By choosing to continue, you are consenting to the use and functioning of this site as is in accordance with our Privacy Policy.

ORIGINAL THINKING
find an article

 
PRINT | |

ENSight

 

02 Apr 2024
BY Wandile Ndabambi , Michelle Clague AND Atlegang Raganya

Factors for consideration by trustees when withholding a member's pension fund benefits

Various court decisions have established parameters regarding the withholding of a member's benefit by a pension fund, under section 37D(1)(b)(ii) of the Pension Funds Act 24, 1956 (“the Act”). In the recent judgment of Gammon v University of Johannesburg Pension Fund, the Pension Funds Adjudicator had to determine whether the UJ pension fund board had complied with its duties before deciding to withhold an employee’s benefit in terms of section 37D(1)(b)(ii) after the member was dismissed from his employment due to gross negligence in the performance of his duties. Additionally, whether the board of the fund correctly exercised its discretion with care and, in the process, balanced the competing interests of the member and his employer, having regard to the strength of the employer's claim for damages against the former employee.

In terms of section 7C(2)(a) of the Act, the board of a fund must take all reasonable steps to ensure that the interests of members in terms of the rules of the fund and the provisions of the Act are protected and observed. The general rule is that a member's pension fund benefits are not executable. There are, however, limited exceptions to this rule.

Section 37D of the Act outlines instances when a fund may withhold or deduct an amount from a member’s pension fund benefit. The most contested of these instances is in terms of section 37D(1)(b)(ii), which allows a fund to withhold and/or deduct any amount due to a member in favour of the employer for compensation in respect of damages caused to the employer by the member’s theft, dishonesty, fraud, or misconduct.

In this case, the member was dismissed by his employer for gross negligence. It also transpired following ongoing investigations that there was possibly fraud or theft too. Before his dismissal, the employer conducted an investigation resulting in a disciplinary hearing with the employee, who was subsequently found guilty of gross misconduct and dismissed.

The member contended that section 37D(1)(b)(ii) should not apply as the employer had not made out a prima facie case against him in respect of damages that he allegedly caused arose due to his alleged theft, dishonesty, fraud, or misconduct.

Certain conditions must exist for the fund to withhold or deduct an amount from a member's pension benefits:

  • Firstly, the fund’s rules must allow for withholding a member’s benefits. In Municipal Employees Pension Fund v Mongwaketse, the court held that if a fund's rules do not afford it the legal power or capacity to act, any purported act by the fund is ultra vires and accordingly, null and void. Simply put, its actions are invalid. Although a plain reading of section 37D(1)(b)(ii) does not provide specifically for the withholding of a member’s pension fund benefits, the court in the case of Highveld Steel and Vanadium Corporation Ltd v Oosthuizen (“Highveld matter”) held that such an interpretation would render the protection afforded to the employer by section 37D(1)(b) meaningless, a result which plainly cannot have been intended by the Legislature. To give effect to the manifest purpose of the section, its wording must be interpreted purposively to include the power to withhold payment of a member's pension benefits pending the determination or acknowledgement of such member's liability.
  • Secondly, a fund must investigate and consider both sides before deciding whether to withhold the pension fund benefit. The process of balancing the competing interests is achieved by assessing the potential harm that the employee will suffer if benefits are withheld or deducted, as compared with, or balanced against the potential harm to the employer if the remedy is denied.
  • Thirdly, the board of the fund must scrutinise claims made against employees' benefits and weigh the competing interests of the parties after allowing the member to place his case properly before the fund. It is not sufficient for the board to consider only the evidence placed before it by the employer which, if true, would show damages arising from dishonest conduct by the employee, to meet the test set by the Supreme Court of Appeal in the Highveld What is required is for the fund to invite the member to comment on the case put up by the employer. If the member has a cogent answer, it will be more difficult for the fund to accede to the employer’s request.

In the case of criminal prosecution of the member, it is essential to remember the ruling in DSV Flexi Retirement Fund (Pension Section) v Pillay and Others, where the final decision affirmed that the mere institution of criminal proceedings against a member is not a sufficient reason to withhold their benefit.

The Pension Fund Adjudicator dismissed the member's complaint as she was satisfied that the fund procedurally considered the matter fairly. She affirmed that she was not required to pronounce on the merits of the matter, i.e. whether the member had committed theft, an act of dishonesty, fraud, or misconduct. Her remit was to determine whether the process followed by the fund passed muster.

The fundamental principles of this decision are:

  • A pension fund may validly withhold a member’s benefits provided it has considered the matter with procedural fairness and allowed each party to make representations.
  • A pension fund may not simply withhold a member's benefit at the employer's behest but must investigate the matter to ensure both parties are heard, which is a fundamental principle of our law — the audi alteram partem
  • Additionally, employers should note that simply initiating criminal proceedings is insufficient to justify a pension fund withholding a member’s benefits.

 

Wandile Ndabambi

Executive | Dispute Resolution

wndabambi@ENSafrica.com

 

Michelle Clague

Associate | Dispute Resolution

mclague@ENSafrica.com

 

Atlegang Raganya

Candidate Legal Practitioner | Dispute Resolution

aranganya@ENSafrica.com