If your retirement fund fails to transfer your benefit to another fund within 60 days of you giving the fund written notice of your intention to leave the fund, the fund has to pay you interest at the rates set by the Usury Act.
This principle has emerged from the latest ruling by Vuyani Ngalwana, the Pension Funds Adjudicator, on the transfer of benefits from one retirement fund to another.
The case involved a member of the Nedcor Defined Contribution Provident Fund, who became entitled to a withdrawal benefit of about R172 000 when his employment contract ended on September 30, 2004.
On September 28, 2004, the member instructed the fund to transfer his benefit to the Barclays Provident Fund, but the money was paid into the Barclays fund on only January 7, 2005.
As compensation for the late payment, the Nedcor provident fund paid the member interest of six percent less retirement fund tax of 18 percent, or R2 143. The six percent was based on Nedbank's call account interest rate. The fund member was unhappy with the interest on his withdrawal benefit and lodged a complaint with the adjudicator.
The Nedcor Defined Contribution Provident Fund told Ngalwana that it took longer than usual to transfer the money to the Barclays fund because an extraordinary number of people were leaving the fund at that time.
Ngalwana said in terms of the Pension Funds Act a retirement fund is required to transfer a withdrawal benefit to another fund within 60 days of receiving written notice to do so.
If a fund is unable transfer the benefit within 60 days, it has to apply to the Registrar of Pension Funds for an extension.
Retirement funds that take longer than 60 days to transfer a withdrawal benefit and that fail to apply for an extension must pay interest at the rates set down in terms of the Usury Act. These interest rates are amended by the Minister of Finance from time to time, but are currently 20 percent a year for amounts of R10 000 or less, and 17 percent a year for amounts exceeding R10 000.
The Nedcor Defined Contribution Provident Fund was required to transfer the member's benefit by no later than November 29, 2004, Ngalwana said. The fund also failed to apply to the registrar for an extension of the time period, he said.
Ngalwana ordered the Nedcor fund to pay interest on the member's benefit at the Usury Act rates for the period from November 30, 2004 to the date of transfer, less the interest already paid.
Naleen Jeram, the deputy adjudicator, says this ruling has important implications for all pension funds and their members. The Pension Funds Act clearly requires your fund to transfer your benefit to another fund within 60 days of receiving written notice to do so, he says.
If your fund fails to carry out your instruction within 60 days, it will be liable for interest at the rates set under the Usury Act, Jeram says. These rates are normally much higher than the fund's investment return rate or a bank call account rate.