A pension fund member was recently awarded an additional amount of almost R188 000 plus interest dating back to May 2006 after the Pension Funds Adjudicator (PFA) found that his benefits had been calculated on the wrong date.
FD van Zyl was employed by Mittal Steel South Africa from 1975 to 2006. He was a member of both the Mittal Steel South Africa Selector Provident Fund and the Mittal Steel South Africa Selector Pension Fund.
Van Zyl was one of about 500 Mittal Steel employees who applied for a voluntary severance package in 2006, and his employment was terminated on April 30 that year. He became eligible for an early retirement benefit of his equitable share in both funds. At the end of April, this share was about R3.4 million.
Van Zyl's investment in the funds was exposed to the equity market, and he and his financial adviser were concerned that the equity market would decline between the time he left his job and when he was paid out his benefit.
In early May, two days after he left his job, he and his adviser submitted a request for his benefit to be transferred out of the funds' equity portfolios into money market portfolios, pending the payment of some of the money in cash and the transfer of the balance to Van Zyl's living annuity.
Van Zyl was apparently told to complete a particular form to effect the transfer and this was submitted on May 22. At that stage, Van Zyl's benefit was still worth R3.4 million.
The money was eventually only transferred into money market portfolios on June 19. When the money was paid to him in cash and the balance paid into his living annuity in mid-July it was together worth about R3.2 million.
Van Zyl was unhappy that his benefit had depreciated as a result of the delay in moving his funds out of the equity market and he complained to Mamodupi Mohlala, the PFA.
In its defence, the administrator of the funds, Coris Capital, told the adjudicator it could transfer the money into the money market portfolios in preparation for a member's exit from the fund only once it had received written confirmation from the employer that the member's service had been terminated.
Coris Capital said the 500 retrenchments at Mittal Steel created a big workload for the employer and this delayed the processing of the required forms by the employer.
The administrator said it could not act on the telephonic instructions of Van Zyl or his adviser to change Van Zyl's investment choice (from the equity portfolios to money market ones), because this instruction had to be in writing and Van Zyl had not submitted it in writing.
The form he had completed only related to his taking early retirement, it said.
When Mohlala considered the case, she found the issues around the instruction to transfer the pension and provident fund money out of the equity market to be irrelevant because the rules of both funds stated that Van Zyl's benefit vested with him on the day that his employment was terminated. This was the date on which the member's benefit should have been calculated, she said.
Mohlala said the failure of the funds and the administrator to work out Van Zyl's benefit on the day it was due amounted to maladministration and had prejudiced him.
Van Zyl was therefore due the R3.4 million that his share of the fund was valued at on the day he left his employer on April 30, 2006. The market movements after that date were irrelevant, Mohlala said.
She ordered the funds to calculate the difference between what was due to Van Zyl on April 30 and what was ultimately paid to him and to pay that amount to him with interest, calculated from May 2006.
Warning
Many retirement funds calculate your benefit only after receiving notification that you are leaving the fund.
The Van Zyl v Mittal Steel South Africa Selector Provident and Pension Funds case reported here highlights the fact that the rules of your fund determine the date on which the benefit must be calculated.
Adri Joubert, a legal adviser at Old Mutual, says many funds, and particularly those that provide an investment choice to members, specifically provide for the calculation and disinvestment from the fund to take place on receipt of notification that a member is leaving the fund. She says with an employer-sponsored retirement fund, this notification must usually be signed by the member and the employer.
Your benefits are then moved to a portfolio in which your capital is secure pending finalisation of the claim.
Joubert says the time it takes to pay out your benefits is normally set out in the agreement your fund has with its administrator.
The time it takes to pay you out will, however, depend on various factors, one of which is whether the fund allows members investment choice. Other factors that affect the processing of the payment to you as a member are whether the documents notifying the fund that you are leaving are in order; tax directives that the fund has to obtain from the South African Revenue Service pertaining to the tax the fund needs to deduct from your benefits; whether the fund can verify your banking details; and any claims on your benefits such as those pertaining to home loans for which your benefits were security, or claims from employers for damages as a result of theft, dishonesty, fraud or misconduct on your part to which you have admitted or in which a judgment has been obtained against you, or those relating to a divorce order.
Joubert says the way in which your benefits are invested while all the issues are being resolved should be covered in the rules. If they are not, there is a risk to you, the member.