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Adjudicator overstepped her authority in deciding that pension fund’s rule did not apply retrospectively

The Gauteng High Court has overturned a determination by the Pension Funds Adjudicator, ruling that she exceeded her jurisdiction and did not follow a fair procedure when deciding that a fund’s amended rule did not apply retrospectively to an accrued benefit.

The court also condoned the late filing of the applicants’ appeal, saying leaving the determination unchallenged posed a threat to the sustainability of the fund.

Matome Ramohale, the first respondent in the High Court case, lodged a complaint with the Adjudicator in 2014 after he was paid a withdrawal benefit of R132 173 instead of the R264 347 he had expected to receive.

When Ramohale joined the Municipal Employees Pension Fund (MEPF) in 2006, one of the fund’s rules provided that a member leaving the fund early would be paid a withdrawal benefit calculated at three times the value of his or her contributions.

In February 2013, the MEPF’s actuaries advised the fund that the high withdrawal benefit was placing a significant financial strain on the fund, and the fund was at risk of failing to meet its liabilities. It was recommended the rule be amended to ensure the fund’s sustainability.

In June 2013, the fund resolved to amend the rule with retrospective effect from 1 April 2013. The amended rule provided for the calculation of withdrawal benefits at a rate of 1.5 times the member’s contribution.

The registrar approved the amended rule on 1 April 2014, with an effective date from 1 April 2013.

Ramohale resigned from the Ekurhuleni Municipality and ceased to be a member of the fund on 15 May 2013. He received his withdrawal benefit in August 2013.

In January 2018, the Adjudicator ordered the MEPF to pay Ramohale the difference between the expected amount of R264 347 and R132 173.

She said the amended rule could not be applied to benefits that had accrued before the date on which it had been approved by the registrar. Its retrospective effect applied only to active members and those who left the fund on or after the date on which the rule had been approved.

Adjudicator exceeded her authority

The MEPF and Akani Retirement Fund Administrators asked the High Court to review and set aside the determination, contending it lacked jurisdiction and was procedurally unfair because they had not been allowed to make submissions about the validity of the amended rule.

Judge Marcus Senyatsi agreed with the applicants that the Adjudicator had exceeded her authority by determining that the amended rule could apply only retrospectively.

He said the MEPF’s rules allow it to regulate itself and to amend its rules, and the Adjudicator has no authority to determine how the rules will apply.

Restriction in section 12 applies to creditors only

Ramohale contended that the registrar’s approval of the amended rule was invalid because it conflicted with section 37A of the Pension Funds Act (PFA) and the fund’s rule 48.

Rule 48(1) states: “The rules of the fund may be amended, rescinded or added by the Committee, subject to the provision of section 12 of the Act and section 79 quote (5) of the Ordinance.”

Judge Senyatsi said the authority conferred on the trustees by rule 48(1) to amend the fund’s rules was qualified only by the requirement that an amendment be consistent with section 12 of the PFA.

The only restriction section 12 places on amendments are that they may not affect any right of a creditor of the fund, as opposed to a member, and they must be approved and registered by the registrar.

Judge Senyatsi said there was no evidence or allegation that the amendment affected the rights of the fund’s creditors. Even if this were the case, it would have required the registrar to have been challenged on registration of the amended rule, which had not happened.

Rule 48 does not limit the trustees regarding a reduction of benefits, because the trustees have a fiduciary duty to the fund to ensure its sustainability for the benefit of all its members.

“It is for that very reason that, upon being advised by its actuaries that the old rule calculation of benefits was unsustainable, that the amended rule was introduced.”

Turning to section 37A, he said its purpose is to protect members’ benefits from their creditors. It does not apply to the relationship between a member of the fund and the fund itself, but to the relationship between a member and his or her creditors.

Applicants had a right to be heard

The MEPF and Akani submitted they were not informed by the Adjudicator that she would be deciding the matter on the basis that the amended rule could not be applied to members who left the fund after the date on which it had been approved, and they had not been given an opportunity to make submissions in this regard.

Judge Senyatsi said the Adjudicator was obliged to allow the applicants to make submissions before she made findings on the validity of the rule, and not calling for more submissions from them “amounted to a serious irregularity”.

The determination therefore fell foul of section 6(2)(c) of the Promotion of Administrative Justice Act.

Late filing condoned

In terms of section 30P of the PFA, the applicants were required to launch their appeal by 2 April 2018, but only filed the papers on 27 July 2018.

The MEPF and Akani said it took time to locate the file relating to the matter. They sought condonation for bringing the appeal later than six weeks of the date of the determination.

In condoning the late filing, Judge Senyatsi said the old rule had placed the fund under significant pressure, because the invested contributions were not yielding high returns after the global financial crisis.

“If the determination of the Adjudicator is left unchallenged, it will lead to the unsustainability of first applicant, and, in my view, the trustees acted properly by implementing the recommendations of their actuaries.”

Judge Senyatsi ruled that the Adjudicator had no jurisdiction to make the determination, and it was invalid. He replaced it with an order dismissing Ramohale’s complaint.

Ramohale was ordered to pay the costs of the appeal.

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