By Brett Ladouce
Your retirement fund benefits are generally well protected in terms of the Pension Funds Act, and they can generally not be reduced, transferred or be liable to be attached by your creditors.
Your fund also has a legal obligation to ensure that your full benefit is paid out to you when you become entitled to a benefit when you resign or retire.
There are, however, some exceptions to the general rule where the fund can legally make deductions from your withdrawal or retirement benefit in favour of your employer or other parties.
There are two types of deductions that can be made from your withdrawal or retirement benefit in favour of your employer, namely:
Outstanding home loans granted by your employer or where your employer-provided surety to your home loan provider.
Payment of compensation to your employer for damage that you caused to your employer due to theft, dishonesty, fraud, or misconduct.
Outstanding home loans
When you resign or retire, your fund may, on the day that you withdraw from the fund, deduct any amount you owe to your employer where your employer granted you a loan to pay off an existing home loan, to buy a house, to build a house, to buy a plot of land to build a house on, to make additions or alterations (for example, to install solar panels on your roof) to your house or to maintain or repair your house.
Your employer can, for example, lend you R800 000 to buy a house on condition you repay the loan over a certain period, for example, 20 years, in the form of monthly deductions that your employer will make from your salary if you work at your employer. If you resign before the loan is repaid and still owe your employer R300 000 of the home loan amount, your employer can request the fund to deduct R300 000 from your after-tax withdrawal benefit and to pay it to your employer to settle the outstanding home loan.
By the same token, when you resign or retire, your fund may deduct any amount for which your employer is liable under a guarantee in respect of a home loan as stated above that was granted to you by a credit provider. If you borrowed R800 000 from a credit provider to buy a house and your employer gave the credit provider a guarantee that the employer would stand in for the repayment of the loan if you default on the loan (normally on condition that your employer can deduct the monthly loan repayments from your salary and pay it over to the credit provider), your employer would be placed in a difficult position if you resign and still owe your credit provider R300 000 of the home loan amount.
Your employer will still be liable for the repayment of that R300 000 to the credit provider in terms of the guarantee if you default on the outstanding home loan amount after you resign or retire. To eliminate that risk, your employer can request the fund to deduct R300 000 from your after-tax withdrawal benefit and to pay it to your employer who will then pay it to your credit provider to cancel the guarantee by paying off the outstanding home loan amount.
The fund will only make a deduction in favour of your employer if proof of the outstanding home loan or guarantee is provided by the employer. Any other loans granted to you by your employer, for example, personal loans, study loans or car loans will not be deductible from your retirement fund benefits and the employer must get that money directly from you.
Payment for damage caused to employer
When you resign or retire, your fund may, on the day that you withdraw from the fund, deduct from your benefit any amount that you owe to your employer in respect as compensation in respect of any damage caused to the employer by reason of any theft, dishonesty, fraud, or misconduct by you and in respect of which:
You have admitted liability towards your employer in writing; or your employer has obtained judgment in a civil court against you.
The fund can only make a deduction if the damage to the employer was caused due to theft, dishonesty, fraud, or misconduct that you committed. Where you acted negligently, by, for example, not locking money in the work safe and somebody else steals the money of the employer because of you not following the rules set down by your employer or where you drive negligently with the vehicle of the employer and cause accident damage to the vehicle, the fund cannot make a payment to the employer. The fund can also not compensate the employer for damages suffered because of breach of contract on your side, for example if you did not work out the notice period and the employer suffered financial loss because they had to contract someone on a short-term basis to do your work in the notice period for more than the cost of your salary.
Where you have committed theft, dishonesty, fraud or misconduct that caused damage to your employer, the fund can only make a deduction from your benefits in favour of the employer if you admit guilt in writing or if the employer obtains a court order in a civil case against you to recover the damages that you caused as a result of theft, dishonesty, fraud or misconduct. Where an employee is convicted of theft or fraud in a criminal case, it does not automatically give the fund the authority to reduce the benefits of the member.
The Pension Funds Act tries to delicately balance the rights of you as a fund member and that of your employer, especially in circumstances where the employer assisted you to obtain the financing to buy a house or where you deliberately steal from or defraud your employer.
The employer is, however, not entitled to recover any and every amount that you might be indebted to from your withdrawal or retirement benefit.
* Ladouce is a pension funds lawyer and the author of Pensions for Palookas
PERSONAL FINANCE