A retirement fund will have to compensate a fund member for lost investment growth after the Financial Services Tribunal (FST) found that the fund unlawfully transferred his benefit into its business account.
The business bank account yielded lower returns than the money market investment where the member’s funds were originally invested.
The applicant, “WO”, resigned from his job in February 2016. He wanted to defer taking his retirement benefit until he turned 65.
WO said he did not receive a statement or communication from the Fundsatwork Umbrella Pension Fund about his benefit for years after he left his employer. The fund did not dispute this.
The FST said the fund’s conduct in this regard violated section 7D(1)(c) of the PFA, which requires the board of a fund (trustees) to ensure that “adequate and appropriate information is communicated to the members and beneficiaries of the fund, informing them of their rights, benefits, and duties in terms of the rules of the fund, subject to such disclosure requirements as may be prescribed”.
When WO enquired about his benefit in February 2020, he was told it had been moved to the fund’s business bank account when he resigned his employment. This was done without his permission or knowledge.
In November 2021, when he requested statements about his retirement benefit, WO was informed that his benefit had been re-invested into the money market fund.
The Fundsatwork Umbrella Pension Fund said WO’s employer informed the fund of WO’s resignation via an online portal. The disinvestment process had to start within seven days of receipt of the withdrawal notification, in terms of the fund’s rules.
WO’s benefit was R5 921 966 when it was moved to the fund’s business bank account in April 2016. According to the fund, the investment earned interest of R2 115 879 between April 2016 and November 2020. The gross (before tax) benefit at the end of November 2020 was R8 037 845.
In November 2020, WO’s benefit was re-invested in the fund’s default investment portfolio. The fund did this for all members whose benefits were disinvested but not paid out.
Adjudicator dismisses the complaint
In October 2022, the Pension Funds Adjudicator dismissed WO’s complaint against the fund.
In his reconsideration application, WO said he was aggrieved by the comment in the Adjudicator’s determination that because he had been a former trustee for 27 years, he ought to have been aware of the fund’s rules and should have taken precautionary measures to safeguard his benefit.
The Adjudicator said that, in terms of the fund’s rules, it was WO’s responsibility to inform the fund in writing that he did not want the fund to commence with the disinvestment process, and he wanted his benefit to remain invested in the portfolio applicable to him. WO did not do this, so the fund had to pay the benefit into its bank account and await his instructions.
Section 7D(1)(c) of the Pension Funds Act (PFA) required the fund to provide WO with adequate information about his benefit, so he could make an informed decision. The Adjudicator did not believe the fund provided WO with adequate information after his benefit was disinvested.
At the same time, the Adjudicator said, fund members have a duty to obtain information and clarify their position before making a decision. If WO had sought out information about his benefit, he would have known where it was invested.
Was the withdrawal valid?
The Tribunal focus on whether the fund dealt with WO’s benefit according to its rules.
The rules defined a “withdrawal notification” as, among other things, receipt by the fund of:
- notification via a web-based administration portal by a representative of a participating employer, together with
- the information required by the South African Revenue Service
- all the information required by the fund, which included the information required to request a bank verification.
The fund submitted that it received the withdrawal notification, as defined by the rules. But the Tribunal said there was no evidence to confirm this.
The FST said it was clear that not all the requirements of a withdrawal notification, as defined, were met when the fund allegedly received the notification from WO’s erstwhile employer. Therefore, the provisions in the fund’s rules that regulated an automatic disinvestment were not triggered.
The Tribunal also noted that the fund’s rules did not appear to provide for the disinvestment of a member’s benefit into the fund’s business bank account. During the hearing, the fund was unable to refer to a specific rule empowering it to transfer the benefit into its business account.
The fund amended its rules with effect from 1 March 2016, the day after WO resigned from his job, and his benefit was subject to the amended rules from that date.
The Tribunal said was not clear why the fund did not apply the amended rules, which provided for a default investment portfolio (money market fund), to WO’s benefit.
It was equally unclear why WO’s benefit was not reinvested in the default investment portfolio pursuant to Regulation 38 of the PFA when the regulation became effective on 1 March 2019. The Tribunal said the Adjudicator had not considered this issue at all.
The Tribunal concluded that a valid withdrawal notification, as defined in the fund’s rules, had not occurred. Therefore, the subsequent disinvestment process and the transfer of WO’s benefit into the fund’s business bank account was irregular and unlawful.
The FST remitted the matter to the Adjudicator, to determine the amount WO should have received from the fund for the growth on his investment if his benefit had remained invested in the money market investment. The fund must pay this amount as part of WO’s retirement benefit.
