The Pension Funds Adjudicator issued a ruling this week stating that you have a right to your expectations of receiving a reasonable benefit even if your employer transfers you to a new retirement fund.
Mamodupi Mohlala, the adjudicator, also issued a second ruling in which she said if you are the victim of an administrative bungle involving your retirement benefits, you have a right to be put into the position in which you would have been had the errors not occurred.
The first case involved a group of members who were transferred from one pension fund to another and along the way lost certain benefits they had been promised.
Thomson-CSF South Africa Pension Fund complained to the adjudicator on behalf of 267 members who were transferred to the fund from the Altron Group Pension Fund after Thomson-CSF bought out African Defence Systems, which was a participating employer in the Altron Group Pension Fund.
Before the 267 members' benefits were transferred, the Altron Group Pension Fund converted from a defined benefit fund to a defined contribution fund. At the time, it set up a reserve account to provide for a guarantee the employer gave the members that they would not be worse off at retirement than they would have been if they remained in the defined benefit fund.
These reserves amounted to some R85 million in 2002.
Funds were also put in the reserve account to cover excesses on death and disability benefits provided to members of the fund or their dependants that could not be covered by the members' share.
These reserves amounted to R18.7 million in 2002.
Portion of the reserves
Thomson-CSF South Africa Pension Fund complained that the Altron Group Pension Fund was willing to transfer only that portion of these reserves that related to the 267 members in terms of their past service. It was not prepared to transfer that portion of the reserves that related to the future costs of providing the guarantee, nor was it prepared to transfer that portion of the reserves that related to the death and disability benefits.
The Altron Group Pension Fund defended its decision, saying many members do not stay with their employer, and thus in the fund, until retirement, and that only benefits relating to past service had vested with the members who transferred to the Thomson-CSF fund.
It said the risk reserves provided for an indirect benefit and, if a portion of the reserves had been transferred, the 267 members would enjoy a direct benefit that other members of the Altron fund did not enjoy.
The adjudicator said the reasons given by the Altron Group Pension Fund as to why it refused to share proportionally the future values of the guarantee reserve did not address the members' reasonable benefit expectations.
Mohlala said there was no logic in the argument that the guarantee reserve was applicable only to past service since that was the only benefit that had vested.
Similarly, the adjudicator said, prior to the transfer, the 267 members had a reasonable expectation that they would share in the risk reserve benefit. They were subsequently denied this benefit. She therefore ruled that the Altron fund was not entitled to refuse to proportionally share the risk reserve with the transferred members.
Mohlala gave the Altron Group Pension Fund four weeks to work out how much of the reserves should be transferred and ordered it to apply to the Financial Services Board for permission to transfer that sum to the Thomson-CSF fund.
In the second case, Diego Zotta told the adjudicator's office that when he retired in December 2005, he initially instructed Old Mutual, the administrator of his fund, the South African Retirement Annuity Fund, to pay out one-third of his savings and to invest the balance to provide him with a monthly annuity.
Instruction cancelled
Two days later, Zotta told Old Mutual not to carry out his instruction because he was reconsidering it. And some three weeks later, Zotta told the administrator to pay him out only R6 382 and to invest the balance of R50 000 in a living annuity. Old Mutual, however, followed the first instruction and paid him out R17 095.
The fund and the administrator apologised for the error and asked Zotta to return the money so that they could invest it according to his wishes. They offered to backdate the investment to two days after his second instruction.
Zotta did not respond to the offer and instead complained to the adjudicator's office.
Mohlala ruled that the fund and Old Mutual had no justification for not carrying out Zotta's instruction, and that both had a duty to put him in the position in which he would have been had his second instruction been carried out.
The adjudicator told Personal Finance she did not rule on whether Zotta needed to repay the R17 095 because this was not a complaint before her. The fund can lodge a civil claim against Zotta to recover what is due to it, she says.