Most of the complaints about retirement funds that were taken to the Pension Funds Adjudicator involved withdrawal benefits.
Withdrawal benefits are the benefits you receive when you leave your retirement fund - whether it be because you resign, are retrenched, or move to a new fund because the company for which you work is sold or because your fund closes down.
In his latest annual report covering the year ending March 31, 2002, John Murphy, the Pension Funds Adjudicator, says 44 percent of complaints resolved by his office were about withdrawal benefits, 13 percent about retirement benefits and 10 percent were about death benefits.
Murphy says disputes about the appropriate benefit that should be paid on termination of employment continue to pose interesting challenges. Usually, the difficulty arises as a result of parties' different interpretation of the reason for the employment coming to an end, he says.
In one case, a member of the KwaZulu-Natal Joint Municipal Provident Fund was paid out a normal withdrawal benefit rather than the higher retrenchment benefit after his position on the Natal South Coast was terminated. He was offered a position 350 kilometres away, but turned it down on the grounds that his wife suffered from depression and a move away from her would be detrimental to her health. There was a dispute between the fund member and the employer about whether he was retrenched.
The fund took the view that the member had refused a commensurate post and this amounted to a resignation. The fund therefore refused to pay him the higher retrenchment benefit.
However, Murphy says, the member did not resign. The organisation abolished his post. In employment law, generally employees are penalised in their severance packages only if they unreasonably refuse alternative employment. Murphy came to the conclusion that a job offer in a town 350km away might not be considered a commensurate position and even if it were, the member's reasons for turning it down were not unreasonable. Murphy therefore ordered the fund to pay the higher retrenchment amount.
The matter was settled when the employer agreed to pay him two months' notice pay as well as severance pay and the reason for termination on his certificate of service was changed to "no fault termination - for operational reasons".
In another case involving withdrawals benefits, a member of the Hydraulic Steel Provident Fund had allegedly been dishonest and his company recommended that his services be terminated. However, instead of dismissing him, the company entered into what it called "a consensual termination agreement".
The fund, however, took the view that the member was dismissed from his job (because misconduct was involved) and paid out a lesser benefit than would have been the case had he resigned.
Both the fund and the employer urged Murphy not to reward dishonesty, but Murphy found in the member's favour. He says that if an employer does not act with the courage of its convictions and take disciplinary action, it must accept the legal and financial consequences of accepting a resignation.
Spouses' pensions
Problems associated with spouses' pensions predictably continue to present difficulties, Murphy says.
Usually these complaints are a consequence of unrealistic expectations or ill-considered choices made by members when outsourcing their pensions.
In one case, the Shell Southern Africa Pension Fund decided to outsource its pensions to a life assurer rather than pay benefits from the fund itself.
An unmarried member of the fund claimed the fund was discriminating against him because he was informed he would get about R300 000 less in the new arrangement than the original quote given to him by his fund. The fund had calculated his original actuarial reserve value assuming he was married and the larger amount made provision for a spouse's pension.
Murphy says that on the face of it, paying a different amount to married and unmarried members of a fund infringes the equality clause in the constitution.
But, he says, as long as the difference in value is used to secure the socially desirable objective of a spouse's pension, the unfair discrimination is justifiable.
What Murphy did find problematic was the fund's failure to ensure that the additional funds allocated to married members was applied for the purpose it was intended, in other words, to buy a spouse's pension. This gave married members of the fund an unjustifiable advantage over unmarried members, he says.
Murphy made an interim ruling in which he asked the fund to show why the practice of paying out higher amounts to married people should not be declared unconstitutional. He also asked the fund for suggestions on how to deal with the problem in the least disruptive way.
In another case involving a spouse's pension, a member who retired from the Sentech Pension Fund complained that his fund quoted him R130 000 less than the original cash value he had been told he would receive to buy a compulsory annuity when he retired. When the fund gave him the first quote, it mistakenly assumed he was still married, but his wife had died.
The fund member then complained that the fund was discriminating against him on the basis of his marital status.
The fund attributed the difference to its provision of a spouse's pension: if a married member died after retirement, the spouse would receive two-thirds of his pension for life. The fund therefore argued that it had an obligation to include an amount for a spouse's pension when calculating the cash value required to purchase a retirement annuity.
Fair discrimination
As in the previous case, Murphy confirmed that paying an additional amount to a member of a fund to provide for a spouse's pension, was a legitimate and justifiable reason to discriminate against an unmarried member.
But, Murphy warned, that in such cases trustees had a duty to ensure that members purchased an annuity which made provision for a spouse's pension, otherwise the trustees would be in breach of their duties.
Failing to ensure that provision is made for a spouse's pension when a higher amount is paid to a married member thwarted the fund's objective. It would also give a married member an unfair advantage over an unmarried member because the married member would be able to use the entire amount to buy a bigger pension for him or herself without securing a spouse's pension.
There was no evidence or complaint that the Sentech Pension Fund trustees had failed in their duty, and therefore the complaint was dismissed.