The Sanlam Retirement Fund may have to fork out more than R192 000 to a former member of the fund. John Murphy, the Pension Funds Adjudicator, has ruled that the fund did not pay the former member the rate of return earned by the fund between the time his employment ended and the time the retirement benefit was paid out.
The Sanlam Retirement Fund has, however, notified the Pension Funds Adjudicator's office of its intention to appeal the decision in the High Court.
Julius le Roux, of Klerksdorp, was retrenched from Sanlam at the end of January 1999 during the company's restructuring.
The Sanlam Retirement Fund was only notified of Le Roux's retrenchment in May 1999 and then immediately transferred his benefit to the fund's cash portfolio retrospectively to January 31, 1999 - being the date that his services were terminated.
He complained to Murphy that Sanlam was not entitled to transfer his benefit to the cash portfolio retrospectively and that he should have had the benefit of the market portfolio - at least until the date on which the fund was made aware of his retrenchment in May 1999.
In its defence, the fund says it is common practice in the insurance industry to transfer a member's benefits out of the market into a cash portfolio once a fund is notified that a member has left his or her employment. The reason that this is done is to protect members against any possible falls in the market. Despite the practice by Sanlam in terms of its rules the applicable investment return on an accrued benefit is the fund's rate of return.
Murphy says his office has consistently followed such an approach, usually to the advantage of the funds and the remaining members. In effect, the funds rewrote the complainant's benefit contrary to the express provisions of the rules.
He says although the Sanlam fund's policy is clearly motivated by good intentions, it is a questionable practice and the rules of the fund did not give the fund authority to disinvest the member's benefit pending payment, nor was there any agreement between Le Roux and the fund that the benefit would be moved into a cash portfolio.
The fund's rules and the Pension Funds Act states that members remain members of a fund until all the benefits due have been paid to them.
As Le Roux had not yet received his benefits, he was clearly a member of the fund up until the time he received his benefit in October 1999. By transferring the benefit to a cash portfolio, the Sanlam Retirement Fund deprived Le Roux of the investment rate the fund could have earned on his benefit.
Murphy ruled that Le Roux was entitled to have his benefit recalculated, as if the money had remained in the fund until the date of payment in October 1999.
The fund argued that a decision in Le Roux's favour would have far-reaching implications for the industry as a whole. Murphy's response was that the solution is for funds to amend their rules to reflect their preferred practice.
It is significant that in its submissions to the Pension Funds Adjudicator, the fund deals only with what constitutes standard practice in the industry.
The Sanlam Retirement Fund does not deal with the issue of whether or not Le Roux remained a member of the fund until his benefit was paid and so whether he was entitled to the fund's rate of return in terms of the rules up until that time, Murphy says.
Murphy dismissed a second complaint from Le Roux that there was an unreasonable delay by the Sanlam Retirement Fund in transferring his money to Momentum Life for further investment. The money was transferred to Momentum three days after they had received notice to do so.