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Pension Fund penalty interest – Tribunal disagrees with PFA

Employer deductions from pension funds have raised many questions in the past. What is legal? Can a pension fund pay-out be delayed? Can damages as a result of theft or fraud be deducted, and when? When is a fund liable for penalty interest?

Generally speaking, Section 37D of the Pension Funds Act does permit certain deductions from a member’s retirement fund benefit or pension pay-out. These are:

Any amount outstanding in respect of housing loans which were granted to members directly by the fund or employer in respect of a housing loan;
Any amount for which the fund or employer is liable in terms of a guarantee given by the fund or the employer in respect of a housing loan;
Damages caused to the employer by the member as a result of theft, fraud, dishonesty or misconduct, provided that:
The member has admitted liability in writing for the misdemeanour, or
Judgment has been obtained against the member in a court of law.
With the member’s consent, medical aid subscriptions and insurance premiums;
Such other deductions as the Registrar of Pension Funds may allow.

However, in the latest Tribunal case the question arose as to whether the pension Fund Adjudicator (PFA) can add penalty interest to an amount withheld pending a legal enquiry. In this case, the Retirement Fund applied for reconsideration of 10% interest levied by the PFA on the Retirement Fund.

Matter between Retirement Fund/Employee and PFA

Summary of actions

Mr H was employed by his employer from 8 February 2012 until 12 June 2017.
He was a member of a Retirement Fund.
His service was terminated as a result of a criminal charge of fraud and theft.
As a result, the Employer asked that the Fund withhold his benefits until the case was finalised.

Original PFA case

The employee lodged a complaint with the PFA as he was aggrieved with the non-payment of the withdrawal benefit.
Criminal charges were withdrawn and as a result he requested the PFA to order the Fund to pay his benefits.
The PFA checked the original decision to withhold the benefits against Section 37D of the Act and after investigation determined that the amount withheld by the Fund should not be in excess of the amount that is equivalent to the alleged damages pending the criminal case.
As a result the Fund was ordered to pay the difference to the Mr H together with interest of 10% per annum calculated from July 2017 to date of payment.

The Funds’ Appeal

Although the Fund acknowledged that they should pay the member’s benefit, they argued that the 10% interest payment is an unfair determination in the light of the fact the member’s benefit remained invested as per the member’s investment decision.

When can interest be levied?

Section 30N of the Act regulates payments and provides that interest is only payable in instances where the party to make payment is in mora or in wilful default. Mora is a wrongful delay or default in making payment. In this case the Fund contested that it was not in wilful default.

Mr M’s employment was terminated on 12 July 2017
The Fund only became aware of the withholding of the benefit on 6 July 2017
According to the Fund, procedural irregularities occurred after the lodgement of the complaint with the PFA

Tribunal’s decision

In light of the fact that there was no evidence that suggested that there was any wilful default on the part of the Fund as from July 2017, the Tribunal was unable to justify that the Fund should be held accountable for anything more that the earnings on the benefit from July 2017.

The decision of the PFA to levy a penalty interest on the Fund was set aside and the matter was remitted back to the PFA for reconsideration.

Click here to download the Tribunal case.

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