RETIREMENT SAVINGS DEDUCTIONS
Do you know that you are permitted, in terms of the Pension Funds Act, to withdraw medical scheme contributions and even life assurance premiums from your retirement savings if you are in financial trouble?
Advocate Sandile Khumalo, who was speaking at the Pension Lawyers Association convention, says it may even be possible to pay school fees out of your retirement savings, as the Act allows your retirement fund to make an application to the Registrar of Retirement Funds for any withdrawal for “any purpose” approved by the registrar.
He says the rights of retirement fund members in terms of section 37 D of the Pension Funds Act are seldom explained or understood by members. The section deals with when members and others are permitted to make withdrawals from their retirement savings.
Khumalo says attention normally focuses on such things as the repayment of housing loans and the rights of an employer to your retirement savings.
He says trustees also seldom deal properly with withdrawals, particularly by employers, on the departure of a member.
When you retire or withdraw from your fund, your employer is entitled to deduct from your retirement savings any money you owe your employer or any amount for damage caused to your employer consequent of theft, dishonesty, fraud or misconduct, provided that liability has been admitted in writing or a court judgment has been obtained.
Khumalo says that when presented with a request from an employer, most trustees merely agree to pay. He says this is not good enough. Letters admitting liability are often obtained under duress, such as by threatening the employee that outstanding pay or retirement fund benefits will not be paid until liability is admitted.
He says even with court judgments there could be a problem if the judgment was a default judgment and the employee was not aware of the judgment.
The Act also permits the deduction of any homeloan amount owing to the fund or guaranteed by the fund, but often money is withdrawn when a member defaults on a loan. This is not permissible.
Khumalo says trustees have a duty to question every application for a withdrawal from a fund to the extent, for example, of checking whether a fund member has been allowed to negotiate the repayment of the amount that an employer is seeking to deduct.
The Pension Funds Act does not allow for automatic deductions, he says.
COMMUNICATION ‘MUST IMPROVE’
Retirement fund trustees must improve and simplify their communication with members as well as with members’ dependants on the death of members, acting Pension Fund Adjudicator Elmarie de la Rey says.
De la Rey told the pension lawyers that many members simply do not understand their benefits or even their benefit statements.
She pointed out that many members and their dependants were not only financially illiterate but were fully illiterate, and were often provided with information in a language other than their own.
De la Rey says her office has plenty of evidence of this lack of suitable communication as many of the complaints to her office testify.
She says poor communication creates unrealistic expectations.
Examples of poor communication that give rise to unrealistic expectations and complaints to her office include:
*Employees of companies who had previously been denied membership of funds and now had membership. When they receive their withdrawal benefits they do not understand why they do not receive benefits based on the full term of employment and not on their years of fund membership.
*Risk benefits and costs. Many members do not realise that nothing or a small proportion of employer contributions are added to their retirement savings. Members need to be told that group risk assurance benefits and fund administration costs are paid out of the employer contribution.
*Investment switching. Members need to be told the processes and who is responsible |for effecting switches as well as the contact point for instructions, time limits on instructions and the implementation time.
*Withdrawals from preservation funds. Many have to be told that they are only permitted one withdrawal from a preservation fund before retirement. Many complaints revolve around the refusal of preservation funds to allow a second withdrawal (which is a legal stipulation).
REGULATOR TURF WAR LOOMING?
The former Pension Funds Adjudicator and now head of the National Consumer Commission, Mamodupi Mohlala, caused a bit of a stir at the convention when asked about a possible turf war between the different regulators and ombud structures when the Consumer Protection Act becomes law on April 1.
She said that she would accept complaints from retirement fund members, but acknowleged that the turf issues still had to be resolved.