Re­tire­ment funds can’t use cur­rent con­tri­bu­tions to off­set ar­rear pay­ments

Weekend Argus (Saturday Edition) - - PERSONALFINANCE - BRUCE CAMERON

A re­tire­ment fund can­not use cur­rent mem­ber and em­ployer con­tri­bu­tions to make good on ar­rear con­tri­bu­tions, par­tic­u­larly when the money is at­trib­uted to mem­bers other than those who made the con­tri­bu­tions.

This is the ba­sis of yet an­other de­ter­mi­na­tion by Pen­sion Funds Ad­ju­di­ca­tor Mu­vhango Lukhaimane in­volv­ing the much-trou­bled Pri­vate Se­cu­rity Sec­tor Prov­i­dent Fund (PSSPF).

Fol­low­ing on from the de­ter­mi­na­tion, the Fi­nan­cial Ser­vices Board (FSB) has warned it will take ac­tion against funds and their ad­min­is­tra­tors who use cur­rent con­tri­bu­tions in­dis­crim­i­nately to make up for con­tri­bu­tions not paid over by em­ploy­ers to re­tire­ment funds.

In terms of the Pen­sion Funds Act, all con­tri­bu­tions – from both em­ployer and em­ployee – must be paid over to the fund not later than seven days af­ter the end of the month for which they were payable.

An em­ployer must sub­mit a sched­ule to a fund in­di­cat­ing on be­half of which mem­bers it has sub­mit­ted money, nam­ing the mem­bers and the amounts al­lo­cated.

Lukhaimane warned in her de­ter­mi­na­tion that re­tire­ment fund trus­tees could be or­dered in their per­sonal ca­pac­i­ties to make good to ad­versely af­fected mem­bers and for­mer mem­bers.

Jur­gen Boyd, act­ing FSB deputy ex­ec­u­tive in charge of re­tire­ment funds, says the FSB does not ap­prove of any prac­tice that at­tempts to al­lo­cate a re­tire­ment fund mem­ber’s cur­rent con­tri­bu­tions to­wards an em­ployer’s ar­rears con­tri­bu­tions that may have ac­cu­mu­lated over time and for which the cur­rent mem­ber may not be re­spon­si­ble.

He says the prac­tice would amount to a con­tra­ven­tion of the Pen­sion Funds Act by a fund and its ad­min­is­tra­tor, re­quir­ing reg­u­la­tory ac­tion.

Boyd says that in terms of the Act the min­i­mum ben­e­fit payable to a mem­ber of a de­fined con­tri­bu­tion fund, such as the PSSPF, is the mem­ber’s min­i­mum in­di­vid­ual re­serve at the date of exit. The Act pro­vides a for­mula for cal­cu­lat­ing the amount, which “specif­i­cally pro­vides in­ter alia for the in­clu­sion of all the mem­ber’s con­tri­bu­tions and em­ployer’s con­tri­bu­tions re­ceived by the fund for a mem­ber.

“If a fund does not al­lo­cate a mem­ber’s con­tri­bu­tions to his or her in­di­vid­ual ac­count, it would be act­ing con­trary to the min­i­mum ben­e­fit pro­vi­sions of the Act,” Boyd says.

He says fol­low­ing Lukhaimane’s de­ter­mi­na­tion, the FSB has taken the mat­ter up with the PSSPF and the fund’s ad­min­is­tra­tor, Absa Con­sul­tants and Ac­tu­ar­ies, “to de­ter­mine the na­ture and ex­tent of any non-com­pli­ance. The ap­pro­pri­ate reg­u­la­tory ac­tion will fol­low this en­gage­ment.”

The de­ter­mi­na­tion fol­lowed a com­plaint by an em­ployee of a par­tic­i­pat­ing em­ployer in the PSSPF, Mjayeli Se­cu­rity Ser­vices. The em­ployee, MI Moloan­toa, did not re­ceive his ben­e­fit when he left his job.

Dur­ing his em­ploy­ment, from Septem­ber 1, 2011 to Novem­ber 30, 2012, Moloan­toa and his em­ployer each paid R2 560 in con­tri­bu­tions to the fund.

Lukhaimane says in her de­ter­mi­na­tion that it ap­pears that the fund ad­min­is­tra­tor’s mem­ber­ship data sys­tem is set up in a man­ner to pre­vent the upload of cur­rent prov­i­dent fund con­tri­bu­tions for any given month if the em­ployer is in ar­rears for the pre­ced­ing months or years. To cir­cum­vent this, Absa uses cur­rent con­tri­bu­tions to off­set the ar­rears in or­der to bring the em­ployer up to date.

Lukhaimane says that with the high staff turnover in the pri­vate se­cu­rity in­dus­try, this prac­tice is al­most al­ways to the prej­u­dice of the new mem­bers, be­cause their con­tri­bu­tions are be­ing al­lo­cated to older mem­bers, many of whom then leave the in­dus­try tak­ing with them the con­tri­bu­tions of newer mem­bers.

As hap­pened in this case, the newer mem­ber may not even be reg­is­tered by the ad­min­is­tra­tor of the fund, and when the mem­ber leaves no ben­e­fit is then payable.

Lukhaimane says: “This prac­tice flies in the face of the very idea of re­tire­ment fund­ing. It is a gross vi­o­la­tion of the Pen­sion Funds Act and the rules of the fund, and must be strongly dis­cour­aged.”

She told the PSSPF trus­tees that they were obliged in terms of the law to pre­vent what ap­pears to be a case of “ex­pe­di­ency trump­ing the law”.

She says: “The du­ties of a board shall be to take all rea­son­able steps to en­sure that con­tri­bu­tions are paid timeously to the fund in ac­cor­dance with this Act.”

Lukhaimane or­dered the fund to place Moloan­toa in the po­si­tion he would have been in had his em­ployer reg­u­larly paid all the con­tri­bu­tions due to the fund and the money been cred­ited to him.

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