Trustees' failure to monitor the performance of asset managers entrusted with investing your retirement fund savings are only one of a number of ways in which funds are being maladministered.
In his annual report, Vuyani Ngalwana, the adjudicator, has identified a number of fund administration problems.
One example cited by Ngalwana occurs in cases where members submit claims for disability benefits and the trustees surrender their fiduciary duties to service providers, such as life assurers.
The adjudicator says typically a member submits a disability claim to the fund, which the trustees then refer to the life assurer.
The life assurer uses its own medical officer to assess the claim and recommends that it be repudiated on the grounds that the member's condition can be treated.
But, Ngalwana says, the rules of the funds usually provide for the fund to re-insure the disability benefits with an insurer, but give absolute discretion to the trustees to pay the benefit from the fund's reserve account in the event of the insurer repudiating.
Invariably the rules of the fund do not make eligibility for disability benefits dependent on the member's condition being untreatable, Ngalwana says.
He says another "worrying feature" of cases of this kind is the practice of making the fund's liability for disability benefits subject to an insurer admitting liability for the benefits.
"This practice is particularly undesirable in umbrella funds and retirement annuity funds where the trustees owe their bread (as employees of the insurer) more to the life insurance company administering and underwriting the fund than to members of the fund."
Benefit deductions
Registered pension funds are, in terms of the Pension Funds Act, entitled to make a deduction from your retirement savings for any amount you owe your employer as compensation for damages you caused by theft, fraud, dishonesty or other similar conduct.
But Ngalwana says this is one of the most misconstrued provisions of the Act.
The Act, the adjudicator says, only authorises such a deduction in cases where a judgment has been obtained or the member has admitted liability in writing.
It is not enough, he says, for your employer to obtain an affidavit or acknowledgment of debt from you in which you undertake to pay the amount or acknowledge the debt.
"The judgment obtained must be in respect of the misconduct giving rise to the employer's loss and not just judgment for payment of an amount," Ngalwana says.
If your employer obtains an admission of liability from you, the omdusman says, it must be in writing and in respect of the specific amount claimed, which must be compensation for an act of dishonesty - negligence is not enough.
Duties of the employer
Ngalwana says employers have a duty to submit disability claims on behalf of members to a retirement fund timeously.
Often the insurer which has insured the disability benefits has strict time limits within which claims must be submitted.
Ngalwana says in one case in which an employer had not submitted the claim timeously, he ordered the employer to pay the benefit claimed by the member.
A more serious malaise, he says, is the failure of employers to pay contributions deducted from employees' salaries over to the fund. This is a criminal offence in terms of the Pension Funds Act, but Ngalwana says "sadly" it is only punishable by a fine of R2 000.
Ngalwana says his office has been referring these cases to the Registrar of Pension Funds for criminal prosecution, but is considering referring them directly to prosecution authorities in future.
The adjudicator's office received 2 387 new complaints in the 2004/5 year - a substantial increase on previous years. Of these, 1 617 were resolved and 957 cases from previous years were also closed.
The office has now cleared the backlog of complaints that built up during the 10-month period between Ngalwana's appointment and his predecessor's departure, and has a six-month turnaround time for all complaints.
A number of complaints are now being dealt with as informal determinations, in which a letter is sent to the parties involved, Ngalwana's report says.
Only cases that involve novel, interesting or complicated principles of law are addressed as formal determinations.
Over the year to the end of March 2005, only 96 of the 2 580 cases closed were resolved by formal determinations, while 1 308 were informal determinations, 276 were settled and 147 cases were out of the adjudicator's office's jurisdiction.
A total of 753 cases were abandoned after the office intervened, the report says.
Lack of information criticised
The Pension Funds Adjudicator has to date received more than 1 000 complaints about surrender penalties and other similar issues affecting the value of retirement annuities (RAs).
Ngalwana's annual report deals with cases lodged with his office up to March 2005. By that time, Ngalwana had received 30 complaints about surrender penalties applied by life assurers to RAs after members stopped or reduced their premiums.
But over the year, the complaints escalated and the adjudicator made 82 rulings, some of which were challenged in the High Court.
Late last year, the matter came to head when Finance Minister Trevor Manuel announced a deal he had negotiated with the life assurers, in terms of which they would pay back about R3 billion to RA fund members and other policyholders worst affected by the surrender penalties. The life assurers also agreed that future surrender penalties, would not reduce the investment value of the policy to below 70 percent.
In all 30 cases sent to him by March last year, Ngalwana says the charges levied by the life assurers were not disclosed to members in advance, and the trustees failed to ensure that members were adequately and appropriately informed of their rights, benefits and duties as required by the Pension Funds Act.
Ngalwana says trustees in these cases ignored legal precedent that they cannot do anything unless it is provided for in the rules of the fund.
Further, he says, the penalties were in the interests of the life assurers, rather than the members, and the trustees appear to have ignored their duty to act in members' interests at all times.