Failure to adhere to information requests from the Office of the Pension Funds Adjudicator (OPFA) may result in penalties once the Conduct of Financial Institutions Bill (COFI Bill) is enacted.
Last year, OPFA called for the codification of the Treating Customers Fairly (TCF) principles applicable to retirement funds to empower the Adjudicator to make binding determinations consistent with such principles.
In the 2022-2023 Annual Report, Naheem Essop, the senior legal advisor for OPFA, said that this advancement was nearing completion, given the imminent passage of the Conduct of Financial Institutions Bill (COFI Bill).
Read: When will COFI be served?
While not naming any names, Essop said “other funds” had been habitually uncooperative by failing to provide proper responses to complaints. He said failure to provide proper responses to complaints delayed the outcome of investigations and eroded trust between retirement funds and their clients. “The OPFA continues to report these habitual offenders to the FSCA for regulatory intervention. Once the COFI Bill is passed, the OPFA will prevail on the FSCA to issue conduct standards under the COFI Bill that will penalise the failure to comply with information requests by the OPFA,” said Essop. He added that this would be enhanced by the introduction of Ombud Council procedural rules applicable to the OPFA that are currently being developed in terms of section 201 of the Financial Sector Regulation (FSR) Act, 2017.
Amendments to the FSR Act have been proposed in the FSR Act Ombuds Revision Bill which will have a direct effect on the Adjudicator. It is proposed that Chapter VA of the Pension Funds Act, 1956 (“PF Act”), which established the OPFA, be imported into the FSR Act.
Along with the proposed transfer is a name change for the Adjudicator to be called the “Retirement Funds Ombud” and for the Act to be renamed the “Retirement Funds Act”.
Notable determinations
The 2022-2023 Annual Report includes a summary of important determinations made by die Adjudicator in the past financial year.
Muvhango Lukhaimane, OPFA’s pension funds adjudicator, said one of the advantages of a specialist tribunal such as OPFA is that parties could rest assured that there was a repository of specialist pensions law knowledge that understands the nuances of the retirement funds industry.
Below Moonstone highlights three of the seven determinations shared in the report which settled important areas of the law around pension funds administration.
OPFA jurisdiction – divorce orders
In M Barnard v Momentum RA and Others (PFA/ GP/00080145/2021), the complainant was divorced from the deceased member. She claimed that during their marriage the deceased was financially irresponsible and that she had taken out a retirement annuity policy in his name, paid the contributions and made it paid up prior to their divorce.
She submitted that in their divorce settlement, they had agreed that if the deceased member predeceased her, the benefit would be paid to her. She intended to divide the benefit between their two sons who were aged 21 and 23 at the time.
She claimed that since she paid for the policy, was the nominee on the policy, was named in his Will and was recorded in the divorce settlement as a beneficiary, then she should have been awarded the death benefit.
The deceased had a life partner whom he had been in a relationship with for 18 months prior to his death. They were engaged to be married.
The fund submitted that although the complainant was married to the deceased for 21 years, she was not financially dependent on him at the time of his death nor was there a maintenance order in her favour following their divorce. The children of the deceased submitted affidavits to the fund stating that they were not financially dependent on the deceased.
The fund submitted that the deceased’s life partner shared a joint household with him, and they shared expenses. Based on certain assumptions with regard to the permanent life partner’s level of dependency on the deceased and her projected life expectancy, the life partner’s dependency was calculated by the fund to be R657 094. Considering that the amount available for distribution was only R91 761, the fund allocated 100% of the benefit to the deceased’s permanent life partner.
The fund submitted that the nomination form was not binding and only serves as a guide to the board which the board may not use to fetter its discretion.
Since the value of the benefit was insufficient to cover the life partner’s loss of support, the fund decided not to allocate a portion to the complainant based on the nomination form.
The Adjudicator held:
- The permanent life partner qualified as such, and the period of their relationship did not matter. They shared a household and shared expenses, and she was entitled to be considered for an allocation.
- The board is not bound by a Will, or a nomination form completed by the deceased. Instead, same serves merely as a guide.
- The deceased was survived by dependants and a nominee. The fact that the complainant was nominated does not automatically give her a right to receive a portion of the death benefit.
- Considering that the complainant and her children were majors who were not dependent on the deceased at the time of his death and that the permanent life partner shared household expenses with the deceased, the board did not act irrationally in allocating 100% of the benefit to the permanent life partner.
The complaint was dismissed.
Withholding of benefits owing to criminal charges
In B Molose v Corporate Selection RUF (PFA/ GP/00078954/2021), the complainant was dissatisfied with the employer’s failure to sign his withdrawal claim form. He submitted that he had sent numerous emails to the employer without a response and despite accepting his resignation, the employer did not submit his form to the fund for processing his benefit.
The fund submitted that the withdrawal form was signed by the complainant on 16 February 2021 and only received on 9 March 2021. The form was not signed by the employer, and it was informed by the financial adviser that the employer had laid criminal charges against the complainant for theft.
The employer accused the complainant of stealing an amount of R40 000 from its safe. It reported the matter to the SAPS which held the accused in custody for 48 hours before releasing him without charge.
The fund requested the employer to provide it with either a written admission of liability or summons evidencing that it had instituted civil proceedings against the member. The fund also requested confirmation that the criminal case against the member was still being pursued.
The employer advised that it did not have a written admission of liability, no civil summons was issued because it was too costly and that the criminal case was not continuing due to police incompetence.
Based on the aforesaid, the fund decided that it would no longer withhold the benefit and that payment to the complainant would be made. However, at the time of the Adjudicator’s determination, still no payment had been made by the fund to the complainant.
The Adjudicator held:
- The fund was not in possession of any facts that could reasonably justify the continued withholding of the member’s benefit on the basis of a prima facie case.
- The criminal case appears to be abandoned on the basis of insufficient evidence and the employer has not instituted civil proceedings against the member.
- The mere opening of a criminal case cannot in and of itself constitute good grounds for the fund to withhold the benefit.
- The employer was not pursuing civil action as it deemed the costs to be too high. A significant amount of time had lapsed and even in respect of the criminal proceedings there appears to be no movement.
The fund was ordered to pay the complainant’s withdrawal benefit. (FST agreed – Case no. PFA8/2022)
Section 37C – Death benefits
In L Dickson v Netcare Pension Fund and Another (PFA/WC/00065907/2020), the complainant was nominated by the deceased to receive 100% of the benefit. The deceased passed away on 21 June 2019 and the nomination form was completed in 2004. The fund allocated 100% of the benefit to the deceased’s mother.
The complainant submitted that the deceased was raised by her grandparents from the age of four months and majority of her life she had an estranged relationship with her mother. The mother lived in the UK until her retirement and then relocated to South Africa where she lives off her pension and rental income from her 5-bedroom house. The mother is 73 years old, resides on her own and only has herself to fend for.
During 1999 to 2008, the complainant and the deceased were in a romantic relationship and engaged and despite the break-up they retained a close friendship and agreed to keep their nominations unchanged as she also did with her PPS policy. Further that this was the deceased’s wish.
The complainant submitted that the board’s decision be revised to reflect a more equitable split between her and the deceased’s mother. According to the complainant, a fair and equitable award would be 50% each. The fund submitted that the board had to consider the deceased’s Nomination of Beneficiary Form completed in 2004, in which the complainant was nominated to receive 100% of the death benefit, against the Deceased’s addendum to her will in which she had nominated her mother to receive 100% of her death benefit in 2017.
Further, that since the deceased had not updated the said form, the board elected to rather allocate 100% of the deceased’s death benefit to the deceased’s mother in line with the will and in line with the submitted proof of financial dependency on the deceased.
The Adjudicator held:
- a nominee is not entitled to be considered as a beneficiary because she was financially dependent on the deceased. The entitlement stems from the fact that the person concerned was nominated by the deceased and nothing more is required. A nominee does not have to prove that she was financially dependent on the deceased at the time of death.
- The deceased’s mother qualified as a dependant because the deceased did provide financial support to her. Therefore, the provisions of section 37C(1)(bA) of the Act apply because there is both a dependant and a nominee.
- The board failed to consider the extent of the deceased’s mother’s financial dependency on the deceased and the fact that she is the sole heir to the deceased’s entire estate including a 50% share of a house, is receiving a pension, receives income from rental property she owns in Somerset West, Cape Town and the amount is large enough to cover her living expenses and pay a portion to the complainant.
- The Adjudicator found that the fund failed to conduct a proper investigation.
The fund’s decision was set aside and ordered to reinvestigate.
