Two recent rulings by Pension Funds Adjudicator Lebogang Mogashoa highlight a critical risk for retirement funds: weak controls over benefit payments can expose funds to liability years after transactions are processed – and require them to repay members in full, with growth.
In both cases, the Adjudicator found that retirement funds failed to properly validate claims and ensure that benefits were paid to the correct recipients, breaching their statutory duties under the Pension Funds Act.
Mogashoa emphasised that funds are required to act in the best interests of members and maintain adequate control systems.
“This includes exercising an oversight function over its administrator and ensuring that processes, especially the payment of benefits, are carried out properly,” he said.
Case A: no evidence of a valid claim
In the first matter, a member who had transferred his withdrawal benefit to the Alexander Forbes Preservation Fund disputed that he had ever claimed or received his benefit, despite the fund indicating that payment had been made in 2011.
The fund attributed the issue to an administrative error, stating that an incorrect member number resulted in records being swapped with those of another member. It provided proof that funds had left its bank account but could not show that the payment was made to the complainant.
The complainant, in turn, submitted bank statements showing no such payment had been received.
The Adjudicator found that the fund could not produce any documentary evidence that the complainant had submitted a withdrawal claim form. Without such a claim, the fund had no basis to process a payment.
“Thus, it can be inferred that the complainant never submitted a withdrawal claim form to receive his fund benefit,” Mogashoa said.
He ruled that the complainant remained entitled to his benefit and ordered the fund to recalculate and pay the amount, including the investment returns that would have accrued had the benefit remained invested.
Case B: payment made to a minor
In a separate case involving the Motor Industry Provident Fund, a member discovered that his withdrawal benefit had been paid to a two-year-old child.
The fund maintained that it had received a completed claim form supported by the required documentation, including identity documents and bank details. The account holder shared the complainant’s surname.
However, the complainant denied signing any documents and stated that the child was his niece.
The Adjudicator identified discrepancies in the claim form, including a section requiring signatures from both the member and the account holder that had been completed by a single individual. The fund was asked to explain the inconsistency and outline its verification process but failed to do so.
Mogashoa found that the fund had not exercised adequate care in validating the claim and had failed in its duty to ensure proper controls.
“Section 7C(1) of the Act places a positive duty on the fund to act in the best interests of its members,” he said, adding that boards are required to ensure proper control systems are in place.
On a balance of probabilities, the payment had been made to the wrong person. The fund was ordered to pay the complainant his benefit, plus fund return, from the original payment date.
The Adjudicator also rejected the fund’s argument that payment should depend on the outcome of a criminal fraud investigation, noting that this had no bearing on the member’s entitlement in the adjudication process.
Control failures carry long-tail liability
Taken together, the rulings reinforce that retirement funds cannot rely on administrative processes alone when validating claims.
Failures in documentation, identity verification and payment controls can result in funds being required to make good on benefits – even where payments were made years earlier and even where fraud is suspected but not proven in criminal proceedings.
For fund boards and administrators, the determinations underscore the importance of:
- Robust claims validation processes;
- clear audit trails for benefit payments;
- active oversight of administrators; and
- strict adherence to statutory duties under the Pension Funds Act.
The rulings also highlight the legal standard applied by the Adjudicator: funds must demonstrate that proper processes were followed and that payments were made to the correct beneficiaries.
Where they cannot, liability remains with the fund.
