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Supreme Court of Appeal upholds amended rule affecting withdrawal benefits

The Municipal Employees Pension Fund (MEPF) and its administrator, Akani, have won another court case – this time in the Supreme Court of Appeal (SCA) – that upheld the retrospective application of an amended rule that reduces members’ withdrawal benefits.

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

The MEPF’s rules originally provided that a member who joined the fund after June 1998 would, on resignation, be entitled to withdrawal benefits calculated at three times their contributions, plus interest.

The fund’s actuaries warned that the high withdrawal benefit was a threat to the sustainability of the fund. As a result, the MEPF resolved in June 2013 to amend the rule so that the withdrawal benefit would be calculated at 1.5 times a member’s contribution, plus interest.

The registrar approved and registered the amended rule on 1 April 2014, with the effective date 1 April 2013. The rule was made retrospective to prevent members from resigning en masse once they became aware of a pending reduction in their withdrawal benefits.

Pandelani Mudau, who joined the MEPF in 2003, resigned from Vhembe District Municipality in Limpopo on 31 May 2013. His benefits were paid to him in October 2013, in terms of the amended rule.

Aggrieved by the lower pay-out, he complained to the Pension Funds Adjudicator on the grounds that his benefit should have been calculated in terms of the original rule, because, in terms of section 12(4) of the Pension Funds Act (PFA), the proposed amendment would take effect only after it had been registered.

Adjudicator: amended rule doesn’t apply retrospectively

The Adjudicator upheld the complaint, determining that the amended rule could not be applied to Mudau’s withdrawal benefit, because it had not been approved by the registrar when the benefit became due, and that the amended rule could not be applied to benefits that accrued before the amendment became effective.

The MEPF, believing that the Adjudicator’s ruling was ultra vires and incorrect on the merits, challenged the determination in the Gauteng High Court.

Judge Joseph Raulinga found that the Adjudicator did not commit a reviewable irregularity. The majority decision of the court’s full bench was that the amended rule could not be applied to withdrawal benefits that accrued prior to its approval by the registrar.

Before the SCA, the MEPF argued that:

  • The complaint fell outside the scope of the Adjudicator’s powers set out in sections 30H and 30M of the PFA, read with the definition of a “complaint” in section 1; and
  • The Adjudicator erred in finding that the amended rule could not be applied to withdrawal benefits that accrued before it came into effect on 1 April 2014.

Complaint did fall within the Adjudicator’s jurisdiction

The SCA rejected the submission that the Adjudicator did not have jurisdiction to hear Mudau’s complaint.

It was common cause that the complaint was lodged, and the submissions were made to the Adjudicator, before the amended rule was registered. Section 1 of the PFA empowers the Adjudicator to investigate and make a determination in respect of a complaint lodged by an aggrieved member.

It was evident from the Adjudicator’s reasoning that she did not purport to rule on the validity of the amended rule, but its interpretation and application to benefits accruing before its approval by the registrar. The complaint before the Adjudicator thus related to the interpretation and application of the fund’s rules, and accordingly fell within the scope of the powers vested in her in terms of the PFA, said Acting Justice John Smith.

Fund acted within its rules and the PFA

The SCA found that section 12 of the PFA and rule 48 of the MEPF’s rules “unequivocally” authorise the fund to amend its rules and determine the date on which an amended rule takes effect.

Although there is “a strong presumption” in law against legislation operating retroactively, if the wording of the statute is unambiguous and the intention of the legislature (or, in this case, the fund) is clearly to interfere with vested rights retroactively, the provisions of the retroactive instrument must be given effect to, Judge Smith said.

There was little doubt that, properly construed in accordance with the established canons of legal interpretation, the amended rule was intended to operate retroactively and to reduce members’ benefits with effect from 1 April 2013.

Mudau’s counsel did not take issue with this assertion but argued that because Mudau’s benefits became due and were paid before the rule was registered, the amended rule could not apply to his withdrawal benefits.

Judge Smith said the plain and unambiguous language of the amended rule did not brook this contended construction.

“The amended rule explicitly states that it operates retroactively and thus reduces pension benefits due to members with effect from 1 April 2013. In my view, there can hardly be a clearer indication of an intention to interfere with existing rights with effect from that date.”

The SCA upheld the appeal with costs. It set aside the full bench’s order and substituted it with one dismissing the appeal, setting aside the order of the Adjudicator and substituting it with one dismissing the complaint with costs.

Click here to download the full judgment.

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