Know Your Fund Rules: When Can A Pension Fund Be Held Liable For Investment Loss?

Factual exposition:

Mr Carl Francois Conradie (“Mr Conradie”) had been employed from 01 January 1993 until he retired on 31 January 2022. During his employment, he belonged to his employer’s pension fund, and monthly contributions were deducted from his salary. In August 2013, Mr Conradie transferred from his employer’s pension fund to join Fundsatwork Umbrella Pension Fund (the fund”).

His monthly contributions continued and at times, he made several additional voluntary contributions. In late April 2022, he decided to withdraw a cash lump sum of R1.1 million and on the other hand purchase a living annuity.

According to the fund, the withdrawal form received from Mr Conradie on 26 April 2022 was incomplete and invalid on several grounds, including the absence of the employer’s signature. It is important to note that Mr Conradie had retired. The rectification was attended to by 04 May 2022, which the fund found acceptable. The fund contended that it engaged Mr Conradie’s employer for the outstanding signature. Thereafter, on 09 May 2022, the fund commenced with the disinvestment process.

The lump sum was then paid and the remaining balance transferred to the insurer for the purchase of Mr Conradie’s annuity.

Pension Funds Adjudicator:

Mr Conradie raised a complaint with the Deputy Pension Funds Adjudicator (“the Adjudicator”) that the fund’s delay in processing his claim resulted in financial prejudice. His claim was that the accrual benefit calculated on 26 April 2022 – the date of the incomplete withdrawal form, was R 15,449,699.96. His complaint was dismissed on the basis that, amongst others, his withdrawal claim form was incomplete; he cannot rely on an incomplete form as a withdrawal notification, that he failed to substantiate his claim of financial prejudice suffered as a result of the delay and he was paid in accordance with the fund’s rules.

Issue:

Mr Conradie thereafter approached the Financial Services Tribunal (“the Tribunal”) for a reconsideration of the Determination. The key issue was whether the fund delayed in processing the retirement benefit to his financial prejudice.

Findings:

The Tribunal referred to section 13 of the Pension Funds Act (“the Act”) which provides for the binding of the rules of a registered fund. In terms of the section, the rules of a registered fund shall be binding on the fund and its members. Accordingly, acts done contrary to the rules are ultra vires, and null and void.

The Tribunal found that rule 6.1.6.1 applicable at the time provided that the disinvestment process shall start within 7 days of receipt of a member’s withdrawal notification. Further, for a withdrawal notification to comply with the rules, the withdrawal form was required to be signed by the participating employer and member thereof.

It was then held that in terms of the applicable method of calculating days – which excludes weekends and public holidays, the seventh day from 26 April 2022 fell on 09 May 2022. It was common cause that the fund began the disinvestment process on 09 May 2022.

The Tribunal then held that the fund complied with its rules by commencing the disinvestment process on 09 May 2022 – which was within the prescribed 7-day period. Accordingly, it was found that the Fund is not liable to Mr Conradie for the negative investment returns over the disinvestment process and refused the reconsideration application.

The Tribunal looked at further grounds put forth by Mr Conradie, which it decided against:

Firstly, Mr Conradie sought refuge in the allegation that the fund relied on a non-existent rule in terms of its rules. The Adjudicator held that the error was immaterial and could not provide a basis for setting aside the determination. What was significant was that the disinvestment process was commenced with within the 7-day period.

Secondly, Mr Conradie further contended that the Adjudicator disregarded evidence that the fund’s principal officer had, in writing, admitted that the employer’s signature was not required because Mr Conradie was already a deferred retiree – amounting, so it was argued, to a waiver of that requirement. This ground was rejected. Even accepting that the withdrawal notification was complete on 26 April 2022, the fund still complied with its rules by commencing disinvestment on 09 May 2022, within the 7-day period. In any event, the principal officer had no power to waive a requirement prescribed by the rules, and any purported waiver would itself have been ultra vires.

Thirdly, Mr Conradie also argued that because the fund proceeded with disinvestment on 09 May 2022, without the employer’s signature or the annuity details on hand, this showed that such information was never truly a prerequisite and that there was no valid administrative impediment to processing his form on 26 April 2022. The Adjudicator again found this immaterial: even if the withdrawal notification was treated as complete on 26 April 2022, the fund still commenced disinvestment within the 7-day period on 09 May 2022. The fund, in any event, maintained that it had obtained the employer’s signature on 04 May 2022.

Fourthly, a further ground raised was that the Adjudicator had failed to adjudicate each of Mr Conradie’s distinct complaints separately. It was held that the Adjudicator was not required to make separate findings on every subsidiary point attached to the same underlying factual dispute, and that once it was established that the withdrawal form was incomplete and that the fund had disinvested within the mandated period, the remaining questions – including alternative accrual dates and corresponding breaches of the Act – fell away as a matter of logic.

Finally, Mr Conradie contended that adverse inferences ought to be drawn from the fund’s conduct, including its failure to produce the employer-signed withdrawal form, a recalled email, and discrepancies in the timeline, suggesting misconduct, concealment and manipulation on the part of the fund. The Adjudicator found no basis for these allegations, holding that commencing the disinvestment process within the time prescribed by the rules does not, without more, constitute maladministration or a breach of statutory duty.

Having found no merit in any of these further grounds, the Tribunal concluded that Mr Conradie had not made out a case for reconsideration and dismissed the application, upholding the Adjudicator’s determination that the fund had not acted in breach of its rules.

Conclusion:

This ruling highlights the importance of fund members and policyholders familiarising themselves with the rules of their relevant pension funds. It is imperative for members and policyholders to know their fund’s rules to avoid the dire consequences that might be caused by the delays resulting from non-compliance with the rules and/or incomplete withdrawal forms.

Further, claims for financial loss/prejudice due to delays ought to be substantiated with sufficient particularity. It is unlikely that a bare claim for financial loss would succeed without sufficient particulars on how the alleged delays caused quantifiable financial loss.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.