A recent order by the High Court in Johannesburg does not set a precedent for an employer or a creditor to make deductions from a retirement benefit that are prohibited by the Pension Funds Act (PFA), says the Pension Funds Adjudicator, Muvhango Lukhaimane.
Lukhaimane said the order in favour of the Bokamoso Retirement Fund was the result of her office following an incorrect procedure.
“The order is not precedent for an employer or other types of creditors to make deductions from pension benefits that are prohibited by the Act and should not be misconstrued in that manner,” she said.
The order does not mean that members’ benefits can now be ceded, pledged or hypothecated, because it “did not and could not overrule what is expressly provided for in legislation and widely accepted to be the correct legal position”.
Background to the order
From January 2018, Akani Retirement Fund Administrators and an employee, “NM”, entered into study loan agreements, in terms of which Akani would pay for his tuition fees with the proviso that he would remain an Akani employee for 60 months after each year of study, failing which the loan would be immediately payable.
When NM resigned in February 2021, he gave Akani permission to deduct the outstanding amount of R52 252.57. However, Akani deducted R60 879.70.
According to Akani, it incorrectly calculated the amount because NM had enrolled in a foreign institution and the loan was denominated in dollars.
NM complained to the Adjudicator in July last year.
Akani provided the Adjudicator with the correct break down of the loan amount, and in September the Adjudicator dismissed NM’s complaint.
But a few weeks later, the Adjudicator reversed its decision and issued a determination against Akani and Bokamoso, ordering them to pay back the deducted amount.
The Adjudicator also urged the FSCA to investigate Akani for allegedly unlawful conduct.
Bokamoso and Akani took the determination to the High Court, which declared it to be invalid and of no force or effect.
Zamani Letjane, the managing director of Akani, welcomed the High Court’s order, which he said exonerated Akani and Bokamoso and proved, “without a shadow of a doubt”, that the decisions the Bokamoso board took were in line with the fund’s rules.
‘The agreement was unlawful’
Lukhaimane told Moonstone that what was at issue in this matter was not the incorrect amount that Akani deducted, but that a member cannot agree to the reduction of their retirement benefit, except what is allowed in terms of the PFA.
“Money may not leave the fund and go directly to anyone if it is not in terms of what the Act allows for.”
Once a fund has paid the benefit into a member’s bank account, the member is free, without reference to the fund, to pay whomever they want to pay.
She said NM should have waited for Bokamoso to pay him the benefit and then used it to settle the loan with Akani.
In her statement, Lukhaimane said the PFA is specifically designed to protect retirement benefits from creditors, “including unscrupulous employers who may utilise their bargaining power against their employees to enter into agreements prejudicial to the employee. Such agreements are unlawful in terms of the Act.
“The Act goes so far as to protect benefits against insolvency in section 37B, and in section 37C we find that beneficiaries are protected against even the clear wishes of a deceased member if it results in an inequity. There are specific limited circumstances under which a pension fund may deduct from pension benefits and those are set out, inter alia, in section 37D.”
In terms of section 37D(1)(b), a retirement fund may deduct a benefit in favour of an employer in respect of a home loan, or compensation in respect of any damage caused to the employer by reason of theft, dishonesty, fraud or misconduct by the member and in respect of which the member has in writing admitted liability to the employer or judgment has been obtained against the member in any court.
Lukhaimane said “none of the aforesaid prerequisites were present” when Bokamoso deducted the amount in respect of NM’s student loan.
An incorrect procedure
Asked to explain why her office initially dismissed NM’s complaint if the deduction was unlawful, Lukhaimane said the line manager made an error, because he was new and did not realise that the PFA did not allow for the deduction. The manager previously worked at the Government Employees Pension Fund (GEPF). The Government Employees Pension Law, which governs the GEPF, permits the employer to deduct a study loan from the fund.
During quality control, it was detected that the matter had erroneously been closed as a settlement.
Lukhaimane said her office notified Bokamoso of the error and indicated that it would reopen the matter and issue a determination. She said the fund was invited to respond, but it did not.
Lukhaimane said the High Court did not address the merits of the matter – whether or not the deduction was lawful. The court found that her office’s process was flawed, and it aside the determination on that basis.
“The deduction remains unlawful, and we expect the FSCA to investigate the unlawful conduct of both the Bokamoso Retirement Fund and Akani Retirement Fund Administrators in effecting the deduction, as both entities are subject to the FSCA’s regulation and should be aware of the trite legal principles.”
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