The Pension Funds Adjudicator has ruled in favour of a member who was prejudiced as a result of an administrative bungle and subsequent cover-up by the administrator of the fund.
The member, APJ Van Schalkwyk, transferred his retirement benefit from a pension fund to the Sanlam Preservation Provident Fund. The transfer should never have been allowed because a benefit that arises from a pension fund must be transferred to a pension preservation fund rather than a provident preservation fund. However, Sanlam, the fund administrator, failed to pick up the error, and the transfer of the benefit took place.
Error surfaces
Years later, the error came to light when Van Schalkwyk took a once-off withdrawal benefit from the fund. To rectify its mistake, Sanlam simply made a book entry reversing Van Schalkwyk's membership of the provident fund to the pension fund - with retrospective effect to the date of transfer.
However, neither the administrator nor the fund advised Van Schalkwyk of the mistake, and he continued to believe he was a member of the provident preservation fund.
He elected to join the provident fund so that he could access his funds in full on retirement. (A key difference between a pension and provident fund is that a member of the latter is entitled to his entire benefit in cash on retirement, whereas in a pension fund, two-thirds of the benefit must be taken as an annuity.)
Years later, when Van Schalkwyk applied for his full retirement benefit, he was informed that he was only entitled to take one-third of his benefit in cash and the remainder of as an annuity.
The Pension Funds Adjudicator, Mamodupi Mohlala, ruled that Van Schalkwyk was entitled to be compensated because he had clearly acted to his prejudice when taking only a partial withdrawal benefit.
Had he been advised of the true situation at the time of his initial withdrawal, he would have made a full withdrawal from the fund. (In preservation funds, members are only entitled to one withdrawal prior to retirement. This can be any amount up to the full fund value.)
Loss of access
In assessing his loss, the adjudicator said he suffered a loss of control and access to his full benefit: "In monetary terms, this would best be compensated by payment to him by the fund of the balance of his benefit as at the date of his withdrawal (less any tax that would have been payable on this amount) together with interest to the present statutory rate of 15.5 percent."
Mamodupi said this would have the effect of discharging any further liability to the member on the part of the fund.