Three cases where the Pension Funds Adjudicator cracked the whip

The annual report of the Pension Funds Adjudicator was released recently, showing how it cracks the whip on behalf of consumers to ensure that their rights are protected.

These are three of the cases the adjudicator worked on in the past year where they had to decide whether the consumer, the fund or the employer was correct:

Retirement money went to syndicate while he was in jail

A consumer complained to the adjudicator after he found that his pension fund paid out his pension while he was in jail, although he was not the person it was paid to. His pension of R800 000 was paid to a syndicate that impersonated him.

The photo on the identity document provided to the fund was not his, while the consumer also complained that the fund relied on an affidavit, allegedly deposed by him and issued by the department of correctional services, which was neither signed nor stamped as required.

The fund also accepted a withdrawal claim form that contained errors and the consumer proved his case by providing a copy of the bank statement that showed the money was paid to an account that did not belong to him.

Although the fund checked with his previous employer if he was still in jail, it then appeared that someone created an email address using his name and sent claim documents to the fund from this email address.

ALSO READ: Two-pot retirement system: one reason for more complaints to adjudicator

Fund was scammed but did not do enough checks

The fund responded with instructions to the fraudster who replied accordingly. The fund then did a telephonic validation with the bank to confirm the account status. The fund paid over the R800 000. A few months later, the bank informed the fund that the payment could be part of a syndicate that was involved in identity theft and unlawfully claiming benefits of retirement fund members.

According to the fund it notified its internal forensic department, which resulted in a formal criminal complaint reported to the police, but the criminal complaint was closed as undetected.

The adjudicator said the fund has a fiduciary duty to exercise its functions with care, due diligence and good faith, but failed in its duties towards the consumer when it did not further confirm his imprisonment status before paying out his benefit, which renders its act and/or omission reckless and puts the consumer in an adverse economic position.

“The facts indicate that the fund was informed that the consumer was imprisoned and initially did not process the claim as the withdrawal claim forms were incomplete because he was in custody and could not provide all the required documents and sign the withdrawal claim form,” the adjudicator said.

ALSO READ: Two-pot retirement system complaints mainly about unpaid contributions

Impersonation scam not consumer’s fault

When someone started communicating with the fund suddenly, the adjudicator says it is not clear why the fund did not further confirm if the consumer was released or not. People in custody have limited access to communication facilities and everything they send out or receive must first go through the accountable correctional services personnel.

The adjudicator pointed out that the fund could not have communicated with the complainant electronically without the correctional facility knowing, let alone being able to open a new bank account and subsequently submit all the documents fraudulently.

“This on its own indicates that the fund did not exercise due care and diligence during the second part of processing the claim until the payment was made.”

The adjudicator says the fund’s system was compromised which led to the communication with the fraudster and the consumer cannot be blamed for that. “The fund must reinstate the complainant’s fund credit together with the investment returns earned and pursue legal action on the fraud committed against it without further prejudicing him.”

She ordered the fund to pay the consumer the benefit of R800 000 due to him with interest.

ALSO READ: Adjudicator reports Local Authorities Pension Fund for misconduct

Consumer did not choose to take enough cash out of his fund at retirement

In the second case, a consumer complained to the adjudicator because his fund would not allow him to withdraw a further R650 000 as a lump sum from his fund after he retired in 2022. He needed the money because his wife lost her job, resulting in financial strain in his household.

According to the fund the consumer retired on 1 April 2022 and chose to receive an infund pension or life annuity from the fund. The consumer then had an equitable share of R7 335 359.35 and he chose to take R800 000 before tax and R717 395.98 was paid to him.

The equitable share used to buy an annuity was R6 535 359.35 and he receives R38 601.91 per month.

The fund said when the consumer submitted his instructions for retirement, he used the services of the fund’s retirement benefit advisor, who told him that he cannot cancel, change or transfer his pension fund life annuity after retirement.

Although the fund said it acknowledges his financial situation is dire, it would be acting contrary to its rules, the Income Tax Act and the Pension Funds Act if he is allowed to reduce his annuity. This could result in Sars withdrawing its income tax approval.

The fund emphasised that the opportunity to commute a pension for a lump sum is only possible on retirement from the fund when you can choose what portion of your benefit to take as a lump sum. You do not get another opportunity to take a lump sum.

ALSO READ: Unpaid pension contributions: FSCA reports more than thousand employers to police

Cannot change the law for retirement lump sum

The adjudicator agreed with the fund that according to the definition of a pension fund in terms of the Income Tax Act and the rules, not more than one-third of the total value of the retirement interest may be taken for a single payment and that the remainder must be paid in the form of an annuity.

Before the consumer retired he chose to take only R800 000, while he had a choice of taking up to R2 445 119.78, which was equal to one-third of his equitable share. Now, he wants to commute a further R650 000 from the equitable share as a lump sum, which is still less than one-third of his equitable share.

However, the adjudicator pointed out that the rules of the fund state that the member must choose how to receive the retirement benefit before the retirement date. After retirement, the opportunity to make a choice has passed.

Therefore, she said, if the fund were to pay the complainant a further R650 000, it would be acting contrary to its rules, the Income Tax Act and the Pension Funds Act. The consumer was informed that he could not make a further withdrawal. He took the matter to the Financial Services Tribunal for reconsideration, but the Tribunal also said the fund’s hands were tied.

ALSO READ: What’s the difference between retirement funds and pension funds?

Shortage of cash no excuse not to pay over provident fund contributions

The private security industry is one of the industries identified with the most pension fund contributions to funds outstanding and this complaint is just one example. A consumer complained to the adjudicator that she worked from 25 February 2019 until 31 October 2023, but by 27 February 2024, she only had a fund credit of R5 343.54.

She alleged that her employer deducted provident fund contributions from her salary without paying it over to the fund. She said the fund informed her that the employer made only nine payments in 2019.

According to the fund, the employer did not comply with section 13A of the Pension Funds Act. The fund provided a calculation which reflected an arrear amount of R39 477.18 for December 2019 to October 2023, plus late payment interest of R18 845.52 calculated up to 22 April 2024.

The employer said all declarations of provident fund contributions were made to the fund every month, but that it was in arrears with its provident fund contributions due to an error by a third-party supplier, where submissions to the fund and deductions from the payroll were not correct, causing a discrepancy in what was paid over.

ALSO READ: Only two employers convicted since 2019 for not paying their workers’ pension fund contributions

Not paying over contributions is third party’s problem

The adjudicator said the fact that the employer was in arrears with its provident fund contributions due to an error by a third-party supplier was an internal issue with the employer, which did not absolve it of its duty to pay contributions.

She said the employer must pay R39 477.18 to the fund representing arrear contributions for December 2019 to October 2023. The fund must allocate this amount to the consumer’s record and no one else, irrespective of whether the employer owes for other members.

“If the fund wants outstanding contributions for all members, it must follow its rules and the Act to recover these, instead of piggybacking on the consumer who complained.”

The fund also was ordered to calculate the amount of late payment interest due on the arrear amount and submit it to the employer for payment.

The fund was ordered to pay the complainant the fund credit of R5 343.54 representing provident fund contributions for June 2019 to November 2019.