4 of 2019
CANCELLATION OF TAX DIRECTIVES
MC Roelofse (“Complainant”) v Basil Read Group Provident Fund (“Fund”) and ACA Employee Benefits (Pty) Ltd (“Administrator”)
The Complainant terminated his service with his employer and completed a withdrawal claim form, selecting resignation as his reason for the exit from the Fund. The Complainant was paid a portion of his withdrawal benefit in cash and the remainder was transferred to another fund as per his instruction.
The Complainant’s financial adviser queried the amount that was paid into the Complainant’s bank account after tax was deducted. The Complainant wanted the tax directive to be cancelled and the process to be reversed to allow him to select early retirement instead of resignation. According to the Complainant, he was not assisted when he completed the claim form and thus erroneously ticked resignation instead of early retirement.
The Adjudicator confirmed that the Administrator had acted correctly by paying a withdrawal benefit, as the Complainant had indicated resignation on his claim form. Although the rules of the Fund provide for early retirement if the employer consents, the Complainant opted to resign from the employer. A lump sum benefit accrues for tax purposes when an election is made in respect of that benefit and the accrual date cannot be changed once a person has made the election and as a result, becomes unconditionally entitled to the benefit. The cancellation of a tax directive will only be permitted by SARS where a bona fide mistake has been made.
It cannot be said that the Complainant made a bona fide mistake as the withdrawal instruction on the form he signed clearly explained the consequences of taking a withdrawal benefit. The Complainant’s circumstances do not fall within the circumstances under which a tax directive can be cancelled.
The Adjudicator dismissed the complaint.
SARS will only allow the cancellation of a tax directive where a bona fide mistake has been made.
WITHHOLDING OF BENEFITS
Lack of evidence of court proceedings
MD Masha (“Complainant”) v Auto Workers Provident Fund (“Fund”) and Marndre Beleggings (Pty) Ltd T/A Zenex Jean Avenue (“Employer”)
The Complainant was dissatisfied with the withholding of his withdrawal benefit in terms of section 37D (1)(b)(ii) of the Act following his exit from employment.
The Complainant was accused by the Employer of theft of money and he was served with a summons to pay R36 000 and R90 000 respectively. The Fund was notified by the Employer that the matter was ongoing from 2010 and in 2017 the Employer’s attorneys confirmed that the matter was still ongoing. The Complainant’s fund credit was less than the amount that the Employer sought.
The Complainant’s benefit that was due to him was being withheld pending the outcome of the court case.
The Employer failed to provide a copy of the summons to the Adjudicator and it was therefore held that she was not in a position to determine whether the Complainant’s alleged criminal behaviour falls within the ambit of section 37D.
The Adjudicator held that the Complainant had left employment in January 2010 and therefore there was an unreasonable delay in withholding his withdrawal benefit and that there was no proof that the pending civil case against the Complainant complied with section 37D.
A seven year delay was too long after the dismissal, and the Fund cannot withhold the Complainant’s benefit indefinitely. The board of the Fund failed to act with due care, diligence and good faith in dealing with the Complainant’s withdrawal benefit. The board’s failure to request progress reports on the civil case was found to be unacceptable and amounted to a dereliction of its fiduciary duties.
The Adjudicator ordered the release of the Complainant’s withdrawal benefit with interest at 10.25% per annum from 2010 to 2017.
Boards have a duty of due care, diligence and good faith towards its members and should not allow the unreasonable withholding of members’ benefits where employers do not provide progress reports on civil and criminal proceedings against the former employee.
Performance bonus refund
SS Ratlala (“Complainant”) v Bokamoso Retirement Fund (“Fund”) and Akani Retirement Fund Administrators (Pty) Ltd (“Employer”)
The Complainant was dissatisfied with a deduction from his withdrawal benefit following the termination of his service with the Employer and sought payment of the amount that was wrongfully deducted from his withdrawal benefit.
The Complainant on termination of his service with the Employer was informed that he owed the Employer money in respect of the performance bonus that was paid to him during his employment.
The Complainant submitted that the principal officer of the Fund and the finance manager of the Employer indicated that the Complainant needed to authorise the Fund to deduct the amount from his withdrawal benefit before the benefit would be released. Even though he was aware that the deduction was not permissible in terms of the Act, he granted the authorisation so that his withdrawal benefit could be paid.
The Adjudicator held that a refund of the performance bonus that was paid to the Complainant does not fall within the ambit of section 37D as the Complainant did not cause damage to the Employer due to theft, dishonesty, fraud or misconduct. Therefore the Fund could not attach the Complainant’s withdrawal benefit.
The Fund acted unlawfully in authorising the attachment and deduction from the Complainant’s withdrawal benefit and the Adjudicator ordered the Fund to pay the Complainant the amount that was deducted together with interest at 10.5% per annum.
The Adjudicator raised concern that the Employer is a key player in the pension funds industry and is therefore expected to observe the application of the Act and referred the matter to the then FSB for corrective action to be taken against the Fund and the Employer.
A signed authorisation for the refund of a performance bonus does not fall within the ambit of section 37D and is therefore not an allowable deduction from a member’s benefit in the fund.
FINANCIAL SERVICES TRIBUNAL RULINGS
Payment of a death benefit to a testamentary trust
N Luthuli and A Wade (“Applicants”) v The Pension Funds Adjudicator (“Adjudicator”), Umgeni Water Pension Fund (“Fund”), Sanlam Life Insurance Limited (“Administrator”) and Umgeni Water (“Employer”)
The Applicants were dissatisfied with the decision of the Adjudicator to uphold the decision of the board of the Fund to pay the deceased member’s dependants’ death benefits to the Absa Beneficiary Fund instead of a testamentary trust as stated in the deceased’s will and thus brought the matter before the Tribunal for reconsideration.
The deceased member left a will wherein she directed that a trust be set up for the benefit of her minor children and nominated one of the Applicants as the executor of her estate and trustee of the trust.
The Fund explained that it cannot make payment of the death benefit into a testamentary trust and that payment of the death benefit into the testamentary trust would result in the cross-subsidisation between the children’s income and expenses. Each child had to own his capital and income and be responsible for his expenses and the testamentary trust did not accommodate it. The Fund further explained that the children’s benefits would be transferred to the ABSA Beneficiary Fund where each child’s benefit would be kept in a separate account for the benefit of each child.
The Tribunal held that the Adjudicator acted correctly in upholding the board’s decision to pay the death benefit into the ABSA Beneficiary Fund and that there was nothing in the evidence that suggested that the decision to pay the death benefit into the ABSA Beneficiary Fund was not in the best interest of the minor children.
The Tribunal dismissed the application and upheld the Adjudicator’s decision to dismiss the complaint.
Payment of death benefits into a testamentary trust account could result in the cross-subsidisation between a beneficiary’s income and expenses. Each beneficiary should own his/her capital and income and be responsible for his/her expenses.
Valid nomination of beneficiary; factual dependency
P Gunpath (“Applicant”) v Momentum FundsatWork (“Fund”) and the Pension Funds Adjudicator (“Adjudicator”)
Whether the Applicant was a nominee: The Applicant is the sister of the deceased member and she disputed the Fund’s submission that the deceased had not completed a beneficiary nomination form. According to the Applicant she was validly nominated by the deceased member and she relied on the employee personal details form which was completed by the deceased and kept by the employer.
The Tribunal had sight of the employee personal details form and was of the view that the form could not be regarded as a beneficiary nomination form which entitled her to the death benefit. The employee personal details form was not signed nor dated and it did not relate to the Fund. The information on the form was general in nature and related to issues such as emergency contact persons and next of kin. The form contained a column that required an employee to mark whether the persons named were dependants for medical aid purposes or the purposes of the Fund. The deceased had not indicated whether the persons were dependants or beneficiaries in respect of the medical aid or the Fund. The Tribunal held that the form is not a beneficiary nomination form in relation to the Fund.
Legal or factual dependency: The Fund conducted an investigation and concluded that none of the relatives of the deceased member could prove that they were legally or factually dependent on the deceased member. As none of the potential dependants could prove their dependency on the deceased, the Fund resolved to allocate the deceased’s benefit to his estate. The Adjudicator ordered the Fund to reconsider its decision to allocate the death benefit to the deceased’s estate as the Fund had failed to properly investigate the dependency of the Applicant on the deceased. The Applicant was of the view that she should be regarded as a dependant based on the deceased’s employee details form and the deposits made into her current account by the deceased. The Adjudicator held that the cash deposits made by the deceased to the Applicant were factual proof that the deceased was maintaining the Applicant.
The Tribunal held that there was no legal obligation on the deceased to maintain the Applicant and thus she was not a legal dependant of the deceased.
The Tribunal then analysed the Applicant’s bank statements and found that the deceased had only made nine deposits to the Applicant from a total of about 3000 transactions over a space of a year and held that the deposits are not proof that the Applicant was, in fact, dependent on the deceased for maintenance. The deposits were too varied in value and few, irregular and spaced too far apart to provide a pattern indicative of factual maintenance of the Applicant by the deceased.
The Tribunal held that the deceased gave money to the Applicant on an ad hoc basis to assist her as and when needed, however this did not create an obligation entitling the Applicant to acquire a right to be maintained by the deceased. To qualify as a factual dependant for maintenance, there should be a need for such maintenance, the maintenance must be contributed on a regular basis and should ideally be in the form of amounts which do not differ drastically in value.
The deposits made to the Applicant indicated generosity on the part of the deceased towards the Applicant and it was held that generosity should never be a catalyst for obligation.
The Tribunal concluded that the Applicant was neither a factual nor legal dependent of the deceased.
An employee personal details form does not constitute a nomination form if it does not require or contain nominations. Ad hoc payments to a person does not create an obligation which entitles the person to be a factual dependant. There must be a need for maintenance and payments must be regular, and ideally not vary in amounts. Generosity should never be a catalyst for obligation.
Legal dependency
Krean Naidoo (“Applicant”) v Coca Cola Shanduka Beverage Provident Fund (“Fund”), Alexander Forbes Financial Services (“Administrator”) and Pension Funds Adjudicator (“Adjudicator”).
The Pension Funds Adjudicator’s determination was reported on in the Pension Funds Adjudicator rulings volume 3/2019. It has subsequently been referred to and ruled upon by the Tribunal.
The Applicant was the spouse of the deceased member and he was dissatisfied with the Fund’s decision to pay the death benefit into the deceased’s estate late account. He submitted that he was the deceased’s legal spouse.
The Applicant submitted proof that he was not financially dependent on the deceased but was surprised that the Fund resolved to pay the deceased’s death benefit into the estate late account. The Applicant submitted that even though he was not financially dependent on his wife, he was in terms of the Act still a “spouse” and thereby entitled to her death benefit. He made reference to the definition of “dependant” in the Act.
The Fund provided that it had exercised its discretion correctly and it was entitled to pay the death benefit into the deceased’s estate. The Fund relied on the fact that the deceased and the Applicant were estranged at the time of her death; divorce proceedings had already commenced; he was not financially dependent on the deceased; the deceased did not have any other dependants or nominees, and the deceased did not complete a beneficiary nomination form.
The Adjudicator held the view that the Fund performed a reasonable investigation, followed the proper process, and exercised its discretion by considering all the relevant factors. It was on this basis that the Adjudicator had no grounds to interfere with the Fund’s decision and therefore dismissed the complaint.
The Applicant subsequently referred the case to the Tribunal, which held that there always exists a reciprocal duty of support between spouses as a direct consequence of marriage and the duty of support can continue after the marriage has ended in divorce.
The Tribunal found that on the face of it, the Applicant was still a spouse and the Act makes provision for a spouse to benefit from a death benefit. The Tribunal held that the starting point should have been to acknowledge that the Applicant was a legal dependant. The Fund still has the discretion to determine whether the Applicant was entitled to the benefits.
The Tribunal, therefore ordered that the matter be remitted to the Adjudicator for reconsideration.
The absence of financial dependency does not automatically disqualify a legal dependant from being considered. There exists a reciprocal duty of support between spouses and thus legal dependency should be considered even though spouses were not financially dependent on each other.