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September 5, 2022

IN PERSPECTIVE – 3 OF 2022

Jurisdiction of the Adjudicator where civil proceedings have already been instituted

In  this Financial Services Tribunal matter (PFA 63/2021), the participating employer lodged an application for reconsideration with the Tribunal against the decision of the Adjudicator, wherein the Adjudicator ordered the member’s withdrawal benefit to be released by the fund.

The member was suspended from employment for misappropriation of promotional liquor and to avoid a disciplinary enquiry, he resigned from employment and submitted a withdrawal claim form. The form contained a disclaimer at the bottom that it would be regarded as invalid if the employer’s signature did not appear on it. The form was not signed by the employer and the member was notified that his withdrawal would not be processed given that the employer would possibly institute civil action against the member. This response prompted the member to lodge a complaint with the Adjudicator for the release of his withdrawal benefit.

The Adjudicator issued a determination in favour of the member, following which the employer lodged an application for reconsideration against the Adjudicator’s determination.

The employer submitted inter alia, that:

  • the complaint was not effectively served on it and/or the fund;
  • it was not afforded an opportunity to state its case (audi alteram partem rule); and
  • the Adjudicator lacked jurisdiction to adjudicate on the matter, as civil proceedings had already been instituted and as a result the determination by the Adjudicator was irregular.

Serving of the complaint

The Tribunal found that the complaint was not effectively served on all affected parties and therefore irregular. The Adjudicator was aware of who was appointed as the fund’s legal advisors, but only forwarded the complaint to the fund administrator. The Adjudicator has a duty to ensure that all affected parties receive proper notification of proceedings and if no response is received from the affected parties, a telephone call will be sufficient to determine whether the complaint was received by them or not. This failure by the Adjudicator denied the affected parties their right to be heard and to state their case before the Adjudicator (audi alteram partem rule).

Jurisdiction

The Pension Funds Act provides that the Adjudicator shall not investigate a complaint if, before the lodging of the complaint, proceedings have been instituted in a civil court in respect of a matter that would constitute the subject matter of the investigation. The summons in respect of the civil proceedings was issued prior to the complaint being lodged with the Adjudicator and therefore the Adjudicator did not have jurisdiction to investigate the complaint. There was no evidence that the Adjudicator had made enquiries regarding the possible civil action instituted by the employer or that the member disclosed to the Adjudicator that a summons was served on him. As a result, the Tribunal was not satisfied with the investigation done by the Adjudicator and found that the determination was granted prematurely and therefore should be set aside.

The Tribunal ordered that the application for reconsideration was successful, and that the determination of the Adjudicator is set aside and remitted back for consideration.

The Adjudicator does not have jurisdiction to investigate a matter where civil proceedings that would constitute the subject matter of the investigation, have already been instituted.

High court case regarding marriages out of community of property without the accrual system and whether redistribution of benefits may be applied for

G v Minister of Home Affairs

Before 1 November 1984, South Africa had only two marriage systems:

  • In community of property with the marital power, which meant the couple shared all assets and debts. In addition, the marital power gave the husband the power to among other, incur debts and to buy and sell the joint assets as well as his wife’s assets over which the marital power had not been excluded (Section 11 of the Matrimonial Property Act abolished the marital power and was replaced by a system of equal administration of the joint estate), and
  • Out of community of property with the exclusion of both community of profit and loss and the husband’s marital power, which meant the couple’s assets and debts were separated.

On 1 November 1984, the Matrimonial Property Act came into effect and the accrual system saw the light, introducing a third marital system.

The accrual system means that the assets and liabilities before the marriage remain those of the spouses in their individual capacity and what they gain during the marriage is divided between them upon dissolution of the marriage.

For marriages out of community of property entered into prior to 1 November 1984, courts still have a discretion to redistribute assets on divorce, so that any asset or sum of money may be transferred from one spouse to the other if the court considers it just. However, this does not apply to marriages out of community of property entered into after 1 November 1984, where the court has no such discretion.

This High Court case concerns the constitutionality of this provision, namely that spouses married out of community of property after 1 November 1984 cannot apply for redistribution of assets. The applicant argued that the differentiation based on a date was arbitrary and irrational and discriminated against people married after November 1984.

The court found that the main disadvantage of a marriage out of community of property without the accrual system – “a system of complete separation” – is that no matter how long the marriage has endured and how much the economically disadvantaged party had contributed to the other’s economic and financial success, that party does not have a right to share in the other’s gains.

The court found that the time-bar was unconstitutional and referred the matter to the Constitutional Court for confirmation. The outcome of the Constitutional Court decision is awaited.

The Minister of Justice and Constitutional Development initially opposed the application, but later indicated he would abide by the court’s decision. He said the issue was already under consideration by the South African Law Research Commission for possible legislative amendment.

Should the Constitutional Court strike the time bar from the Matrimonial Property Act, courts will also be able to order a redistribution of assets at the dissolution of marriages out of community of property without the accrual system entered into after 1 November 1984.

Pension Funds Adjudicator Determination on whether a board may make a new 37C decision before the death benefit has been paid

The determination PFA/GP/00082497/2021/AT concerns the distribution of a death benefit by the fund following the death of its member. The complainant, who was the spouse of a deceased member, submitted that she received a letter from the fund indicating that the board had allocated the deceased’s death benefit. The complainant indicated to the board that she was dissatisfied with the allocation of the death benefit and believed the board did not consider all the relevant factors when making its decision. The complainant questioned the fairness of allocating the same percentage of the death benefit to the deceased’s children. The deceased had two minor children – a daughter from a previous marriage and a 4-month old son from his marriage to the complainant. As a result of the complainant’s representations, the board revised its resolution on 25 November 2020 and re-allocated the death benefit. The revised resolution resulted in the complainant receiving a smaller allocation of the death benefit than what was originally allocated on 5 November 2020. The complainant’s minor son was allocated a larger portion as the complainant argued that the portion allocated to her minor child was not sufficient to sustain him until he becomes a major.

The complainant was not satisfied with the board’s revised allocation and then submitted that the board was not legally entitled to revise the original resolution, since the board became functus officio and did not have the power to modify the original resolution made previously. She argued that the functus officio principle means that an administrative official, when exercising a public power, cannot change their decision once a final decision has been reached. It is trite that the functus officio principle applies to boards of retirement funds when it distributes a death benefit in terms of section 37C. The board’s initial decision or resolution will stand until it is set aside by the Adjudicator or the High Court.

The Adjudicator found that the decision of a board cannot be regarded as functus officio until it has executed its mandate of paying the death benefit to all the deceased’s beneficiaries. This is the only time when the board’s mandate will expire. The Adjudicator further stated that nothing will prevent a board from reviewing its decision if proper procedures were not followed, or if new information affecting the initial decision is provided. By doing this, the board ensures that the death benefit is paid correctly.

The Adjudicator held that the board was allowed to amend its initial resolution and that the board was not functus officio at the time when it made its original resolution on 5 November 2020.

The decision of a board cannot be regarded as functus officio if it had not executed its mandate of paying the death benefit to all the beneficiaries, i.e. the board may at any time before payment make a new decision.  A board will be able to reconsider its decision if new information comes to light which will impact the distribution of the death benefit.

Media Statement by the Pension Funds Adjudicator

Bokamoso Retirement Fund v Pension Funds Adjudicator

The Pension Funds Adjudicator issued a media statement on 30 June 2022 in response to media reports creating the impression that employers may make deductions from pension benefits prohibited by the Pension Funds Act.

The High Court recently ruled in favour of a fund and set aside the Adjudicator’s early determination where a student loan was deducted from a member’s pension benefit. The complaint did not relate to the legality of the deduction, but about the actual amount to be deducted. The Adjudicator was satisfied with the breakdown provided and confirmed that the member received the full benefit. The Adjudicator then later re-opened the matter and found that the deduction was actually unlawful in terms of section 37D of the Act. It is the procedure of opening a case again that was taken on appeal. The Adjudicator confirmed in the media statement that the High Court order was granted as a result of incorrect procedure followed by the Adjudicator and not because the court found the deduction to be lawful.

Enforceable undertakings against funds and board members

The African National Congress Staff Provident Fund (the Fund)

During 2020, the Fund notified the Financial Sector Conduct Authority (FSCA) that the employer was in contravention of the rules of the Fund and section 13A of the Act because contributions have not been paid to the Fund for some time. During 2021, the Fund informed the FSCA that the employer was in further arrears with its contributions and the FSCA then issued a letter to the employer of non-compliance with section 13A of the Pension Funds Act.

The FSCA is concerned about the ongoing non-compliance with section 13A and issued an enforceable undertaking against the Fund, whereby the board is required to exercise its fiduciary duties responsibly, by undertaking to:

  • enforce its agreement with the employer, so that the employer adheres to its statutory obligation of paying contributions to the Fund, by making monthly payments of R10m from 1 October 2022 until the arrear contributions plus late payment interest have been paid in full;
  • ensure that the employer pays those insured death benefits that were not honoured by the insurer due to outstanding premiums;
  • ensure that during the 12 month-period of suspension of contributions, the risk benefit premiums and administration costs are paid by the employer during this period;
  • confirm to the FSCA that the employer is not deducting contributions from members’ salaries during the period of suspension;
  • report monthly to the FSCA on the status of the arrear contributions and whether the employer is adhering to its obligations;
  • communicate with the members on a monthly basis on the status of the arrear contributions and provide members with a monthly benefit statement until the arrears are paid in full.

The enforceable undertaking again emphasises that the onus of ensuring that there are no arrear contributions and to consider appropriate action if there are arrears, remains on the board of a fund.

The Private Security Sector Provident Fund (PSSPF)

The FSCA investigated the PSSPF and found that:

  • the board deviated from its own procurement policy when it appointed service providers;
  • the agreements of service providers were inconsistent with the tender proposals;
  • tender negotiations took place after the tender process;
  • the rates paid to board members were higher and not consistent with their own remuneration policy;
  • board members attended a golf day and a conference, for which they also received remuneration;
  • chairpersons of the sub-committees received a fixed monthly fee, in addition to their fee for attending meetings, which is not standard practice in the industry.

The FSCA concluded that the board members failed to protect the interests of members in terms of section 7C of the Pension Funds Act, they failed in their fiduciary duty by failing to ensure that the procurement of service providers was done in good faith and cost effectively and they failed to ensure that the resources of the PSSPF were utilised in a sound and cost-effective manner.

As a result, the FSCA removed and imposed administrative penalties on some board members and objected to the appointment of the principal officer. The administrative penalties ranged from R10 100 to R230 000 per board member.

The FSCA emphasised that the improper management of retirement funds can cause significant financial prejudice for the funds and its members, which may result in old-age poverty. While the FSCA accepts that the complexity of overseeing retirement funds could at times result in genuine mistakes by board members, they confirmed that conduct that is deliberate or grossly reckless and self-enriching, and an abuse of position with ulterior motives or malicious intent, will be sanctioned.

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