A decision by the Financial Services Tribunal (FST) this month highlights that withdrawals from the savings component are not automatic but subject to a retirement fund’s rules and the Pension Funds Act (PFA).
The FST set aside an order by the Deputy Pension Funds Adjudicator, Naheem Essop, directing the Municipal Employees Pension Fund (MEPF) to pay a savings withdrawal benefit to a member whose contributions were in arrears.
The complainant, Khutso Mailula, became a member of the fund in September 2015, when she was employed by the Ba-Phalaborwa Local Municipality. She resigned and joined the Polokwane Local Municipality in February 2018.
The MEPF declined Mailula’s request, in September last year, to make a withdrawal from her savings component because it had not received any contributions on Mailula’s behalf since her employment by the Polokwane LM.
The fund said the two-pot retirement system applies to active fund members. Mailula was deemed an inactive member because she was a defaulter.
In a determination issued in April this year, Essop said inactive members, meaning those who are no longer employed and no longer contributing to the fund, can still make one withdrawal from their savings component per tax year.
The determination also cited Municipal Employees Pension Fund and Another v Mongwaketse (2021), where the Constitutional Court affirmed the Supreme Court of Appeal’s finding that the rules of a fund are its constitution. If the rules do not afford a fund the legal power or capacity to do something, then the act is ultra vires and accordingly null and void.
Essop ordered the fund to:
- provide Mailula with information about claiming from her savings component;
- compute the accessible savings amount within two weeks; and
- pay a withdrawal benefit from the savings component within three weeks of receiving a completed claim form, Identity Document, and bank statement.
In its reconsideration application, the MEPF argued that the order was inconsistent with the fund’s rules and the PFA:
- Rule 27(2)(b) limits a member’s entitlements when contributions are in default and therefore prevents payment of any savings component withdrawal until arrears are settled.
- Section 13 of the PFA makes a fund’s rules binding on the fund, its members, and anyone claiming under those rules.
- Section 13A(1) obliges employers to pay the employer and employee contributions due to the fund, regardless of any contrary rule.
Rule prevents a withdrawal
In its decision, the Tribunal said it was unclear why the determination cited Mongwaketse, because that case was not relevant to the facts in the present matter.
In Mongwaketse, it was found that the complainant was not entitled to belong to the MEPF, because she was employed by the municipality on contract, and the fund’s rules applied only to permanent employees. The point, the FST said, was that the fund could not act as if any of its rules applied to the complainant when they did not.
The Tribunal drew attention to how the Income Tax Act defines a savings component – namely as “a component established in terms of the rules of a pension fund, pension preservation fund, provident fund, provident preservation fund, or retirement annuity fund for a person who is a member of the fund” (FST’s emphasis).
It appeared the Deputy Adjudicator relied on the fund’s rule 48A(2), which deals with the savings component, to conclude that Mailula was entitled to a withdrawal. The Tribunal said this rule had to be read in the context of rule 27(2)(b), which provides that if a member and/or the local authority fails to pay contributions and remains in default for seven days after being instructed in writing to remedy such failure, the member, his estate, or his dependants shall be entitled only to benefits in terms of rule 37.
Section 13 of the PFA provides that a fund’s rules are binding on the fund, its members, shareholders, and officers, and any person who claims under the rules or whose claim is derived from a person so claiming.
The Tribunal said the determination did not refer to rule 27(2)(b) or sections 13 and 13A(1) of the PFA, which were relevant to the matter.
Mailula and the municipality have failed to pay contributions to the fund since she started working for the Polokwane LM – bringing rule 27(2)(b) into play. In April 2025, the fund advised Mailula and the municipality that the arrears amounted to R553 675.31, including interest, at the end of March. This engaged section 13A(1).
Until the arrears are settled, the MEPF will be in contravention of rule 27(2)(b) if it pays the savings withdrawal benefit. Such an act would undermine the binding effect of the fund’s rules, per section 13 of the PFA. The MEPF would be acting ultra vires.
The Tribunal set aside Essop’s order and remitted the matter for reconsideration.
