accused actuary had not been given the opportunity to refute.
Furthermore, the tribunal said the adjudicator had not taken into account that the fund had recovered part of the loss, or that the fund itself had failed to stop the overpayments to members once it became aware of the error.
Consequently, the tribunal said the adjudicator’s damages order against the actuary should be set aside, and referred the matter back to the adjudicator for reconsideration.
“The operative word here is ‘reconsideration’,” says Damant. “The tribunal’s decisions are not legally binding, and the adjudicator just has to reconsider, potentially creating a perfect circle.”
A way out of such a situation would be a high court appeal - a route Damant says is still open under section 30P of the Pension Funds Act when parties to a dispute have materially different versions. The difficulty is costs: unlike “internal” dispute resolution through the adjudicator and tribunal, a high court action would be costly and time-consuming.