Feedback on Recent Adjudicator Determinations Presentation to PLA Quarterly Session June 2006

1. Feedback on Recent Adjudicator Determinations Presentation to PLA Quarterly Session June 2006 Lizzie Vambe Legal Services Alexander Forbes

2. Determinations • ABT v Nedcor Defined Contribution Provident Fund/Nedbank Group Ltd/OM • Webber v Willow Ridge Primary School/Hollard Umbrella Provident Fund • MES v ART Medical Equipment Pension Fund/MG Thabois/Francis Thabois • Pelser v SA Eagle Pension Fund/SA Eagle Insurance Company ltd

3. ABT v Nedcor The facts: • Complainant was employed by Nedcor from November 2001 to September 2004 • Instruction when left to join new employer was that benefit be transferred to the new employer fund • Total withdrawal benefit was R173 887.41 transferred to new fund on 7 January 2005 including interest of R 2 143.26 • Complained to the ADJ that Fund and administrator failed to transfer his benefit timeously

4. ABT vs. Nedcor The facts: • Complainant contending that the Fund did not transfer his benefit within a reasonable period. • Administrator’s response/Administrator stating that rules silent regarding “the time within which a benefit was to be paid to a member” and further that receipt of claim form does not constitute a demand for payment by the Fund and administrator by a certain time. • Administrator stating that 4 to 6 weeks ordinarily reasonable, however Fund experiencing increased number of exits – therefore 12 to 18 weeks was in the circumstances “reasonable”.

5. ABT vs. NEDCOR Fund’s response: • Employer retrenching therefore large number of exits. • Processing period revised. • Paid interest on the benefit in terms of its rules-(late payment interest) • Fund practice to disinvest and hold in a bank account to minimise risk of benefit reducing during the benefit processing period.

6. ABT vs. NEDCOR Determination Citing the case of Tek v Lorentz Adjudicator held that: • Fund authorised to disinvest in terms of its rules. • He could not accept the wide powers given to the Fund and administrator with regard to determination of the rate at which interest would be paid as it was arbitrary and open to abuse. • The rule read: “In the event of any benefit payable to a member or beneficiary in terms of these rules being late, interest shall be paid by the Fund at such rate as the Board of Trustees in agreement with the administrator may decide from time to time. Any such interest shall be included in the Member’s accumulated credit.”

7. ABT vs. NEDCOR Determination continued: • That rules of a Fund always subject to the provisions of the Pension Funds Act. • Section 13A(5) provides: “When a person who, for any reason except a reason contemplated in section 14, 28 or 29, has ceased to be a member of a fund (in this subsection called the first fund), is in terms of the rules of another fund admitted as a member of the other fund and allowed to transfer to that other fund any benefit or any right o any benefit to which such person had become entitled in terms of the rules of the first fund, the first fund shall, within 60 days of the date of such person’s written request to it, or, if applicable, within any longer period determined by the registrar on application by the first fund, transfer that benefit or right to the other fund. The transfer shall be subject to deductions in terms of section 37D and to the rules of the first fund”. • Therefore that the Fund and Administrator had to transfer the complainant’s benefit within 60 days failing which interest in accordance with Section 13A(7)(c) was payable.

8. ABT vs. NEDCOR Determination continued: • In view of fact that instruction to transfer was given on 28 September 2004, the latest by when benefit had to be transferred was 29 November 2004. • Benefit only transferred on 7 January 2005 therefore interest at the higher Usury Act rate payable from 30 November 2004. • Fund ordered to pay interest at the Usury Act rate less late payment interest already paid. Amounts not exceeding R10 000 – 20% Amounts exceeding R10 000 – 17% per annum

9. ABT vs. NEDCOR Comment • Section 13A of the Pension Funds Act requires transfer within 60 days. • Outside of 60 days Fund must get an extension – failure to do so attracts penal rate of interest. • Transfers covered are (i) transfer to new employer fund (ii) transfer to Retirement Annuity (iii) transfer to Preservation Fund does not include payments on liquidation and section 14 transfers or transfers to annuities on retirement

10. Webber vs Willow Ridge Primary School and Hollard Umbrella Provident Fund The facts: • Complainant was a member of the fund from 1 March 2000 to 30 April 2002. • Commenced making inquiries about his withdrawal benefit in 2005. • In September 2005 sent a letter to Employer requesting necessary documentation to be signed to no avail. • Crux of the complaint was the delay by the Fund in paying his withdrawal benefit.

11. Webber vs. Willow Ridge Primary School and Hollard Umbrella Provident Fund No response received from employer Administrator’s response: Confirming that the benefit was in the Fund stated: • No signed withdrawal form from employer. • That only became aware of withdrawal when received the ADJ complaint.

12. Webber vs. Willow Ridge Primary School and Hollard Umbrella Provident Fund Determination Citing Tek Corporation v Lorentz, the Adjudicator held that: • Employer owes various duties to the Fund “The trustees of the fund owe a fiduciary duty to the fund and to its members and other beneficiaries (Section 2(a) and (b) of the Financial Institutions Investment of Funds) Act 39 of 1984 and rule 18.1.4). The employer is not similarly burdened but owes at least a duty of good faith to the fund and its members and beneficiaries (cf Imperial Group Pension Trust Ltd v Imperial Tobacco Ltd [1991] 2 All ER 597 (ch) at 604g-606j).”

13. Webber vs. Willow Ridge Primary School and Hollard Umbrella Provident Fund • S37D not applicable here. • Employer had abused its powers by not signing the withdrawal form. • Fund did not protect the Complainant’s interests – Fund done nothing-should have picked up withdrawal from contribution schedules and demanded withdrawal form from employer.

14. Webber vs. Willow Ridge Primary School and Hollard Umbrella Provident Fund Relief: • Fund ordered to accept withdrawal form signed by the Complainant only. • Fund to calculate and pay the benefit to Complainant. • Employer to pay interest at prescribed rate of15.5% from 30 May 2002 to date of payment

15. Webber vs. Willow Ridge Primary School and Hollard Umbrella Provident Fund Comment: • Additional penalties and interest on late payment of tax to SARS in the future • SARS not currently enforcing such a practice • Liability always vests with the Fund • Incentive for Funds to actively police timeous payment of benefits to exiting members

16. MES vs Art Medical Equipment Pension Fund/Liberty Life/M Thobois/F Thobois The facts: • The Art Medical Equipment Pension Fund is now liquidated. • Preliminary determination handed down in 2001. • Complainant ‘s husband passed away in December 1998. • M Thobois (3rd Resp) was the sole trustee on the Fund. • All benefits on the Fund were secured by a policy of insurance held with Liberty which was underwriter and administrator. • Rules provided for payment of an insured death benefit of 3 x annual salary of member’s fund credit. • Crux of the complaint was payment of the insured portion as uninsured portion was paid out by liquidator

17. MES vs. Art Medical Equipment Pension Fund/Liberty Life/M Thobois/F Thobois The facts: • Due to non-payment of premiums Liberty Life had not accepted liability for payment of the insured death benefit. • Policy had lapsed before member’s death due to non-payment of premiums. • Liberty Life therefore not liable for payment of the death benefit.

18. MES vs. Art Medical Equipment Pension Fund/Liberty Life/M Thobois/F Thobois Third Respondent’s arguments: • That liability was to the liquidated fund and not to the Complainant. • Unfair and untenable procedure – 6 years after complaint is made and period from 22 March preliminary ruling • Adjudicator stating that service of complaint to administrator sufficient. • In any event the liquidator confirmed that complaint forwarded to 3rd and 4th respondents. • Poor health-prevented him from filing a detailed response-the ADJ did not buy that either.

19. MES vs. Art Medical Equipment Pension Fund/Liberty Life/M Thobois/F Thobois The merits in response • That participating employer facing financial difficulties – ADJ pointing out that did not submit scheme under section 18 of the PFA. • Had relied on intermediary for advice (wanted intermediary joined as respondent). • Failure to obtain signature for cheques from co-director and shareholder.

20. MES vs. Art Medical Equipment Pension Fund/Liberty Life/M Thobois/F Thobois Determination: In handing down his determination the ADJ looked at the duties of Trustees. • Duties embodied in fund rules, legislation and common law (Mostert NO v Old Mutual). • Current case – policy document as well as was an insured fund. • Payment of premiums was a trustee duty –premiums payable within 7 days after the end of the month for which payable. • Duty to direct, control and to pay contributions Sections 7C, 7D(d) of PFA

21. MES vs. Art Medical Equipment Pension Fund/Liberty Life/M Thobois/F Thobois • Section 13A – failure incurs interest at 15,5% per annum (Prescribed Rate) also a criminal offence. • The Financial Institutions (Investment of Funds) Act 39 of 1984 also imposes duties on trustees. • 3rd Respondent was the “official of the fund” • The Complainant as widow had suffered financial loss due to failure of 3rd Respondent to pay contributions. • The Complainant was liable to be compensated.

22. MES vs. Art Medical Equipment Pension Fund/Liberty Life/M Thobois/F Thobois Comment: • Ability of complainants to recover from Trustees • If payment not forthcoming have to go through enforcement procedure

23. Pelser vs SA Eagle Pension Fund/SA Eagle Insurance Company Limited • Case not so recent-unreported-2005 • Divorce orders enforcement always problematic. • Payment of tax on pension interest. • Whether Fund entitled to deduct tax from complainant’s portion (pension interest)

24. Pelser vs. SA Eagle Pension Fund/SA Eagle Insurance Company Limited Facts: • Complainant married to Mr W J van Rensburg-the fund member. • Divorced in 2001 – • Divorce order providing for among other things payment of pension interest -50%. • Provided that benefit payable to her on date of payment to fund member

25. Pelser vs. SA Eagle Pension Fund/SA Eagle Insurance Company Limited • Member resigned in February 2002. • Complainant requested payment of her portion in December 2002. • In 2003 Fund advised that member benefit transferred to preservation fund. • Complainant eventually accepted R50 000 from member by way of a personal cheque. • Her total portion amounted to just over R 74 000.

26. Pelser vs. SA Eagle Pension Fund/SA Eagle Insurance Company Limited Complaint • In terms of para 2B of the 2nd Schedule to the ITA not liable for tax. • That there must be an agreement with the member for deduction of tax in the divorce order. The response That no agreement required – member entitled to recover from non-member spouse

27. Pelser vs. SA Eagle Pension Fund/SA Eagle Insurance Company Limited Issues for determination: • Whether transfer to preservation fund constituted “payment” to member • Whether Complainant was liable for tax on her portion • Whether in terms of para 2B an agreement for recovery of tax needed to be included in the divorce order • Whether the Complainant was entitled to interest

28. Pelser vs SA Eagle Pension Fund/SA Eagle Insurance Company Limited Determination • Transfer constituted “payment” – payment vs mode of payment. • Referring to Income Tax Special Court case NO 10404 (1998: 1 JTLR 13) -non-member spouse owner of pension interest portion allocated at divorce-”accrue in respect of”and not “accrue to.” • Para 2B inserted for tax collection convenience. • Fund not entitled to deduct tax and liable to pay full benefit to Complainant. • No agreement required in the divorce order between member and non-member spouse for recovery of tax.

29. Pelser vs SA Eagle Pension Fund/SA Eagle Insurance Company Limited Determination • Para 2B does not stipulate the manner in which tax can be recovered • Fund ordered to pay her the portion deducted plus interest at 15.5% • Interest at 15.5% on the R50 000 • In the absence of rule or contract interest payable on “mora debitoris” principles

30. Pelser vs. SA Eagle Pension Fund/SA Eagle Insurance Company Limited Comment: • Liability vests with the transferring fund and not with the preservation fund • Benefit already transferred to another fund • ADJ imputed a time by when tax directive should have been applied for • Cost to Fund to pay to non-member spouse

31. Thank you