Your employer cannot willy-nilly withhold your retirement savings when you leave your job. In three recent determinations, the Pension Funds Adjudicator, Muvhango Lukhaimane, has ruled that the withholding of retirement benefits has to meet the clearly defined provisions of the Pension Funds Act (see cases below).
Lukhaimane says that section 37 of the Act is very specific about when benefits can be withheld from a retirement fund member or beneficiary.
On the date of retirement or on the date on which the member ceases to be a member of a registered fund, the fund is permitted to deduct from the withdrawal benefit only the following:
* Any tax owing in terms of the Income Tax Act;
* Any outstanding housing loan amount granted to a member by the fund;
* Any outstanding amount for which the fund becomes liable for a housing loan granted to the member by another party; and
* Compensation (including any legal costs recoverable from the member) for any damage caused to the employer through theft, dishonesty, fraud or misconduct by the member, and for which:
– The member has admitted liability in writing to the employer; or
– A judgment has been obtained against the member in court.
In the three determinations in favour of former employees, Lukhaimane found the retirement funds and their sponsoring employers had not complied with the requirements of the Pension Funds Act when withholding retirement fund benefits and ordered the funds to pay out.
CASE 1: DISPUTE OVER COMPANY HOUSING LOAN
A breach of a restraint of trade agreement between an employer and an outgoing employee is no reason for retirement fund benefits to be withheld, Pension Funds Adjudicator Muvhango Lukhaimane says.
The determination follows a complaint from Mr B, a former employee of Sandton-based Protea Technology, about the non-payment of his benefit from Protea Technology Retirement Fund.
Protea Technology claimed Mr B had breached a restraint of trade agreement by getting a job with a competing company before the restraint expired and during his period of notice. Protea Technology had, as a consequence, instituted legal action against Mr B, two other ex-employees and the competitor. The matter had been heard in the South Gauteng High Court and the court had ruled in Protea Technology’s favour in both the breach of restraint, as well as unlawful competition. Costs, which still had to be recovered, had been awarded against Mr B, two other employees and the competitor company.
Protea Technology argued that, as a consequence of the court action, it was entitled to ask the fund to withhold Mr B’s benefit in terms of the Pension Funds Act.
Lukhaimane ruled that a restraint of trade formed part of a contract of employment and was regulated by the law of contract and did not amount to “misconduct” as required under the Pension Funds Act. She says Mr B’s conduct amounted to a breach of contract of employment and did not fall within the ambit of the Act, as it did not amount to theft, dishonesty, fraud or misconduct.
Also, she noted that no damages were awarded by the High Court because Protea Technology did not make a case of loss in the action.
CASE 2: RESTRAINT OF TRADE
The Oasis Crescent Retirement Fund, the retirement fund of financial services company Oasis Group Holdings, was ordered by the Pension Funds Adjudicator, Muvhango Lukhaimane, to pay a member, Mr K, his withdrawal benefit, which fell due when he resigned from a company in the group in September 2010.
The reason for non-payment of the withdrawal benefit was a dispute over a housing loan.
In April 2008, Mr K was granted an interest-free housing loan of R1 936 826 by the Oasis Group on condition that he remained in its employ for a period of at least three years after the full repayment of the loan.
In May 2010, Mr K paid the balance of the housing loan, which then stood at R1 809 826.
When Mr K resigned in 2010, Oasis directed its retirement fund trustees to withhold payment of his withdrawal benefit on account of contingent interest to the amount of R445 682 having been added to the loan amount, in accordance with the terms of the housing loan agreement, together with further interest that accrued after August 2010.
Mr K was “aggrieved” by the decision of Oasis to charge interest on the housing loan retrospectively, calculated from the start of the housing loan agreement. Mr K said he should have been informed that interest would be charged on the capital amount from inception.
Mr K told Lukhaimane that the housing loan agreement was entered into between himself and Eden Court Holdings (a wholly owned subsidiary of Oasis) and not Oasis. The loan agreement stipulated that no interest would be charged on the capital loan amount. Also, he had not received any statements from Oasis throughout the existence of his housing loan.
Oasis, which has instituted civil action against Mr K, says the contingent liability when the loan was repaid was R445 682.
In her determination, Lukhaimane says the crux of the matter was the body that issued the loan. “The Pension Funds Act requires the retirement fund to provide a guarantee on the housing loan made to Mr K by some other person in order for the transaction to fall within Act.”
No such guarantee was issued by the fund. If such a guarantee had been provided, the fund would have been entitled to withhold the amount that may be due by Mr K to Eden Court Holdings from his withdrawal benefit.
She says the civil claim by Oasis concerns a dispute pertaining to a term in Mr K’s contract of employment and, as a result, is irrelevant to the withholding of Mr K’s withdrawal benefit .
CASE 3: BREACH OF WORK CONTRACT
Corporate Selection Retirement Fund was ordered by Pension Funds Adjudicator Muvhango Lukhaimane to pay out the accumulated retirement savings of R100 359 to Mr S, who was employed by Davies Diagnostics from November 1, 2006 to February 28, 2013. Davies Diagnostics told the fund not to make the payout, as it believed Mr S owed the company money, because he worked for another company in January and February 2013 while still employed by Davies Diagnostics.
Davies Diagnostics says this dual employment resulted in loss and damage to the company because it paid Mr S his salary plus benefits for the period that he was employed by another company.
Mr S denied having been employed by another company while still employed by Davies Diagnostics, saying he generated revenue in excess of R700 000 during the months of January and February 2013 due to the sales he made during that period.
In her determination, Lukhaimane said that in terms of the Pension Funds Act, a registered fund may deduct any amount due by a member to his employer “in respect of compensation in respect of any damage caused to the employer by reason of any theft, dishonesty, fraud or misconduct by the member”.
Lukhaimane says that by accepting employment with another company, Mr S’s conduct amounted to a breach of contract of employment, but it did not amount to theft, dishonesty, fraud or misconduct.