The efforts of two pensioners, who are taking on financial services giant Sage Life, to recover almost R19 million for their pension fund, have been dealt a blow by a recent decision by the Pension Funds Adjudicator.
The pensioners have been battling for eight years to keep the Sage Schachat Pension Fund and its R19 million surplus intact.
The Pension Funds Adjudicator dismissed their latest application for help. Their next option is to take the complaint to the appeal board of the Financial Services Board (FSB).
In October 1996, Barry Nichol, who was then the managing director of Sage Land Holdings, found out that Sage Life was contemplating amalgamating the Sage Schachat Pension Fund with the other two pension funds in the Sage Group.
On several occasions, Nichol asked the Sage Schachat Pension Fund to consult the fund's pensioners about the amalgamation.
In September 1998, the Sage Schachat Pension Fund had a surplus of R18.9 million and only about 70 pensioners and members.
The boards of trustees of the three funds in the Sage Group - the Sage Schachat Pension Fund, the Sage Group Limited Staff Pension Fund and the Sage Life Limited Staff Pension and Life Assurance Scheme - decided to merge the funds in December 1998.
In contravention of the Pension Funds Act, members did not elect at least half of the board of trustees of the Sage Schachat Pension Fund.
Confident that the Registrar of Pension Funds at the FSB would approve the merger, Sage Life and the funds amalgamated the funds on December 1, 1998.
Nichol and another pensioner, Ron Small, each lodged complaints with the Pension Funds Adjudicator in April 1999 and May 1999 respectively.
They said the pensioners and members of the Sage Schachat Pension Fund would lose out as a result of the amalgamation, because the fund had a substantial surplus and fewer members than the other two funds.
In November 2001, Professor John Murphy, the Pension Funds Adjudicator at the time, ruled that the amalgamation was illegal, because it had not been sanctioned by the Registrar of Pension Funds.
Murphy condemned the move as "legal self-help by the pension funds industry".
He also ruled that:
- The Sage Schachat Pension Fund still existed in its own right.
- Members of the fund should elect a new board of trustees.
- Sage Life, in conjunction with the trustees, should appoint an actuary to investigate, and report on, the financial status of the fund prior to the merger. Sage would have to pay for the actuary's investigation.
- Sage Life make good any financial shortfall that arose in the fund as a result of the illegal merger.
Registrar grants approval
On December 18, 2001, barely a month after the adjudicator's decision, the Registrar of Pension Funds approved the amalgamation of the three funds and made it retrospective to December 1, 1998 (the date on which the funds had decided to amalgamate). The approval required the ring-fencing of the surpluses in the respective funds.
Nevertheless, Nichol and Small were not convinced that ring-fencing would adequately protect the pensioners' and members' interests.
On December 27, 2001, the three funds and Sage Life asked the Cape High Court to set aside Murphy's determination. They said they could not comply with Murphy's order, because it had been overtaken by events - the subsequent approval of the merger by the registrar.
The court dismissed the Sage funds' application on the basis that there was no basis for it to interfere with Murphy's determination. The judge said he fully agreed with Murphy's determination.
In February 2002, Nichol asked the Pretoria High Court to set aside the registrar's decision on the grounds that it was in conflict with the adjudicator's ruling.
The High Court dismissed his case. It said Nichol had approached the wrong forum - he should have taken his case to the appeal board of the FSB.
However, encouraged by the Cape High Court judgment, Nichol arranged for the pensioners and members of the Sage Schachat Pension Fund to elect trustees. Nichol was elected chairman of the board of trustees on May 24 this year.
The member-trustees wrote to Sage Life asking the company to nominate its trustees to the board and to appoint an actuary, in terms of Murphy's November 2001 ruling.
Sage Life rejected the member-trustees' requests, and so, once again, they turned to the adjudicator.
On June 16 this year, Nichol, in his capacity as chairman of the Sage Schachat Pension Fund's board of trustees, asked Vuyani Ngalwana (who took over as Pension Funds Adjudicator from Murphy in March this year) for urgent assistance in appointing an actuary.
Adjudicator dismisses complaint
Ngalwana dismissed the members' complaint on the grounds that Nichol, in his capacity as chairman of the board, had no legal standing to bring a case, because the Sage Schachat Pension Fund no longer existed as the Pension Funds Registrar had approved the merger.
So, the election of member-trustees of the "so-called" Sage Schachat Pension Fund was a futile exercise, he said.
"It is unfortunate that the judicial ire in the Cape High Court appears to be been directed at the registrar for approving the amalgamation retrospectively after Murphy had found it illegal, whereas the real culprits were the funds and Sage Life," he said.
Referring to the amalgamation of the funds that took place before approval was granted by the registrar, Ngalwana reiterated Murphy's concerns about "the legal self-help that appear(ed) to have taken root in the pensions industry".
"Sage Life and the trustees had the temerity to simply ignore the law and act as if it was not there," he said.
Ngalwana said it is "a pity" that the penalty for an administrator that manages a fund according to rules that have not been approved the registrar is a "paltry" R2 000 fine. "The administrator should be made to pay a commensurately heavy penalty for flouting the law," he said.
All three pension funds were administered by Sage Life.