FSCA was right to reject another extension to transfer funds, says Tribunal

FSCA was right to reject another extension to transfer funds, says tribunal

A provident fund’s poor governance processes were to blame for the administrative problems that delayed a benefit transfer, and it had not made a valid case for being granted another extension to effect the transfer.

This was the finding of the Financial Sector Tribunal when it dismissed the fund’s application for the FSCA to reconsider its request for the extension.

In terms of section 14(2)(b) of the Pension Funds Act, the Penlink Provident Umbrella Fund should have transferred about R9.4 million to the RFS Umbrella Provident Fund by 2 September 2019.

The 64 members whose benefits were to be transferred stopped contributing to the fund in February 2015.

In November 2019, the fund applied for a 60-day extension to transfer the benefits. It said the valuator was in the process of verifying the members’ data. It expected the process would be completed by 6 December 2019. The fund said that if the transfer values were incorrect, it would rectify them and submits its transfer application by 31 January 2020.

The FSCA granted the extension until 30 June 2020. It asked the fund to keep it informed of any developments that could affect its financial soundness or ability to meet its obligations.

The FSCA specifically stated that no further extensions would be granted.

However, 30 June 2020 came and went, without a word from the fund.

Then, on 3 September 2020, the fund asked the FSCA for a further extension. It said the review of the data was delayed, because of difficulties in locating and verifying the data. These problems had been exacerbated by the lockdown.

In October 2020, the FSCA declined the application, saying the explanation provided was not justified.

It said the fund’s failure to effect the transfer timeously was due to administrative errors, which were picked up during the appointment of the new administrator. Although the errors were addressed, the administrative exercise was only completed in early 2020.

It said a further extension might prejudice the rights and reasonable benefit expectations of members, thereby compromising their fair treatment.

The tribunal said at the time the FSCA considered the extension, it had not been aware that, as a result of the lockdown, a meeting between the board and the administrators to address concerns about the values could only be held on 20 July 2020. It was only thereafter, in August, that the board agreed to proceed with the rebuild values.

The transfer value was paid to the transferee fund on 25 September 2020, after expiry of the first extension.

The tribunal said a fund has a fiduciary duty not to delay a transfer application. It is mandatory for the board of the transferor fund to express an opinion on whether the transfer is reasonable and equitable, which it did in this case. “This opinion should have been obtained from the board timeously.”

It said the fund had been remiss in its fiduciary duties, and their administrative issues could have been resolved if they had proper governance processes in place. The tribunal therefore dismissed the application.

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