2 of 2022
Court cases on the retrospective application of a rule amendment
In the cases of MEPF v Ramohale 27708/18 and MEPF v Mudau 1159/2020, before the High Court and Supreme Court of Appeal (SCA) respectively, members were dissatisfied with the reduced withdrawal benefits paid to them by the Municipal Employees Pension Fund (MEPF) based on a retrospective rule amendment.
Both Mr Ramohale and Mr Mudau were employed by local municipalities and were members of the MEPF. At the time when they became members of the MEPF, its rules provided that a member leaving the MEPF before retirement would be paid a withdrawal benefit of three times the value of his or her contributions. The MEPF was able to sustain this generous withdrawal benefit as prior to the 2008 global financial meltdown, it enjoyed high investment returns. After the meltdown, investment returns dropped significantly and the MEPF’s actuaries advised the board of management that the high withdrawal benefit was placing a significant financial strain on the fund, and it was at risk of failing to meet its liabilities. It was recommended that the rules be amended to ensure the MEPF’s sustainability. The MEPF was concerned that unless the change was made with immediate effect (i.e. retrospectively by the time the rule was registered) members would resign in their droves, putting the fund under financial pressure. As a result, the board resolved in June 2013 to amend the rules retrospectively with effect from 1 April 2013 to provide for a withdrawal benefit of 1.5 times the member’s contributions. The FSCA approved the rule amendment on 1 April 2014, with an effective date of 1 April 2013.
Mr Ramohale and Mr Mudau resigned from their employers and ceased to be members of the MEPF on 15 May 2013 and 31 May 2013, respectively. They received withdrawal benefits of 1.5 times contributions in terms of the rule amendment and subsequently lodged complaints with the Pension Funds Adjudicator to receive the benefit of three times contributions.
In both cases the Adjudicator ordered the MEPF to pay the members the difference between the benefit of three times the value of contributions and 1.5 times, as she found that the amended rule could not be applied to benefits that accrued before the date on which it had been approved by the FSCA. The MEPF took the cases to the High Court, requesting the Adjudicator’s determination to be set aside.
In the Ramohale case, the Gauteng High Court found that once a rule amendment was approved, it was not up to the Adjudicator to decide on its application. The registration of the amendment by the FSCA with retrospective effect did not require any interpretation because it was what it said to be, and its application was 1 April 2013. The Court held that the Adjudicator had exceeded her authority by determining that the amended rule did not apply retrospectively. The MEPF’s rules allow it to regulate itself and to amend its rules, and the Adjudicator has no authority to determine how the rules will apply.
In the Mudau case, however, the Gauteng High Court upheld the Adjudicator’s determination, stating that the amended rule could not be applied to withdrawal benefits that accrued prior to its approval by the FSCA. The MEPF appealed to the SCA.
The SCA found that the rules of the MEPF authorises it to amend its rules, subject to the provisions of section 12 of the Pension Funds Act. Section 12 states that a pension fund may alter or rescind any rule, or make any additional rule, provided that it does not affect any right of a creditor (other than a member or shareholder of the fund), and it has been approved and duly registered by the FSCA. In terms of section 12(4), the FSCA shall register the amended rule if it is satisfied that the proposed amendment is consistent with the Act and is financially sound. The amended rule would then take effect from a date determined by the fund concerned, and if the fund has not determined a date, the rule becomes effective on the date of registration.
A unanimous SCA bench held that:
- Section 12 of the Pension Funds Act empowers a fund, subject to the approval of the FSCA, to amend its rules and to determine the date on which the amendment will become effective.
- If, by the amendment of its rules, the fund intends to interfere with rights retrospectively, this intention must be given effect to.
- In this case, the MEPF had decided that the amendment would have retrospective effect from 1 April 2013 and its application to the calculation of Mudau’s benefit had therefore not been invalid.
The MEPF’s appeal was accordingly successful.
In terms of the Ramohala case, once a rule amendment has been approved by the FSCA, the Adjudicator has no jurisdiction to make a finding regarding its validity. In the Mudau case, the SCA reversed the previous SCA decision in Tek Corporation Provident Fund & others v Lorentz, where it relied on section 13 of the Pension Funds Act, which states that the fund rules are binding on the fund and its members, to limit the powers of the fund to those described by the rules at the time the power is exercised. If the judgment of the SCA in Mudau is not taken to the Constitutional Court and overturned, the rights of members and beneficiaries of retirement funds could be affected, for instance a board of management could lower a death benefit with an effective date prior to a member’s death.
Distribution of death benefit – regular payments
Pension Funds Adjudicator determination PFA/WC/000817272021/YVT concerns the payment of a death benefit by a retirement fund following the death of a member. The board of management of the fund decided to allocate 90% of the benefit to the deceased member’s spouse and 5% to each of her sons from a previous marriage (aged 36 and 38).
The complainant is one of the deceased member’s sons. He submitted that he was not financially dependent on his deceased mother, but he was a legal dependant, and the deceased made periodic payments to him and his brother. His brother does not own property and has two children to support. He felt that their mother would have assisted them in future to acquire property and furniture. He also contended that his mother’s spouse was self-sufficient and there was no interdependency between him and his mother. He wishes the board to allocate 33% to all three parties as their dependencies were similar.
The fund referred to Pretorius vs Pension Funds Adjudicator and Leza Pension Fund (In Perspective 1 of 2021) and contended that a major child who had not been nominated, will not be eligible to share in the allocation unless the person can demonstrate financial dependency. Although the complainant and his brother are legal dependants, they are both employed and did not receive regular payments from the deceased.
The Adjudicator found that the fact that a person is a legal dependant, does not automatically give them the right to share in the benefit. Ad hoc payments do not constitute financial dependency. The object of section 37C of the Pension Funds Act is to ensure that dependants are not left destitute. The deceased member’s spouse is a legal dependant by way of marriage and a factual dependant by way of the shared household and other expenses. He is 63 years old and his future earning potential is limited.
The Adjudicator’s duty is not to determine the fairest distribution, but to determine whether the board has acted rationally and arrived at a proper and lawful decision. She found that the board had considered all relevant factors and ignored all irrelevant factors and dismissed the complaint.
A major child is a legal dependant, but is not automatically entitled to a portion of a death benefit. The major child must demonstrate financial dependency on the deceased member in order to be considered for an allocation. Ad hoc payments from the deceased do not equate to financial dependency.
Delays in matters of damage to the employer
In the High Court case of Mr J vs Telkom Retirement Fund and Telkom 17342/2021, Mr J resigned from Telkom in 2012 and lodged an application against the Fund with the Court, requesting payment of his retirement benefit. The Fund did not oppose the application, but Telkom did and instituted a counterapplication seeking an interim order that the Fund be interdicted from paying the retirement benefit pending the finalisation of an action that Telkom instituted against Mr J.
In 2013 Mr J was informed that his pension benefit would not be paid out until judgement had been obtained in respect of the criminal and civil cases instituted by Telkom against him. As a result, he lodged a complaint with the Pension Funds Adjudicator, who found that she did not have jurisdiction over his complaint as summons had already been issued by Telkom. Telkom issued a summons against Mr J in 2014 claiming an amount of R200 million as contractual damages, caused by his breach of contract. According to Telkom, Mr J had during his employment accessed certain of Telkom’s systems and data and sold the data to Telkom’s competitors.
Mr J is of the view that Telkom caused unnecessary delay in the process and did not proceed with the civil claim against him, nor did the criminal case proceed. According to Telkom the reason for the delay in the civil action was that the National Prosecuting Authority (NPA) requested it to hold the civil matter over pending the finalisation of the criminal matter. Telkom was hamstrung by the NPA’s delays but wanted to proceed with both the criminal and civil matters. They indicated that they will now proceed with the civil matter, despite the criminal matter not being finalised.
Mr J chose not to respond to the evidence provided by Telkom and relied on his right to remain silent and not incriminate himself in criminal proceedings that may follow. The result is that the Court was left in the dark as far as his version is concerned.
The Court found that although there was an inordinate delay, Mr J also has a duty not to contribute to any further delay. Both Mr J and Telkom failed to pursue the civil litigation to finality. Since both parties contributed to the delay and due to the exceptional circumstances of the case, the delay was reasonable. The Court was satisfied that Telkom established the existence of a prima facie right through the forensic report.
The Court further found that if the monies are paid out to Mr J he will, on his own version, try and meet his existing financial obligations, which in turn will leave Telkom with no recourse. A judgement against Mr J will be of no value if an interim interdict is not granted.
The Court was of the view that it will be in the interest of justice to grant the interim interdict, preventing the Fund from making payment to Mr J pending the finalisation of the civil case.
Although an employer should not be the cause of any delay in a 37D damage claim matter, a member also has a duty not to contribute to any delay.
Complaint by a member not eligible for membership
On 14 March 2022, the Constitutional Court handed down judgement in the matter of the Municipal Employees Pension Fund and Another v Mongwaketse [2022] ZACC 9.
Ms M was appointed by a local municipality in 2012 for a fixed term of five years and applied to become a member of the Municipal Employees Pension Fund (MEPF). The MEPF admitted her as a member, although in terms of its rules, persons employed by the Municipality for a limited duration were not eligible for membership.
In November 2014, Ms M discovered from a benefit statement that in terms of the fund rules, upon the termination of her supposed membership on the expiry of her contract, she would only receive back a sum of money based on her own contributions, whereas all the Municipality’s contributions paid in respect of her supposed membership, came out of her own remuneration. It was at this time that Ms M learnt that the MEPF’s rules did not entitle fixed-term employees to be members. She instructed the Municipality to cease further payments to the MEPF. Ms M’s fixed-term employment contract terminated at the end of January 2017 and was not renewed. She completed a withdrawal form and was paid a benefit in accordance with the fund rules.
Ms M lodged a complaint with the Adjudicator, requesting an order for the payment to her of the Municipality’s contributions as well. The Adjudicator found that Ms M was precluded from being a member of the MEPF as she was a fixed term employee and was thus not covered by the MEPF’s rules. She ordered the MEPF to refund Ms M the total of all the contributions made by her including those deemed to have been made by the Municipality, because the MEPF had not been entitled to receive the contributions.
The MEPF approached the High Court, stating that the Adjudicator’s finding was unlawful. It reasoned that the Adjudicator lacked jurisdiction as Ms M’s grievance did not fall within the definition of a “complaint” in the Pension Funds Act since she never became a member and was therefore a “stranger” to the MEPF. The High Court and subsequently the Supreme Court held that the Adjudicator did have jurisdiction to determine Ms M’s claim.
The case was referred to the Constitutional Court. On the interpretation of the “complaint” definition, the Court found that there was a dispute about the interpretation and application of the MEPF’s rules, namely whether Ms M was entitled to be a member. The grievance therefore relates to the “administration of a fund” in that the admission of Ms M to membership and the receipt of her contributions were acts of administration of the MEPF.
The Court further found that in terms of the MEPF’s rules, Ms M was not eligible for membership of the MEPF, the MEPF did not have the power to admit her as a member, and her membership was a nullity. The MEPF was enriched at her expense and the enrichment was at the cost of Ms M’s impoverishment. The Court held that the Adjudicator’s order against the MEPF for repayment of all contributions was correct.
The definition of “complaint” in the Pension Funds Act deserves a wide interpretation. A person who contributed to a fund while not being a member in terms of its rules, may lodge a complaint with the Adjudicator as the complaint relates to the administration of the fund.
Permanent life partnerships / definition of spouse
The Constitutional Court judgement in Bwanya v Master of the High Court, Cape Town and Others [2021] ZACC 51 may be of particular interest to funds that pay spouse’s pensions.
Ms Bwanya and the deceased lived together in a committed romantic relationship. Two months before they were to commence lobola negotiations, the deceased passed away. The deceased had a will, with his mother as the heir to his estate, but his mother had predeceased him.
Ms Bwanya lodged two claims against the deceased’s estate. The first claim was for inheritance in terms of the Intestate Succession Act and the second claim was for maintenance in terms of the Maintenance of Surviving Spouses Act. The claims were based on the fact that her permanent life partnership with the deceased was akin to a marriage and that they had undertaken reciprocal duties of support towards each other. Her claims were rejected by the executor of the estate as the rights in the legislation related only to married couples, not partners in permanent life partnerships.
Ms Bwanya approached the High Court, arguing that the legislation was unconstitutional to the extent that it excluded surviving partners in permanent heterosexual life partnerships, where the partners had undertaken reciprocal duties of support, from claiming maintenance and inheritance from the estates of their deceased partners. The High Court dismissed the challenge to the constitutionality of the Maintenance of Surviving Spouses Act, but ruled that the Intestate Succession Act was inconsistent with the Constitution and declared it invalid to the extent that it excludes the life partners in permanent heterosexual life partnerships. Ms Bwanya appealed the High Court’s ruling on the Maintenance of Surviving Spouses Act and lodged an application for confirmation of an order of constitutional invalidity of the relevant sections of the Intestate Succession Act made by the High Court.
- Maintenance of Surviving Spouses Act
The Constitutional Court agreed with Ms Bwanya and stressed in its judgement that permanent life partnerships are a legitimate family structure and are deserving of respect, and given recent developments of the common law, entitled to legal protection. It was held that the definition of “survivor” in the Maintenance of Surviving Spouses Act is unconstitutional and invalid insofar as it omits the words “and includes the surviving partner of a permanent life partnership terminated by the death of one partner in which the partners undertook reciprocal duties of support and in circumstances where the surviving partner has not received an equitable share in the deceased partner’s estate”. The judgment ordered that these words be read into the definition. “Spouse” and “marriage” are also declared to include a person in a permanent life partnership.
- Intestate Succession Act
The High Court found that it was clear that Ms Bwanya and the deceased were in a permanent life partnership. They had been living together in a stable and intimate relationship; they were engaged to be married; their partnership had most of the characteristics of a marriage; the deceased supported her financially and emotionally and introduced her to friends as his wife; they had undertaken reciprocal duties of support; and were to start a family together. Ms Bwanya contended further in the Constitutional Court that the Intestate Succession Act discriminates against her, and women similarly placed, on the grounds of gender, sexual orientation, and marital status.
The majority judgement from the Constitutional Court confirmed the declaration of invalidity of the relevant section of the Intestate Succession Act.
The declarations of invalidity of the relevant sections in both Acts were suspended for 18 months to afford Parliament an opportunity to amend the legislation.
Retirement funds offering spouse’s pensions may need to assess their rules to ensure alignment with the Bwanya ruling to no longer differentiate between spouses in a marriage and partners in a permanent life partnership.
Funds should also consider the requirements for a person being regarded as a permanent life partner and what will suffice as proof of such partnership. The Constitutional Court believes this is not an insurmountable task and pointed out that the courts have already suggested some factors to consider. These include:
- the respective ages of the partners
- the duration of the partnership
- how the relationship is perceived by others
- whether the parties share a common abode
- whether they have children together
- whether they share living expenses
- whether one partner supports the other
- whether they made provision for each other in their wills
Actuarial calculations may be necessary to establish how this change would affect the funding of benefits.