The law governing retirement funds protects your retirement benefits from your creditors, but this protection falls away once the money is paid out to you, the Pension Funds Adjudicator has ruled.
In his annual report for 2001, John Murphy, the Pension Funds Adjudicator, highlights a case in which a complainant ended up empty-handed after his former employer attached his pension benefit because of a debt that he owed.
In the case, a member of the Nedcor Defined Contribution Fund complained to the adjudicator that his fund had set off the value of his pension benefits against the amount he owed Nedcor.
The man was employed by Nedcor for about 15 years - his last position being that of manager. In September 1998, the bank obtained a judgment against him for R130 000 that it had lent to him.
In January 1999, following an internal inquiry, he was found guilty of misconduct and dismissed.
At the time he was dismissed, he was entitled to a cash withdrawal benefit from his retirement fund of about R55 000 after tax. The former manager completed the prescribed form requesting that the fund pay the money into his account at Absa.
Notwithstanding his request, the fund paid the benefit into his Nedcor account. At the time, this account was in debit with the amount he owed to Nedcor. So the retirement benefit merely reduced the amount he owed to the bank.
Murphy ruled that the bank and the fund, by disregarding his instruction had contravened the Pension Funds Act which prevents benefits from being set off against civil debts.
However, prior to the fund making the payment, the Nedcor obtained a garnishee order in a magistrate's court giving the bank permission to attach money in the former manager's Absa account in order to settle his debt with Nedcor.
So, following Murphy's ruling the fund paid the member's retirement benefit into his Absa account. After that, Nedcor got its hands on the money by virtue of the garnishee order.
The member lodged a second complaint with the adjudicator.
He argued that once the benefit had been paid into his account, it could not be attached because the benefit was protected by the Pension Funds Act.
Nedcor argued that while the benefit was indeed protected, once it had been paid into the bank account, the protection afforded by the Act ceased. The benefit was no different to any other money held in the fund member's account.
After reviewing the wording of the relevant section in the Pension Funds Act and careful analysis of local and foreign court cases, Murphy concluded that pension benefits lost their protection once they were paid into the bank account of the member because the money became part of the member's ordinary money which can be attached by creditors.