Pension Funds Adjudicator Vuyani Ngalwana has ordered the trustees of a retirement fund to consider allowing a pensioner who is in ill health the option of transferring his benefits to a living annuity.
The ruling highlights that amendments to fund rules that reduce benefits or the options associated with benefits cannot be done without consulting the fund's members, Lisa Shrosbee, the senior assistant adjudicator at the adjudicator's office, says. She says members must be alert to rule amendments and engage their trustees on this issue.
The complainant, AB San Giorgio, is a pensioner of the Cape Municipal Pension Fund. San Giorgio's complaint concerned an amendment to the fund's rules that denied him the option to transfer his benefit to a living annuity.
San Giorgio told the adjudicator that this particularly disadvantaged pensioners such as himself who retired on the grounds of ill health and who may not have long to live.
When a retirement fund is paying you a pension and you die soon after retirement, no additional payments are made to your dependants, unless you have a pension that continues to be paid to your spouse. However, if you transfer your benefit to a living annuity and do not live long thereafter, your dependants will receive the balance.
According to the rules of the Cape Municipal Pension Fund, the trustees had the discretion to offer members and pensioners of the defined benefit section of the fund an "alternative pension benefit", provided the consent of the employer was also obtained.
In December 2002, the trustees amended the rules so that the trustees no longer had a discretion to offer the defined benefit pensioners, including San Giorgio, the option of a living annuity benefit.
According to San Giorgio, members were not consulted or informed about the amendment. He asked that the amendment should be declared null and void. He also requested an order directing the fund to grant defined benefit pensioners the option of a living annuity.
Participation
In his ruling, the adjudicator says in terms of the fund's rule A2.5.2: "Any amendment what may alter the benefits payable to any one or more category of defined benefit members shall require the approval of two-thirds of defined benefit members voting in referendum."
Although the fund contended the amendment had not "altered the benefits payable", Ngalwana found the purpose of the rule was to ensure employer and member participation in and approval of any amendments that might have the effect of changing the fund's obligations to the members.
Because the amendment had changed the fund's obligations to the defined benefit pensioners and this change had not even been communicated to members, he ruled that the trustees had failed to act in accordance with rule A2.5.2 and the amendment was therefore invalid.
The applicable rule to be used in this case was therefore the rule as it existed prior to the purported amendment, which means the fund has a discretion to offer defined benefit pensioners, including San Giorgio, the option of a living annuity.
- You can contact the Pension Fund Adjudicator's office in Cape Town on telephone: (021) 674 0209, email: [email protected]; or Johannesburg: (011) 884 8454, email: [email protected]