Withholding of Pension Withdrawal Benefits

A recent determination by the Pension Funds Adjudicator concerns an employer’s decision to instruct the administrator of the pension fund to withhold the complainant’s withdrawal benefits after terminating his service.

In their response to a complaint in this regard, the employers held that their actions sprang from losses incurred as a result of the complainant failing to properly execute his duties as project manager.

These duties involved procuring, managing, securing and properly utilising stock. They submit that the complainant, in the execution of his duties, among others, failed or neglected to properly manage, record or accurately account for the stock. The respondents submit that as a result of the complainant’s mismanagement, the employer suffered loss of cash and/or stock. They submit that an investigation was conducted which revealed that the complainant was grossly negligent and concealed the loss of R2 726 794.25. They submit that the complainant’s actions of dishonestly concealing the loss prevented the second respondent from taking action to improve profitability and prevent further losses. They submit that this dishonest concealment constitutes a misconduct in terms of section 7D(1)(b)(ii)(bb) of the Act.

As a result, the employer instituted a civil claim against the complainant in the North Gauteng High Court and also laid a criminal charge to recover these losses. The employer requested the pension fund administrator to withhold the withdrawal benefits, pending the finalisation of the civil claim as well as the criminal case.

In response, the complainant denies that his actions as a project manager were negligent and the direct cause of the
losses as submitted by the respondents. He submits that some of the duties that the respondents are indicating as his duties belonged to other personnel such as the store manager, the storeman and the bookkeeper. He submits that, as most of these people reported to the general manager, the general manager would have been aware of any losses and it would also have been impossible to conceal the losses as claimed by the respondents.

He further submitted that he was not aware of any civil claim against him, until he saw the summons in the response, as the papers were never served on him and the address purporting to be his address is not his, as his employment records would show. The complainant maintains that there is no just cause for withholding his withdrawal benefit and therefore it must be released.

Determination and reasons therefore

The issue for determination is whether or not the pension fund is entitled to withhold the complainant’s withdrawal benefit.

Section 37D(1)(b) of the Act provides that a registered fund may deduct any amount due by a member to his employer on the date of his retirement or on which he ceases to be a member of the fund, in respect of compensation (including any legal costs recoverable from the member in respect of any damage caused to the employer by reason of any theft, dishonesty, fraud or misconduct by the member, and in respect of which –

  • The member has in writing admitted liability to the employer; or
  • Judgement has been obtained against the member in any court, including a magistrate’s court, from any benefit payable in respect of the member or a beneficiary in terms of the rules of the fund, and to pay such amount to the employer concerned.

This appears to be a bit of a catch 22 situation. The PFA quotes from the Highveld Steel & Vanadium Corporation Ltd v Oosthuizen case where a similar situation arose:

“Such an interpretation would render the protection afforded to the employer by s 37D(1)(b) meaningless, a result which plainly cannot have been intended by the legislature. It seems to me that to give effect to the manifest purpose of the section, its wording must be interpreted purposively to include the power to withhold payment of a member’s pension benefits pending the determination or acknowledgment of such member’s liability. The Funds therefore had the discretion to withhold payment of the respondent’s pension benefit in the circumstances.”

The PFA, however, held that, “On a simple reading, the malicious or unlawful act must result in the damage or loss to the employer. In terms of the respondent’s submissions, the loss resulted from an employer – employee contractual agreement, in which the complainant failed to meet the required managerial standards.”

“This Tribunal is not convinced that the legislature intended the provision of the Act to extend to contractual disputes, including those of which the failure is concealed as submitted by the respondents.”

“In the event, it is this Tribunal’s finding that the damage suffered by the second respondent is not a damage as envisaged in section 37D(1)(b)(ii) of the Act and as a result, the first respondent can neither withhold nor deduct the complainant’s withdrawal benefit. Therefore, the complainant is entitled to payment of his withdrawal benefit.”

Click here to download the determination.

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